Document ID: SEC-2008-1566-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Boston Stock Exchange, Inc.
Posted Date: 2008-11-20T05:00Z

[Federal Register: November 20, 2008 (Volume 73, Number 225)]
[Notices]               
[Page 70392-70394]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20no08-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58941; File No. SR-BSE-2008-50]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Enable the Listing and Trading of Options on Index-linked Securities

November 13, 2008.
    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 November 7, 2008, the Boston Stock Exchange, Inc. (``BSE'' 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 prepared by the Exchange. The Exchange 
filed the proposed rule change as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission. 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).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Boston Stock Exchange, Inc. (the ``Exchange'' or ``BSE'') 
proposes to amend Section 3 (Criteria for Underlying Securities) and 
Section 4 (Withdrawal of Approval of Underlying Securities) of Chapter 
IV of the Rules of the Boston Options Exchange Group, LLC (``BOX'') to 
enable the listing and trading on BOX of options on index-linked 
securities. The text of the proposed rule change is available from the 
principal office of the Exchange, at the Commission's Public Reference 
Room, and also on the Exchange's Internet Web site at http://
nasdaqtrader.com/Trader.aspx?id=Boston_Stock_Exchange.

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 self-regulatory organization 
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. BSE 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
    This proposed rule change is based on proposals by NYSE Arca, Inc. 
(``NYSE Arca'') and the Chicago Board Options Exchange, Incorporated 
(``CBOE'').\5\
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    \5\ See Exchange Act Release Nos. 58203 (July 22, 2008), 73 FR 
43812 (July 28, 2008) (SR-NYSEArca-2008-57) and 58204 (July 22, 
2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64).
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    The purpose of the proposed rule change is to revise Sections 3 and 
4 of Chapter IV of the BOX Rules to enable the listing and trading of 
options on: Equity index-linked securities (``Equity Index-Linked 
Securities''); commodity-linked securities (``Commodity-Linked 
Securities''); currency-linked securities (``Currency-Linked 
Securities''); fixed income index-linked securities (``Fixed Income 
Index-Linked Securities''); futures-linked securities (``Futures-Linked 
Securities''); and multifactor index-linked securities (``Multifactor 
Index-Linked Securities''); collectively known as ``Index-Linked 
Securities'' that are principally traded on a national securities 
exchange and are defined as an ``NMS stock'' (as defined in Rule 600 of 
Regulation NMS under the Securities Exchange Act of 1934 (the 
``Act'')).
    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or market indexes of the foregoing (``Underlying 
Index'' or ``Underlying Indexes''). Index-Linked Securities are the 
non-convertible debt of an issuer

[[Page 70393]]

that have a term of at least one (1) year but not greater than thirty 
(30) years. Despite the fact that Index-Linked Securities are linked to 
an underlying index, each trades as a single, exchange-listed security. 
Accordingly, rules pertaining to the listing and trading of standard 
equity options will apply to options on Index-Linked Securities. The 
Exchange does not propose any changes to rules pertaining to Index 
Options.

Listing Criteria

    The Exchange will consider listing and trading options on Index-
Linked Securities provided that the Index-Linked Securities meet the 
criteria for underlying securities set forth in Section 3 of Chapter IV 
of the BOX Rules.
    The Exchange proposes that Index-Linked Securities deemed 
appropriate for options trading represent ownership of a security that 
provides for the payment at maturity, as described below:
     Equity Index-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of an underlying index or indexes of equity securities (``Equity 
Reference Asset'');
     Commodity-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of one or more physical commodities or commodity futures, options or 
other commodity derivatives or Commodity-Based Trust Shares \6\ or a 
basket or index of any of the foregoing (``Commodity Reference 
Asset'');
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    \6\ The Exchange proposes to define the term ``Commodity-Based 
Trust Shares'' in Supplementary Material .01 to Section 3 of Chapter 
IV of the BOX Rules.
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     Currency-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more currencies, or options or currency futures or other 
currency derivatives or Currency Trust Shares \7\ or a basket or index 
of any of the foregoing (``Currency Reference Asset'');
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    \7\ See Section 3(i) of Chapter IV of the BOX Rules. The term 
``Currency Trust Shares'' is defined as securities that represent 
interests in a trust that holds a specified non-U.S. currency or 
currencies deposited with the trust or similar entity 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 deposited non-U.S. currency or currencies, if 
any, declared and paid by the trust.
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     Fixed Income Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more notes, bonds, debentures or evidence of 
indebtedness that include, but are not limited to, U.S. Department of 
Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof or a basket or index of any of the foregoing 
(``Fixed Income Reference Asset'');
     Futures-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of an 
index of (a) futures on Treasury Securities, GSE Securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof, or options or other derivatives on any of the foregoing; or 
(b) interest rate futures or options or derivatives on the foregoing in 
this subparagraph (b) (``Futures Reference Asset''); and
     Multifactor Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of any combination of two or more Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets or Futures Reference Assets (``Multifactor Reference 
Asset'').
    For the purposes of proposed Section 3(k) of Chapter IV of the BOX 
Rules, Equity Reference Assets, Commodity Reference Assets, Currency 
Reference Assets, Fixed Income Reference Assets, Futures Reference 
Assets and Multifactor Reference Assets, will be collectively referred 
to as ``Reference Assets.''
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in Section 3(b) of Chapter IV of the 
BOX Rules, or the Index-Linked Securities must be redeemable at the 
option of the holder at least on a weekly basis through the issuer at a 
price related to the applicable underlying Reference Asset. In 
addition, the issuing company is obligated to issue or repurchase the 
securities in aggregation units for cash or cash equivalents 
satisfactory to the issuer of Index-Linked Securities which underlie 
the option as described in the Index-Linked Securities prospectus.

