Document ID: SEC-2007-0928-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc
Posted Date: 2007-07-09T04:00Z

[Federal Register: July 9, 2007 (Volume 72, Number 130)]
[Notices]               
[Page 37298-37301]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy07-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55951; File No. SR-Phlx-2007-35]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change and Amendment No. 1 Thereto Relating to Options on 
Commodity Pool ETFs

June 25, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 18, 2007, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
On May 23, 2007, Phlx filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice and order to 
solicit comments on the proposed rule change, as amended, from 
interested persons and to approve the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3 \ Amendment No. 1 is incorporated in this notice.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend certain rules to permit the listing and 
trading of options on equity interests issued by trust issued receipts 
(``Commodity TIRs''), partnership units, and other entities (referred 
herein to as ``Commodity Pool ETFs'') that hold or

[[Page 37299]]

invest in commodity futures products. The text of the proposed rule 
change is available on Phlx's Web site at http://www.phlx.com, at 

Phlx's principal office, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Phlx 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 III below. The Phlx has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to enable the listing 
and trading on the Exchange of options on interests in Commodity Pool 
ETFs that trade directly or indirectly commodity futures products. As a 
result, Commodity Pool ETFs are subject to the Commodity Exchange Act 
due to their status as a commodity pool,\4\ and therefore, are 
regulated by the Commodity Futures Trading Commission (``CFTC'').\5\ 
Commodity Pool ETFs may hold or trade in one or more types of 
investments that may include any combination of securities, commodity 
futures contracts, options on commodity futures contracts, swaps, and 
forward contracts.
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    \4\ A ``commodity pool'' is defined in CFTC Regulation 
4.10(d)(1) as any investment trust, syndicate, or similar form of 
enterprise operated for the purpose of trading commodity interests. 
CFTC regulations further provide that a ``commodity interest'' means 
a commodity futures contract and any contract, agreement or 
transaction subject to Commission regulation under section 4c or 19 
of the Act. See CFTC Regulation 4.10(a).
    \5\ The manager or operator of a ``commodity pool'' is required 
to register, unless applicable exclusions apply, as a commodity pool 
operator (``CPO'') and commodity trading advisor (``CTA'') with the 
CFTC and become a member of the National Futures Association.
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    Currently, Commentary .06 to Phlx Rule 1009 provides that 
securities deemed appropriate for options trading shall include shares 
or other securities (``Exchange-Traded Fund Shares'') that are 
principally traded on a national securities exchange or through the 
facilities of a national securities association and reported as a 
national market system security, and that represent an interest in a 
registered investment company organized as an open-end management 
investment company, a unit investment trust or a similar entity which 
holds securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities.
    The Exchange proposes to amend Commentary .06 to Rule 1009 to 
expand the type of options to include the listing and trading of 
options based on shares of Commodity Pool ETFs (the ``Shares'') that 
may hold or invest directly or indirectly in commodity futures 
products, including but not limited to, commodity futures contracts, 
options on commodity futures contracts, swaps, and forward contracts. 
As part of this revision to Commentary .06 to Rule 1009, the Exchange 
proposes to add subsection (b)(iv) requiring for Commodity Pool ETFs 
that a comprehensive surveillance sharing agreement be in place with 
the marketplace or marketplaces with last sale reporting that 
represent(s) the highest volume in such commodity futures contracts 
and/or options on commodity futures contracts on the specified 
commodities or non-U.S. currency, which are utilized by the national 
securities exchange where the underlying Commodity Pool ETFs are listed 
and traded.
    As set forth in proposed amended Commentary .06 to Rule 1009, 
Commodity Pool ETFs must be traded on a national securities exchange or 
through the facilities of a national securities association and must be 
reported as a national market security. In addition, shares of 
Commodity Pool ETFs must meet either: (i) The criteria and guidelines 
under Commentary .01 to Rule 1009; or (ii) be available for creation or 
redemption each business day in cash or in kind from the commodity 
pool, trust, or similar entity at a price related to net asset value. 
In addition, the commodity pool, trust or other similar entity shall 
provide that shares may be created even though some or all of the 
securities needed to be deposited have not been received by the 
commodity pool, trust or other similar entity, provided the authorized 
creation participant has undertaken to deliver the shares as soon as 
possible and such undertaking has been secured by the delivery and 
maintenance of collateral consisting of cash or cash equivalents 
satisfactory to the commodity pool, trust, or other similar entity 
which underlies the option as described in the prospectus.
    New Commentary .08 to Rule 1010 defines ``Partnership Units.'' The 
definition tracks the definition that recently has been proposed by the 
Chicago Board Options Exchange (``CBOE'') in its proposal to list and 
trade Commodity Pool ETFs, and approved by the Commission.\6\ The 
proposed definition of ``Partnership Units'' includes a broad universe 
of securities, including those of entities that invest in physical 
commodities. However, the current filing proposes to list and trade 
options only on Commodity Pool ETFs that invest in a combination of 
commodity derivative products, and not in physical commodities.
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    \6\ See SR-CBOE-2007-21, Amendment No. 1. CBOE explained in its 
proposed rule change that the American Stock Exchange (``Amex'') had 
filed a proposed rule change seeking to add ``Commodity Pool ETFs'' 
to the types of securities on which it lists equity options, and 
that in Section 1(a) of Amex's filing, the term ``Commodity Pool 
ETFs'' is defined to include, but is not limited to, Trust Issued 
Receipts, Partnership Units and other entities. See Securities 
Exchange Act Release No. 55187 (January 29, 2007), 72 FR 5467 
(February 6, 2007) (Notice of Filing of Proposed Rule Change 
Relating to Options Based on Commodity Pool ETFs). CBOE noted that 
it did not have a definition of Partnership Units and was proposing 
to add one, as Phlx is doing now. The definition Phlx is proposing 
to add is the same as that proposed by CBOE. CBOE's proposal was 
approved in Securities Exchange Act Release No. 55630 (April 16, 
2007), 72 FR 19993 (April 20, 2007).
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    Under the applicable continued listing criteria in Commentary .08 
to Phlx Rule 1010, the Shares may be subject to delisting as follows: 
(1) Following the initial twelve-month period beginning upon the 
commencement of trading of the Shares, there are fewer than 50 record 
and/or beneficial holders of the Shares for 30 or more consecutive 
trading days; (2) the value of the index or, pursuant to new language 
being added to the Commentary by this proposed rule change, the value 
of the non-U.S. currency, portfolio of commodities including commodity 
futures contracts, options on commodity futures contracts, swaps, 
forward contracts and/or options on physical commodities, or portfolio 
of securities on which the Shares are based is no longer calculated or 
available; or (3) such other event occurs or condition exists that in 
the opinion of the Exchange makes further dealing on the Exchange 
inadvisable. Additionally, the Shares shall not be deemed to meet the 
requirements for continued approval, and the Exchange shall not open 
for trading any additional series of option contracts of the class 
covering such Shares, if the Shares are halted from trading on their 
primary market, or if the Shares are delisted in accordance with the 
terms of Phlx Rule 1010, or the value of the index or portfolio on 
which

