Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Surveillance Agreements, 16072-16077 [2015-06887]

Download as PDF 16072 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2015–024. This file number should be included on the subject line if email 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 (https://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 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices 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– NASDAQ–2015–024, and should be submitted on or before April 16, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.82 Brent J. Fields, Secretary. [FR Doc. 2015–06891 Filed 3–25–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74553; File No. SR–Phlx– 2015–27] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Surveillance Agreements March 20, 2015. 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 March 16, 2015, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) 3 filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 1009 (Criteria for Underlying Securities) to allow the listing of options overlying Exchange-Traded Fund Shares (‘‘ETFs’’) that are listed pursuant to generic listing standards on equities exchanges for series of portfolio depositary receipts (‘‘PDRs’’) and index fund shares (‘‘IFSs’’) based on international or global indexes, pursuant to which a comprehensive surveillance agreement 4 is not required. The text of the proposed rule change is available on the Exchange’s Web site at https://www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, at the principal office of the Exchange, 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Exchange, The NASDAQ Stock Market LLC (‘‘NASDAQ’’), and NASDAQ OMX BX, Inc. (‘‘BX’’) are self-regulatory organizations (‘‘SROs’’) that are wholly owned subsidiaries of The NASDAQ OMX Group, Inc. (the ‘‘Group’’). 4 Surveillance agreements are also referred to in Exchange rules as ‘‘surveillance sharing agreements’’ or ‘‘comprehensive surveillance sharing agreements’’ (‘‘CSSA’’). See, e.g., Rules 1009 and 803. mstockstill on DSK4VPTVN1PROD with NOTICES 2 17 82 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:55 Mar 25, 2015 Jkt 235001 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 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. The Exchange 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 Exchange proposes to amend Commentary .06 to Rule 1009 to allow the listing of options overlying ETFs 5 that are listed pursuant to generic listing standards on equities exchanges for series of PDRs and IFSs based on international or global indexes under which a CSSA is not required.6 Adding proposed new Commentary .06(b)(i) to Rule 1009 will enable the Exchange to list and trade options on ETFs without a CSSA provided that the underlying ETF is listed on an equities exchange pursuant to the generic listings standards that do not require a CSSA pursuant to Rule 19b–4(e) of the Exchange Act.7 Rule 19b–4(e) provides that the listing and trading of a new derivative securities product by an SRO shall not be deemed a proposed rule change, pursuant to paragraph (c)(l) of Rule 19b– 4 8 if the Commission has approved, pursuant to Section 19(b) of the Act,9 the SRO’s trading rules, procedures and listing standards for the product class that would include the new derivatives securities product, and the SRO has a surveillance program for the product class.10 This proposal allows the Exchange to list and trade options on ETFs based on international or global indexes that meet the generic listing standards.11 5 ETFs are also referred to in Exchange rules as ‘‘Fund Shares.’’ See, e.g., Rules 1009 and 1009A [sic]. 6 NASDAQ is the principal exchange within the Group for listing ETFs. NASDAQ has generic listing standards for PDRs and IFSs. See NASDAQ Rule 5705(b)(3)(A)(ii) regarding IFSs and 5705(a)(3)(A)(ii) regarding PDRs (IFSs and PDRs are together known as ETFs in NASDAQ Rule 5705). See also NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca Equities Rule 5.2(j)(3) Commentary .01(a)(B); and BATS Rule 14.11(b)(3)(A)(ii). 7 17 CFR 240.19b–4(e). 8 17 CFR 240.19b–4(c)(1). 9 15 U.S.C. 78s(b). 10 When relying on Rule 19b–4(e), the SRO must submit Form 19b–4(e) to the Commission within five business days after the SRO begins trading the new derivative securities products. See Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 1998). 