Document ID: SEC-2010-0237-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc., International Securities Exchange, LLC, NYSE Amex LLC, and NYSE Arca, Inc.
Posted Date: 2010-02-10T05:00Z

[Federal Register: February 10, 2010 (Volume 75, Number 27)]
[Notices]               
[Page 6773-6776]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe10-149]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61483; File Nos. SR-CBOE-2010-007; SR-ISE-2009-106; SR-
NYSEAmex-2009-86; and SR-NYSEArca-2009-110]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated, International Securities Exchange, LLC, NYSE Amex LLC, 
and NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Changes 
and Notice of Filing and Order Granting Accelerated Approval of a 
Proposed Rule Change Relating to Listing and Trading Options on the 
ETFS Gold Trust and the ETFS Silver Trust

February 3, 2010.

    Three options exchanges filed with the Securities and Exchange 
Commission (``Commission'') proposed rule changes pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 \2\ thereunder to list and trade options on shares of the ETFS 
Gold Trust and the ETFS Silver Trust (collectively ``ETFS Options''). 
Specifically, NYSE Amex LLC (``NYSE Amex'') and NYSE Arca, Inc. (``NYSE 
Arca'') both submitted their proposals on December 4, 2009 and the 
International Securities Exchange, LLC (``ISE'') submitted its proposal 
on December 10, 2009. Each proposed rule change was published for 
comment in the Federal Register on December 30, 2009 for a 21-day 
comment period.\3\ No comments were received on the proposed rule 
changes. This order approves the proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 61223 (December 22, 
2009), 74 FR 69161; 61222 (December 22, 2009), 74 FR 69182; and 
61228 (December 22, 2009), 74 FR 69180.
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    In addition, on January 27, 2010, the Chicago Board Options 
Exchange, Incorporated (``CBOE'' or the ``Exchange'') filed with the 
Commission the proposed rule change as described in Items I and II 
below, which items have been prepared by the CBOE. The proposal 
submitted by the CBOE is substantively identical to the proposals of 
NYSE Amex, NYSE Arca, and ISE. Pursuant to Section 19(b)(1) of the Act 
\4\ and Rule 19b-4 \5\ thereunder, the Commission is publishing this 
notice to solicit comments on the CBOE proposed rule change from 
interested persons and

[[Page 6774]]

is approving the proposal on an accelerated basis.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain rules to enable the listing 
and trading on the Exchange of options on the ETFS Silver Trust and the 
ETFS Gold Trust. The text of the rule proposal is available on the 
Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 
Office of the Secretary and at the Commission.

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 those statements may be examined at 
the places specified in Item III below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    Recently, the Commission authorized CBOE to list and trade options 
on the SPDR Gold Trust,\6\ the iShares COMEX Gold Trust and the iShares 
Silver Trust.\7\ Now, the Exchange proposes to list and trade options 
on the ETFS Silver Trust (``SIVR'') and the ETFS Gold Trust (``SGOL'').
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    \6\ See Securities Exchange Act Release No. 57897 (May 30, 
2008), 73 FR 32061 (June 5, 2008) (order approving SR-CBOE-2005-11).
    \7\ See Securities Exchange Act Release No. 59055 (December 4, 
2008), 73 FR 75148 (December 10, 2008) (order approving SR-CBOE-
2008-72).
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    Under current Rule 5.3, only Units (also referred to herein as 
exchange traded fund (``ETFs'')) representing (i) 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 indexes, 
equity caps, collars and floors, swap agreements, forward contracts, 
repurchase agreements and reverse purchase 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 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) interests in a trust 
or similar entity that holds a specified non-U.S. currency 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 and pays the beneficial 
owner interest and other distributions on deposited non-U.S. currency, 
if any, declared and paid by the trust, or (iii) commodity pool 
interests principally engaged, directly or indirectly, in holding and/
or managing 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, or (iv) represent interests in the streetTRACKS Gold Trust or 
the iShares COMEX Gold Trust or the iShares Silver Trust, or (v) 
represents an interest in a registered investment company (``Investment 
Company'') organized as an open-end management investment 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 
are eligible as underlying securities for options traded on the 
Exchange.\8\ This rule change proposes to expand the types of ETFs that 
may be approved for options trading on the Exchange to include SIVR and 
SGOL.
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    \8\ See Interpretation and Policy .06 to Rule 5.3.
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    Apart from allowing SIVR and SGOL 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 Interpretation and Policy .06 
to Rule 5.3.
    Specifically, in addition to satisfying the aforementioned listing 
requirements, Units must meet either (1) the criteria and guidelines 
under Rule 5.3 and Interpretation and Policy .01 to Rule 5.3, Criteria 
for Underlying Securities; or (2) they must 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, and the issuer must be 
obligated to issue Units in a specified aggregate number even if some 
or all of the investment assets required to be deposited have not been 
received by the issuer, subject to the condition that the person 
obligated to deposit the investments has undertaken to deliver the 
investment assets 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 SIVR and SGOL. 
Specifically, under Interpretation and Policy .08 to Rule 5.4, options 
on Units 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 Units, there are fewer than 50 
record and/or beneficial holders of the Units for 30 or more 
consecutive trading days; (2) the value of the index or portfolio of 
securities, non-U.S. currency, or portfolio of commodities including 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/or 
Financial Instruments and Money Market Instruments on which Units 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, SIVR and SGOL 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 SIVR and SGOL, if SIVR and SGOL ceases to be an ``NMS stock'' 
as provided for in paragraph (f) of Interpretation and Policy .01 of 
Rule 5.4 or SIVR and SGOL is halted from trading on its primary market.