[[Page 37300]]

the Shares are based is no longer calculated or available.
    The Exchange further proposes to amend Phlx Rule 1022 to ensure 
that the specialist and Registered Options Traders handling the Shares 
provide the Exchange with all necessary information relating to their 
trading in the applicable physical commodities, physical commodity 
options, commodity futures contracts, options on commodity futures 
contracts, any other derivatives based on such commodity. In addition, 
the revision to Phlx Rule 1022 will prohibit a specialist or Registered 
Options Trader from engaging in trading activities in physical 
commodities, physical commodity options, commodity futures contracts, 
options on commodity futures contracts, any other derivatives based on 
such commodity from trading in an account which has not been reported 
to the Exchange.
    The Exchange also proposes to amend Commentary .02 to Rule 1022 to 
require Specialists and Registered Options Traders in commodity futures 
contracts, options on commodity futures contracts or any other 
derivatives based on such commodity, to make available to the Exchange 
such books, records or other information pertaining to transactions in 
the applicable physical commodity, physical commodity options, 
commodity futures contracts, options on commodity futures contracts, or 
any other derivatives on such commodity, as may be requested by the 
Exchange.
    This proposal is necessary to enable the Exchange to list and trade 
options on an expanding range of Commodity Pool ETFs currently approved 
for trading. The Exchange notes that The DB Commodity Index Tracking 
Fund (the ``DBC Fund''), the United States Oil Fund, L.P. (the ``Oil 
Fund''), and the PowerShares DB G10 Currency Harvest Fund (the ``DBV 
Fund'') are listed and traded on the American Stock Exchange. The DBC 
Fund is a Commodity TIR and tracks the performance of the Deutsche Bank 
Liquid Commodity Index TM--Excess Return, while the Oil Fund is a 
Partnership Unit and tracks the spot price of West Texas Intermediate 
light, sweet crude oil delivered to Cushing, Oklahoma.
    The DBC Fund is a ``feeder fund'' that invests substantially all of 
its assets in the DB Commodity Index Tracking 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 CPO and CTA, so that the value of the 
portfolio closely tracks the value of the Index over time.
    The DBV Fund is a ``feeder fund'' that invests substantially all of 
its assets in the PowerShares DB G10 Currency Harvest Master Fund, and 
the Master Fund in turn maintains a portfolio of exchange-traded 
futures on foreign currencies that comprise the G-10 countries. 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 CPO and CTA, so that the value of the 
portfolio closely tracks the value of the Index over time.
    Unlike the DBC and DBV Funds, the Oil Fund does not invest through 
a master-feeder structure but rather trades directly in futures on 
crude and heating oil, natural gas, gasoline and other petroleum-based 
fuels, options on such futures contracts, forward contracts on oil and 
other over-the-counter derivatives based on the price of oil, other 
petroleum-based fuels, the futures contracts described above, and the 
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 West Texas Intermediate light, sweet crude oil futures contract 
listed and traded on the New York Mercantile Exchange.
    The Exchange believes that it is reasonable to expect other types 
of Commodity Pool ETFs to be introduced for trading in the near future 
and also believes that the proposed amendment to the Exchange's listing 
criteria for options on Commodity TIRs and Partnership Units is 
necessary to ensure that the Exchange will be able to list options on 
Commodity Pool ETFs that have been recently launched as well as any 
other similar Commodity Pool ETFs that may be listed and traded in the 
future.
    The Exchange represents that it has an adequate surveillance 
program in place for options based on Commodity Pool ETFs. The Exchange 
may obtain trading information via the Intermarket Surveillance Group 
(``ISG'') from other exchanges who are members or affiliates of the ISG 
and expects that it will enter into numerous comprehensive surveillance 
sharing agreements with various commodity futures exchanges worldwide. 
Prior to listing and trading options on Commodity Pool ETFs, the 
Exchange represents that it will either have the ability to obtain 
specific trading information via ISG or through a comprehensive 
surveillance sharing agreement with the primary exchange or exchanges 
where the particular commodity futures and/or options on commodity 
futures are traded.
    The Exchange also added rule text relating to the prevention of 
misuse of material nonpublic information. Under the proposed rules, 
members and member organizations must establish, maintain and enforce 
written policies and procedures reasonably designed, taking into 
consideration the nature of the member's business, to prevent the 
misuse of material nonpublic information relating to, among other 
things, options on Commodity Pool ETFs.
    The addition of Commodity Pool ETF options will not have any effect 
on the rules pertaining to position and exercise limits \7\ or 
margin.\8\
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    \7\ See Phlx Rules 1001 and 1002.
    \8\ See Phlx Rule 722.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    No written comments were either solicited or received.