11 See NASDAQ Rule 5705(a)(3)(A)(ii) and (b)(3)(A)(ii); NYSE MKT Rule 1000, Commentary E:\FR\FM\26MRN1.SGM 26MRN1 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES The Surveillance Agreement Requirement for Options on ExchangeTraded Funds The surveillance agreement requirement (also known as the ‘‘requirement’’ or ‘‘regime’’) was initially put into effect for options on ETFs well over a decade ago but has proven to have anti-competitive effects that are detrimental to investors.12 Specifically, the requirement limits the investing public’s ability to hedge risk or engage in options strategies that may be afforded to other investors in domestic securities.13 The Exchange allows for the listing and trading of options on ETFs. Commentary .06 to Rule 1009 provides the listings standards for options on ETFs, which includes [sic] ETFs with non-U.S. component securities, such as ETFs based on international or global indexes. Currently, Commentary .06 to Rule 1009 regarding options on ETFs has a three-level surveillance agreement requirement (reproduced in relevant part): (i) Whether any non-U.S. component stocks on which the Fund Shares are based that are not subject to comprehensive surveillance agreements do not in the aggregate represent more than 50% of the weight of the index or portfolio; (ii) stocks for which the primary market is in any one country that is not subject to a comprehensive surveillance agreement do not represent 20% or more of the weight of the index; and (iii) stocks for which the primary market is in any two countries that are not subject to comprehensive surveillance agreements do not represent 33% or more of the weight of the index.14 The Exchange proposes to modify the surveillance agreement requirement for .03(a)(B); NYSE Arca Equities Rule 5.20)(3) [sic], Commentary .01(a)(B); and BATS Rule 14.11(b)(3)(A)(ii). 12 See Securities Exchange Act Release No. 43921 (February 2, 2001), 66 FR 9739 (February 9, 2001) (SR–Phlx–2000–107) (notice of filing and approval order regarding trading of options on ETFs with surveillance agreements) (the ‘‘ETF approval order’’). At about the same time, the Exchange instituted surveillance agreement requirements for options on Trust Issued Receipts (‘‘TIRs’’), and thereafter other products. See Securities Exchange Act Release No. 44709 (August 16, 2001), 66 FR 44194 (August 22, 2001) (SR–Phlx–2001–71) (notice of filing and approval order regarding trading of options on TIRs with surveillance agreements). Other exchanges have similar requirements. The changes proposed herein relate only to surveillance agreements for options on global or international ETFs. 13 Moreover, as noted below the surveillance agreement requirement is present for the derivative options on ETFs but not for the underlying ETFs. 14 See Commentary .06(b)(i)–(iii) to Rule 1009, which is re-numbered as Commentary .06(b)(ii)(A)– (C) to Rule 1009. VerDate Sep<11>2014 18:55 Mar 25, 2015 Jkt 235001 options on ETFs that are listed pursuant to generic listing standards for series of PDRs and IFSs, based on international or global indexes—for which case a comprehensive surveillance agreement is not required. The surveillance agreement requirement was instituted in 2001 when ETFs were, comparatively speaking, in a developmental state.15 The first ETF introduced in 1993 was a broad-based domestic equity fund tracking the S&P 500 index. The development of ETF products was very limited during the first decade of their existence, such that at the end of 2001, there was a total of only 102 ETFs listed on U.S. markets. Since 2001, however, the ETF market has matured tremendously and grown exponentially, such that at the end of 2012 there were a total of 1,194 listed ETFs.16 Many of these are very well known, highly traded and liquid products, such as, for example, SPDR S&P 500 Trust ETF (SPY), iShares MSCI Emerging Markets ETF (EEM), and PowerShares QQQ Trust, Series 1 ETF (QQQQ) [sic], that market participants from institutional to retail and public investors have been using for trading, hedging, and investing purposes with varying timelines.17 The ETF market is one of the most highlydeveloped, sophisticated markets that provide traders and investors the opportunity to access practically all industries and enterprises. In 2012 investor demand for ETFs in all asset classes increased substantially. And in 2011 the demand for global and international equity ETFs, to which the requirement applies, more than doubled.18 The Exchange believes that the surveillance agreement requirement no longer serves a necessary (or indispensable) function in today’s highly developed ETF market,19 and actually creates a dynamic that negatively impacts the number of 15 See Securities Exchange Act Release No. 43921 (February 2, 2001), 66 FR 9739 (February 9, 2001) (SR–Phlx–2000–107) (ETF approval order). 