Document ID: SEC-2006-1532-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2006-11-28T05:00Z

[Federal Register: November 28, 2006 (Volume 71, Number 228)]
[Notices]               
[Page 68871-68872]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no06-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54784; File No. SR-OCC-2006-17]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to the Definition 
of Fund Share and Options on Commodity Pool ETFs

 November 20, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 21, 2006, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by OCC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would permit OCC to issue, clear, and 
settle options on equity interests issued by exchange-traded funds 
(``ETFs'') that trade directly or indirectly in commodity futures 
products and are therefore subject to regulation by the Commodity 
Futures Trading Commission (``CFTC'') as commodity pools.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\2\
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    \2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The proposed rule change would amend the definition of ``fund 
share'' to include options on equity interests issued by ETFs that 
trade directly or indirectly in commodity futures products and are 
therefore subject to regulation by the CFTC as commodity pools. The 
Commission recently approved a proposed rule change filed by the 
American Stock Exchange to list and trade options on (1) interests 
(``Interests'') issued by the DB Commodity Index Tracking Fund (``DBC 
Fund''), whose value is intended to track the performance of the 
``Deutsche Bank Liquid Commodity IndexTM--Excess Return'' 
(``Index''),\3\ and (2) units (``Units'') issued by the United States 
Oil Fund, L.P. (``Oil Fund''), whose value is intended to track the 
spot price of West Texas Intermediate light, sweet crude oil delivered 
to Cushing, Oklahoma, less Oil Fund expenses (``Benchmark'').\4\
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    \3\ Securities Exchange Act Release No. 54450 (September 14, 
2006) 71 FR 55230 (September 21, 2006)[File No. SR-AMEX-2006-44].
    \4\ Securities Exchange Act Release No. 53582 (March 31, 2006) 
71 FR 17510 (April 6, 2006) [File No. SR-AMEX-2005-127].
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    The DBC Fund is a ``feeder fund'' that invests substantially all of 
its assets in the DB Commodity Index Tracking Master Fund (``Master 
Fund''), and the Master Fund in turn maintains a portfolio of exchange-
traded futures on aluminum, gold, corn, wheat, heating oil and light, 
sweet crude oil. The Index is derived from the prices of those futures 
contracts. The Master Fund's portfolio is managed on an ongoing basis 
by DB Commodity Services LLC, a registered commodity pool operator and 
commodity trading advisor so that the

[[Page 68872]]

value of the portfolio closely tracks the value of the Index over time.
    Unlike the DBC Fund, the Oil Fund does not invest through a master 
fund but rather trades directly in futures on crude and heating oil, 
natural gas, gasoline, and other petroleum-based fuels; in options on 
such futures contracts; in forward contracts for oil; and in other 
over-the-counter derivatives based on the price of oil, other 
petroleum-based fuels, the futures contracts described above, and 
indexes based on any of the foregoing. The Oil Fund's portfolio is 
managed by Victoria Bay Asset Management LLC with the aim of tracking 
the Benchmark.
    The Interests and the Units are freely transferable and may be 
bought and sold like any other ETF interest or other exchange-listed 
security. In addition to options on the Interests and the Units, there 
may be other similar options on ETFs regulated as commodity pools 
(``Pool ETFs'') that OCC may be asked to issue, clear, and settle in 
the future.
    The proposed rule change is needed to permit OCC to issue, clear, 
and settle options on Pool ETFs. The definition of ``fund share'' in 
Article I of OCC's By-Laws is currently limited to shares in entities 
``holding portfolios or baskets of securities.'' However, the Oil Fund 
invests directly in commodity futures contracts. Additionally, although 
as a technical matter the DBC Fund invests exclusively in securities 
(the units issued by the Master Fund), entities such as the DBC Fund 
that invest in the securities issued by a commodity pool are themselves 
deemed to be commodity pools because they represent an indirect 
investment in commodity futures contracts. OCC is therefore proposing 
to amend the definition of ``fund share'' in Article I of its By-Laws 
to specifically refer to interests in an entity that is a commodity 
pool. The definition would also be revised to make it clear that (i) it 
includes entities with actively managed portfolios, (ii) it includes 
feeder funds, and (iii) it applies only to entities principally engaged 
in holding portfolios or baskets of securities or currencies and not 
entities that do so as an incident to some other business.
    The proposed rule change will not be implemented until definitive 
copies of an appropriate supplement to the options disclosure document, 
Characteristics and Risks of Standardized Options, are available for 
distribution.
    OCC believes that the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Act, because it is 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions, to foster cooperation and coordination with 
persons engaged in the clearance and settlement of such transactions, 
to remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of such 
transactions, and, in general, to protect investors and the public 
interest. The proposed rule change is not inconsistent with the 
existing rules of OCC, including any other rules proposed to be 
amended.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
) or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-OCC-2006-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-OCC-2006-17. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of OCC and on OCC's 
Web site at http://www.optionsclearing.com.

    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-OCC-2006-17 
and should be submitted on or before December 19, 2006.
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    \5\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-20049 Filed 11-27-06; 8:45 am]

BILLING CODE 8011-01-P