[[Page 6775]]

    The addition of SIVR and SGOL to Interpretation and Policy .06 to 
Rule 5.3 will not have any effect on the rules pertaining to position 
and exercise limits \9\ or margin.\10\
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    \9\ See Rules 4.11, Position Limits, and 4.12, Exercise Limits.
    \10\ See Rule 12.3, Margin Requirements.
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    The Exchange represents that its surveillance procedures applicable 
to trading in options on SIVR and SGOL will be similar to those 
applicable to all other options on other Units currently traded on the 
Exchange. The Exchange represents that its surveillance procedures 
applicable to trading in options on SIVR and SGOL 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 gold or 
silver.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \11\ of the Act, in general, and furthers the objectives 
of Section 6(b)(5) \12\ 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 coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market in a manner consistent with the protection of investors and the 
public interest. In particular, the Exchange believes that amending its 
rules to accommodate the listing and trading of options on the ETFS 
Gold Trust and the ETFS Silver Trust will benefit investors by 
providing them with valuable risk management tools.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition 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 neither solicited nor received comments on the 
proposal.

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 Number SR-CBOE-2010-007 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2010-007. 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 Web site viewing and 
printing 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 the 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-CBOE-2010-007 and should be 
submitted on or before March 3, 2010.

IV. Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule changes submitted by CBOE, ISE, NYSE Amex, and NYSE Arca 
(collectively, the ``Proposals'') are consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange \13\ and, in particular, the requirements 
of Section 6 of the Act.\14\ Specifically, the Commission finds that 
the Proposals are consistent with Section 6(b)(5) of the Act,\15\ 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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    \13\ 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).
    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5).
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    As national securities exchanges, each of the CBOE, ISE, NYSE Amex, 
and NYSE Arca is required under Section 6(b)(1) of the Act \16\ 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.\17\ Applicable exchange rules also require that 
customers receive appropriate disclosure before trading ETFS 
Options.\18\ Further, brokers opening accounts and recommending options 
transactions must comply with relevant customer suitability 
standards.\19\
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    \16\ 15 U.S.C. 78f(b)(1).
    \17\ See NASD Rule 2320.
    \18\ See CBOE Rule 9.15; ISE Rule 616; NYSE Amex Rule 926; and 
NYSE Arca Rule 9.18(g).
    \19\ See FINRA Rule 2360(b); CBOE Rules 9.7 and 9.9; ISE Rules 
608 and 610; NYSE Amex Rule 923; and NYSE Arca Rule 918(b)-(c).
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    ETFS Options will trade as options under the trading rules of each 
of the exchanges. These rules, among other things, are designed to 
avoid trading

[[Page 6776]]

through better displayed prices for ETFS Options available on other 
exchanges and, thereby, satisfy each exchange's obligation under the 
Options Order Protection and Locked/Crossed Market Plan.\20\ 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.\21\ 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.\22\ 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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    \20\ See CBOE Rule 6.81; ISE Rule 1902; NYSE Amex Rule 991NY; 
and NYSE Arca Rule 6.94. Specifically, each of the exchanges is a 
participant in the Options Order Protection and Locked/Crossed 
Market Plan.
    \21\ 17 CFR 242.600.
    \22\ See Interpretation and Policy .06 to CBOE Rule 5.3; ISE 
Rule 502(a)-(b); NYSE Amex Rule 915 Commentary .06; and NYSE Arca 
Rule 5.3(a)-(b).
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    CBOE, ISE, NYSE Amex, and NYSE Arca have all represented that they 
have surveillance programs in place for the listing and trading of ETFS 
Options. For example, these exchanges 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, silver or gold. Additionally, the listing and trading 
of ETFS Options will be subject to the exchanges' rules pertaining to 
position and exercise limits \23\ and margin.\24\
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    \23\ See CBOE Rules 4.11 and 4.12; ISE Rules 412 and 414; NYSE 
Amex Rules 904 and 905; and NYSE Arca Rules 6.8 and 6.9.
    \24\ See CBOE Rule 12.3; ISE Rule 1202; NYSE Amex Rule 462; and 
NYSE Arca Rules 4.15 and 4.16. See also FINRA Rule 2360(b) and 
Commentary .01 to FINRA Rule 2360.
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    In addition, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\25\ for approving the proposed rule change of CBOE 
prior to the thirtieth day after the date of publication of notice in 
the Federal Register. The Commission notes that CBOE's proposal is 
substantively identical to the proposals of ISE, NYSE Amex, and NYSE 
Arca, which were published for a 21-day comment period and generated no 
comments. Therefore, the Commission does not believe that the CBOE 
proposal raises any new regulatory issues different from that of the 
ISE, NYSE Amex, and NYSE Arca proposals. Accordingly, the Commission 
finds that there is good cause, consistent with Section 6(b)(5) of the 
Act,\26\ to approve the CBOE proposal on an accelerated basis.
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 15 U.S.C. 78s(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule changes (SR-ISE-2009-106; SR-NYSEAmex-
2009-86; and SR-NYSEArca-2009-110) be, and are hereby, approved and 
that the proposed rule change (SR-CBOE-2010-007) be, and is hereby, 
approved on an accelerated basis.
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2954 Filed 2-9-10; 8:45 am]
BILLING CODE 8011-01-P