Document ID: SEC-2010-0652-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-05-03T04:00Z

[Federal Register: May 3, 2010 (Volume 75, Number 84)]
[Notices]               
[Page 23314-23316]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03my10-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61983; File No. SR-ISE-2010-19]

 
 Self-Regulatory Organizations; International Securities 
Exchange, LLC; Order Granting Approval of Proposed Rule Change To List 
and Trade Options on the ETFS Palladium Trust and the ETFS Platinum 
Trust

April 26, 2010.
    On March 5, 2010, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade options on the 
ETFS Palladium Trust and the ETFS Platinum Trust (collectively ``ETFS 
Options''). The proposed rule change was published in the Federal 
Register on March 26, 2010.\3\ The Commission received no comments on 
the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61742 (March 19, 
2010), 75 FR 14646 (``Notice'').
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I. Description of Proposal

    Recently, the Commission authorized ISE to list and trade options 
on the SPDR Gold Trust,\4\ the iShares COMEX Gold Trust and the iShares 
Silver Trust,\5\ the ETFS Gold Trust and the ETFS Silver Trust.\6\ Now, 
the Exchange proposes to list and trade options on the ETFS Palladium 
Trust and the ETFS Platinum Trust.
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    \4\ See Securities Exchange Act Release No. 57894 (May 30, 
2008), 73 FR 32061 (June 5, 2008) (SR-ISE-2008-12).
    \5\ See Securities Exchange Act Release No. 59055 (December 4, 
2008), 73 FR 75148 (December 10, 2008) (SR-ISE-2008-58).
    \6\ See Securities Exchange Act Release No. 61483 (February 3, 
2010), 75 FR 6753 (February 10, 2010) (SR-ISE-2009-106).
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    Under current ISE Rule 502(h), only Exchange-Traded Fund Shares, or 
ETFs, that are traded on a national securities exchange and are defined 
as an ``NMS'' stock under Rule 600 of Regulation NMS, and that: (i) 
Represent interests in registered investment companies (or series 
thereof) organized as open-end management investment companies, unit 
investment trusts or similar entities that hold portfolios of 
securities and/or financial instruments, including, but not limited to, 
stock index futures contracts, options on futures, options on 
securities and indices, equity caps, collars and floors, swap 
agreements, forward contracts, repurchase agreements and reverse 
repurchase agreements (the ``Financial Instruments''), and money market 
instruments, including, but not limited to, U.S. government securities 
and repurchase agreements (the ``Money Market Instruments'') comprising 
or otherwise based on or representing investments in broad-based 
indexes or portfolios of securities and/or Financial Instruments and 
Money Market Instruments (or that hold securities in one or more other 
registered investment companies that themselves hold such portfolios of 
securities and/or Financial Instruments and Money Market Instruments); 
or (ii) represent interests in a trust that holds a specified non-U.S. 
currency or currencies deposited with the trust when aggregated in some 
specified minimum number may be surrendered to the trust by the 
beneficial owner to receive the specified non-U.S. currency or 
currencies and pays the beneficial owner interest and other 
distributions on the deposited non-U.S. currency or currencies, if any, 
declared and paid by the trust (``Funds''); or (iii) represent 
commodity pool interests principally engaged, directly or indirectly, 
in holding and/or managing

[[Page 23315]]

portfolios or baskets of securities, commodity futures contracts, 
options on commodity futures contracts, swaps, forward contracts and/or 
options on physical commodities and/or non-U.S. currency (``Commodity 
Pool ETFs''); or (iv) represent interests in the SPDR[reg] Gold Trust, 
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS Gold 
Trust or the ETFS Silver Trust; or (v) represents an interest in a 
registered investment company (``Investment Company'') organized as an 
open-end management company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's investment 
adviser consistent with the Investment Company's investment objectives 
and policies, which is issued in a specified aggregate minimum number 
in return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset value 
(``NAV''), and when aggregated in the same specified minimum number, 
may be redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to the 
next determined NAV (``Managed Fund Share'') are eligible as underlying 
securities for options traded on the Exchange.\7\ This rule change 
proposes to expand the types of ETFs that may be approved for options 
trading on the Exchange to include the ETFS Palladium Trust and the 
ETFS Platinum Trust.
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    \7\ See ISE Rule 502(h).
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    Apart from allowing the ETFS Palladium Trust and the ETFS Platinum 
Trust to be an underlying for options traded on the Exchange as 
described above, the listing standards for ETFs will remain unchanged 
from those that apply under current Exchange rules. ETFs on which 
options may be listed and traded must still be listed and traded on a 
national securities exchange and must satisfy the other listing 
standards set forth in ISE Rule 502(h).
    Specifically, in addition to satisfying the aforementioned listing 
requirements, ETFs must meet either: (1) The criteria and guidelines 
under ISE Rules 502(a) and (b); or (2) they must be available for 
creation or redemption each business day from or through the issuing 
trust, investment company, commodity pool or other entity in cash or in 
kind at a price related to net asset value, and the issuer must be 
obligated to issue Exchange-Traded Fund Shares in a specified aggregate 
number even if some or all of the investment assets and/or cash 
required to be deposited have not been received by the issuer, subject 
to the condition that the person obligated to deposit the investment 
assets has undertaken to deliver them as soon as possible and such 
undertaking is secured by the delivery and maintenance of collateral 
consisting of cash or cash equivalents satisfactory to the issuer, as 
provided in the respective prospectus.
    The Exchange states that the current continued listing standards 
for options on ETFs will apply to options on the ETFS Palladium Trust 
and the ETFS Platinum Trust. Specifically, under ISE Rule 503(h), 
options on Exchange-Traded Fund Shares may be subject to the suspension 
of opening transactions as follows: (1) Following the initial twelve-
month period beginning upon the commencement of trading of the 
Exchange-Traded Fund Shares, there are fewer than 50 record and/or 
beneficial holders of the Exchange-Traded Fund Shares for 30 or more 
consecutive trading days; (2) the value of the underlying palladium or 
underlying platinum 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 ETFS Palladium Trust and the ETFS Platinum Trust 
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 the ETFS Palladium Trust and the 
ETFS Platinum Trust, respectively, if the ETFS Palladium Trust and the 
ETFS Platinum Trust ceases to be an ``NMS stock'' as provided for in 
ISE Rule 503(b)(5) or the ETFS Palladium Trust and the ETFS Platinum 
Trust is halted from trading on its primary market.
    The addition of the ETFS Palladium Trust and the ETFS Platinum 
Trust to ISE Rule 502(h) will not have any effect on the rules 
pertaining to position and exercise limits \8\ or margin.\9\
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    \8\ See ISE Rules 412 and 414.
    \9\ See ISE Rule 1202.
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    The Exchange represents that its surveillance procedures applicable 
to trading in options on the ETFS Palladium Trust and the ETFS Platinum 
Trust will be similar to those applicable to all other options on other 
ETFs currently traded on the Exchange. Also, the Exchange may obtain 
information from the New York Mercantile Exchange, Inc. (``NYMEX'') (a 
member of the Intermarket Surveillance Group) related to any financial 
instrument that is based, in whole or in part, upon an interest in or 
performance of palladium or platinum.

II. Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change submitted by ISE is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange \10\ and, in particular, the requirements of 
Section 6 of the Act.\11\ Specifically, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\12\ 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. In accordance with the 
Memorandum of Understanding entered into between the Commodity Futures 
Trading Commission (``CFTC'') and the Commission on March 11, 2008, and 
in particular the addendum thereto concerning Principles Governing the 
Review of Novel Derivative Products, the Commission believes that novel 
derivative products that implicate areas of overlapping regulatory 
concern should be permitted to trade in either or both a CFTC- or 
Commission-regulated environment, in a manner consistent with laws and 
regulations (including the appropriate use of all available exemptive 
and interpretive authority).
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    As a national securities exchange, the ISE is required under 
Section 6(b)(1) of the Act \13\ to enforce compliance by its members, 
and persons associated with its members, with the provisions of the 
Act, Commission rules and regulations thereunder, and its own rules. In 
addition, brokers that trade ETFS Options will also be subject to best 
execution obligations and FINRA rules.\14\ Applicable exchange rules 
also require that customers receive appropriate disclosure before 
trading ETFS Options.\15\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\16\
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    \13\ 15 U.S.C. 78f(b)(1).
    \14\ See NASD Rule 2320.
    \15\ See ISE Rule 616.
    \16\ See FINRA Rule 2360(b) and ISE Rules 608 and 610.
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    ETFS Options will trade as options under the trading rules of the 
ISE. These rules, among other things, are designed to avoid trading 
through better

[[Page 23316]]

displayed prices for ETFS Options available on other exchanges and, 
thereby, satisfy ISE's obligation under the Options Order Protection 
and Locked/Crossed Market Plan.\17\ Series of the ETFS Options will be 
subject to exchange rules regarding continued listing requirements, 
including standards applicable to the underlying ETFS Silver and ETF 
Gold Trusts. Shares of the ETFS Silver and ETFS Gold Trusts must 
continue to be traded through a national securities exchange or through 
the facilities of a national securities association, and must be ``NMS 
stock'' as defined under Rule 600 of Regulation NMS.\18\ In addition, 
the underlying shares must continue to be available for creation or 
redemption each business day from or through the issuer in cash or in 
kind at a price related to net asset value.\19\ If the ETFS Silver or 
ETFS Gold Trust shares fail to meet these requirements, the exchanges 
will not open for trading any new series of the respective ETFS 
Options.
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    \17\ See ISE Rule 1902. Specifically, ISE is a participant in 
the Options Order Protection and Locked/Crossed Market Plan.
    \18\ 17 CFR 242.600.
    \19\ See ISE Rule 502(a)-(b).
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    ISE has represented that it has surveillance programs in place for 
the listing and trading of ETFS Options. For example, ISE may obtain 
trading information via the ISG from the NYMEX related to any financial 
instrument traded there that is based, in whole or in part, upon an 
interest in, or performance of, palladium or platinum. Additionally, 
the listing and trading of ETFS Options will be subject to the 
exchange's rules pertaining to position and exercise limits \20\ and 
margin.\21\
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    \20\ See ISE Rules 412 and 414.
    \21\ See ISE Rule 1202. See also FINRA Rule 2360(b) and 
Commentary .01 to FINRA Rule 2360.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-ISE-2010-19) be, and is 
hereby, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10212 Filed 4-30-10; 8:45 am]
BILLING CODE 8010-01-P