16 https://www.icifactbook.org/fb_ch3.html. 17 These can be from intraday exposure (e.g., using Daily S&P 500 Bear 3x Shares (SPXS)) to longterm 401(k) or retirement fund exposure (e.g., using SPY). 18 https://www.icifactbook.org/fb_ch3.html. 19 ETFs and ETPs listed in the United States gathered $24.6 billion USD in net new assets in June 2014 which, when combined with positive market performance, pushed the ETF/ETP industry in the United States to a new record high of $1.86 trillion USD invested in 1,613 ETFs/ETPs, from 58 providers listed on 3 exchanges. And according to ETFGI, an independent ETF/ETP research and consultancy firm in the U.K., ETFs and ETPs listed globally reached $2.64 trillion USD in assets, a new record high, at the end of Q2 2014. https:// www.mondovisione.com/media-and-resources/ news/according-to-etfgi-etfs-and-etps-listedglobally-reached-us264-trillion-in-as/. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 16073 markets that can competitively trade ETF option products, to the detriment of market participants. The current surveillance requirement has, at times, resulted in the investing public having to forego the opportunity to hedge risk or engage in other listed options strategies in a competitive environment. ETFs may lack active options contracts that would be more likely to develop if multiple exchanges could compete to offer and promote them. For example, an investor in the iShare [sic] MSCI Indonesia ETF (EIDO) is not permitted to sell call options or purchase protective puts simply because the Exchange cannot obtain a surveillance agreement with Bursa Efek Indonesia. However, an investor in iShare [sic] MSCI Emerging Markets Fund (EEM) is afforded the right to engage in listed options trading to hedge risk or execute other beneficial options strategies. Both underlying exchangetraded funds, EIDO and EEM, are listed for trading in the U.S., subject to constant regulatory scrutiny, and permitted to be purchased and sold via registered broker/dealers, yet, options can now be offered only on EEM. The Exchange believes this disparate treatment between investors of foreignbased instruments, especially between those that buy and sell options contracts on ETFs, which currently require surveillance agreements, as opposed to those that buy and sell shares of the underlying ETFs, which currently do not have the same onerous surveillance agreement requirement that ETF options have,20 is not in the best interest. The Exchange therefore proposes to establish that options on generically-listed global 20 While the surveillance agreement requirement for options on ETFs found in Commentary .06 to Rule 1009 (see note 14 and related text) has resulted in significant negative implications for market participants, there is no such surveillance agreement requirement for the underlying ETFs. In particular, when looking to the rules of NASDAQ, the primary ETF listing venue in the Group, NASDAQ Rules 5705 regarding ETFs and 5735 regarding Managed Fund Shares (‘‘MFSs’’) have no explicit requirements concerning surveillance agreements for regularly listed (non-generic) ETFs and MFSs, and simply state that FINRA will implement written surveillance procedures. Section 19(b)(2) filings regarding ETFs and MFSs typically indicate that the Exchange may obtain information regarding trading in the shares from FINRA and markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), which includes securities and futures exchanges, or with which the Exchange has in place a surveillance agreement (which is not required by rule). Regarding ETFs and MFSs listed pursuant to generic (19b-4(e)) standards and reviewed and approved for trading under Section 19(b)(2) of the Act, Rules 5705 and 5735 [sic] simply note that the Commission’s approval order may reference surveillance sharing agreements with respect to non-U.S. component stocks. E:\FR\FM\26MRN1.SGM 26MRN1 16074 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices or international ETFs would not require surveillance agreements for listing. The current surveillance agreement requirements, as well as all other requirements to list options on ETFs,21 are not affected by this proposal and will continue to remain in place for options on ETFs that do not meet generic listing standards on equities exchanges for ETFs based on international and global indexes. mstockstill on DSK4VPTVN1PROD with NOTICES Generic Listing Standards for ExchangeTraded Funds The Exchange notes that the Commission has previously approved generic listing standards pursuant to Rule 19b–4(e) of the Exchange Act 22 for ETFs based on indexes that consist of stocks