Continued Listing Requirements

    Options on Index-Linked Securities will be subject to all Exchange 
rules governing the trading of equity options. The current continuing 
or maintenance listing standards for options traded on BOX will 
continue to apply.
    The Exchange proposes to establish Section 4(k) of Chapter IV of 
the BOX Rules which will include criteria related to the continued 
listing of options on Index-Linked Securities.
    Under the applicable continued listing criteria in proposed Section 
4(k) of Chapter IV of the BOX Rules, options on Index-Linked Securities 
initially approved for trading pursuant to proposed Section 3(k) of 
Chapter IV of the BOX Rules may be subject to the suspension of opening 
transactions as follows: (1) Non-compliance with the terms of Section 
3(k) of Chapter IV of the BOX Rules; (2) non-compliance with the terms 
of Section 4(b) of Chapter IV of the BOX Rules, except in the case of 
options covering Index-Linked Securities approved pursuant to Section 
3(k)(iii)(2) of Chapter IV of the BOX Rules that are redeemable at the 
option of the holder at least on a weekly basis, then option contracts 
of the class covering such securities may only continue to be open for 
trading as long as the securities are listed on a national securities 
exchange and are an ``NMS stock'' as defined in Rule 600 of Regulation 
NMS; (3) in the case of any Index-Linked Security trading pursuant to 
Section 3(k) of Chapter IV of the BOX Rules, the value of the Reference 
Asset is no longer calculated or available; or (4) such other event 
shall occur or condition exist that in the opinion of the Exchange 
makes further dealing in such options on BOX inadvisable.
    The Exchange represents that the listing and trading of options on 
Index-Linked Securities under Section 3(k) of Chapter IV of the BOX 
Rules will not have any effect on the rules pertaining to position and 
exercise limits \8\ or margin.\9\
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    \8\ See Section 7 of Chapter III of the BOX Rules.
    \9\ See Section 3 of Chapter XIII of the BOX Rules.
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    The Exchange will implement surveillance procedures for options on 
Index-Linked Securities, including adequate comprehensive surveillance 
sharing agreements with markets trading in non-U.S. components, as 
applicable. The Exchange represents that these procedures will be 
adequate to properly monitor Exchange trading of options on these 
securities and to deter and detect violations of Exchange rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and

[[Page 70394]]

coordination with persons engaged in facilitating transactions in 
securities, 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. The Exchange believes that 
the proposed rules applicable to trading pursuant to generic listing 
and trading criteria together with the Exchange's surveillance 
procedures applicable to trading in the securities covered by the 
proposed rules, serve to foster investor protection.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days after the date of filing (or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest), the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). The Exchange has satisfied the 
five-day pre-filing requirement of Rule 19b-4(f)(6)(iii).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change as operative 
upon filing. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The proposed rule change is substantially similar to those of 
other options exchanges that have been previously approved by the 
Commission \14\ and does not appear to present any novel regulatory 
issues. Therefore, the Commission designates the proposal operative 
upon filing to enable the Exchange to list and trade options on index-
linked securities without delay.\15\
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    \14\ See Exchange Act Release Nos. 58203 (July 22, 2008), 73 FR 
43812 (July 28, 2008) (SR-NYSEArca-2008-57) and 58204 (July 22, 
2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64) (approving the 
listing and trading of options based on index-linked securities on 
NYSE Arca and CBOE).
    \15\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in the furtherance of the purposes of the Act.

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-BSE-2008-50 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BSE-2008-50. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. 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-BSE-2008-50 and should be 
submitted on or before December 11, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27599 Filed 11-19-08; 8:45 am]

BILLING CODE 8010-01-P