III. 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 No. SR-Phlx-2007-35 on the subject line.

[[Page 37301]]

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Phlx-2007-35. 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 Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Phlx. 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-Phlx-2007-07 and should be submitted on or before July 
30, 2007.

IV. Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and rules 
and regulations thereunder applicable to a national securities exchange 
\11\ and, in particular, the requirements of Section 6 of the Act.\12\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\13\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to remove impediments to and perfect the mechanism of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \11\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
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Surveillance

    The Commission notes that the Exchange has represented that it has 
an adequate surveillance program in place for options based on 
Commodity Pool ETFs. The Exchange may obtain trading information via 
the ISG from other exchanges who are members or affiliates of the ISG 
and expects that it will enter into numerous comprehensive surveillance 
sharing agreements with various commodity futures exchanges worldwide. 
Prior to listing and trading options on Commodity Pool ETFs, the 
Exchange represented that it will either have the ability to obtain 
specific trading information via ISG or through a comprehensive 
surveillance sharing agreement with the primary exchange or exchanges 
where the particular commodity futures and/or options on commodity 
futures are traded. In addition, the Exchange represented that the 
addition of Commodity Pool ETF options will not have any effect on the 
rules pertaining to position and exercise limits \14\ or margin.\15\
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    \14\ See Phlx Rules 1001 and 1002.
    \15\ See Phlx Rule 722.
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Listing and Trading of Options on Commodity Pool ETFs

    The Commission notes that, pursuant to the proposed rule change, a 
Commodity Pool ETF will be subject to the provisions of Exchange Rules 
1009 and 1010. These provisions include requirements regarding initial 
and continued listing standards, as well as the creation/redemption 
process for Commodity Pool ETFs. All Commodity Pool ETFs must be traded 
through a national securities exchange or through the facilities of a 
national securities association and reported as a national market 
system security.
    The Commission believes that this proposal is necessary to enable 
the Exchange to list and trade options on an expanding range of 
Commodity Pool ETFs currently approved for trading and that it is 
reasonable to expect other types of Commodity Pool ETFs to be 
introduced for trading in the future. This proposal would help ensure 
that the Exchange will be able to list options on Commodity Pool ETFs 
that have been recently launched, as well as any other similar 
Commodity Pool ETFs that may be listed and traded in the future thereby 
offering investors greater option choices.

Acceleration

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\16\ for approving the proposed rule change, as modified by 
Amendment No. 1, prior to the thirtieth day after the date of 
publication of notice in the Federal Register. The Commission notes 
that the proposal is consistent with previously approved proposals to 
enable the listing and trading of options on interests in Commodity 
Pool ETFs that trade directly or indirectly commodity futures 
products.\17\ Therefore, the Commission does not believe that the 
proposed rule change, as amended, raises novel regulatory issues. 
Consequently, the Commission believes that it is appropriate to permit 
investors to benefit from the flexibility afforded by trading these 
products without delay.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ See Securities Exchange Act Release Nos. 55547 (March 28, 
2007), 72 FR 16388 (April 4, 2007) (SR-Amex-2006-110); 55630 (April 
13, 2007), 72 FR 19993 (April 20, 2007) (SR-CBOE-2007-21); and 55635 
(April 16, 2007), 72 FR 19999 (April 20, 2007) (SR-ISE-2007-16).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Phlx-2007-35), as amended, is hereby 
approved on an accelerated basis.\18\
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
Florence E. Harmon,
Deputy Secretary.
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    \19\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E7-13155 Filed 7-6-07; 8:45 am]

BILLING CODE 8010-01-P