listed on U.S. exchanges including NASDAQ, the ETF listing exchange within the Group.23 In general, the criteria for the underlying component securities in the international and global indexes are similar to those for the domestic indexes, but with modifications as appropriate for the issues and risks associated with non-U.S. securities. In addition, the Commission has previously approved proposals for the listing and trading of options on ETFs based on international indexes as well as global indexes (e.g., based on nonU.S. and U.S. component stocks).24 In approving ETFs for equities exchange 21 For purposes of brevity, these other requirements are not set forth, but can be found in Commentary .06 to Rule 1009. 22 17 CFR 240.19b–4(e). 23 See Securities Exchange Act Release No. 54739 (November 9, 2006), 71 FR 66993 (November 17, 2006) (SR–Amex–2006–78) (initial order relating to generic listing standards for ETFs based on international or global indexes). See also NASDAQ Rule 5705(a)(3)(A)(ii) and (b)(3)(A)(ii). 24 See, e.g., Securities Exchange Act Release Nos. 57013 (December 20, 2007), 72 FR 73923 (December 28, 2007) (SR–CBOE–2007–140) (approval order to list and trade options on iShares MSCI Mexico Index Fund, when CBOE did not have in place a surveillance agreement with the Bolsa Mexicana de Valores (the ‘‘Bolsa’’)); 57014 (December 20, 2007), 72 FR 73934 (December 28, 2007) (SR–ISE–2007– 111) (approval order to list and trade options on iShares MSCI Mexico Index Fund, when ISE did not have in place a surveillance agreement with the Bolsa); 56778 (November 9, 2007), 72 FR 65113 (November 19, 2007) (SR–AMEX–2007–100) (approval order to list and trade options on iShares MSCI Mexico Index Fund, when AMEX did not have in place a surveillance agreement with the Bolsa); and 55648 (April 19, 2007), 72 FR 20902 (April 26, 2007) (SR–AMEX–2007–09) (approval order to list and trade options on Vanguard Emerging Markets ETF, when AMEX did not have in place a surveillance agreement with the Bolsa). See also Securities Exchange Act Release Nos. 50189 (August 12, 2004), 69 FR 51723 (August 20, 2004) (SR–AMEX–2001–05) [sic] (approving the listing and trading of certain Vanguard International Equity Index Funds); and 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001) (SR–2001–34) [sic] (approving the listing and trading of series of the iShares Trust based on foreign stock indexes). VerDate Sep<11>2014 18:55 Mar 25, 2015 Jkt 235001 trading, the Commission thoroughly considered the structure of the ETFs, their usefulness to investors and to the markets, and SRO rules that govern their trading. The Exchange believes that allowing the listing of options overlying ETFs that are listed pursuant to the generic listing standards on equities exchanges for ETFs based on international and global indexes and applying Rule 19b–4(e) 25 should fulfill the intended objective of that rule by allowing options on those ETFs that have satisfied the generic listing standards to commence trading, without the need for the public comment period and Commission approval. The proposed rule has the potential to reduce the time frame for bringing options on ETFs to market, thereby reducing the burdens on issuers and other market participants. The failure of a particular ETF to comply with the generic listing standards under Rule 19b–4(e) 26 would not, however, preclude the Exchange from submitting a separate filing pursuant to Section 19(b)(2),27 requesting Commission approval to list and trade options on a particular ETF. Moreover, the Exchange notes that the generic standards such as those in proposed Commentary .06(b)(i) to Rule 1009 are not new in the options world, and have been used extensively for listing options on narrow-based and broad-based indexes.28 Requirements for Listing and Trading Options Overlying ETFs Based on International and Global Indexes Options on ETFs listed pursuant to these generic standards for international and global indexes would be traded, in all other respects, under the Exchange’s existing trading rules and procedures that apply to options on ETFs and would be covered under the Exchange’s surveillance program for options on ETFs. Pursuant to proposed Commentary .06(b)(i) to Rule 1009, the Exchange may list and trade options on an ETF without a CSSA provided that the ETF is listed pursuant to generic listing standards for series of PDRs and IFSs based on international or global indexes, in which case a comprehensive surveillance agreement is not required. As noted, one such rule, which 25 17 CFR 240.19b–4(e). 26 Id. 27 15 U.S.C. 78s(b)(2). 1009A has, for example, weighting, capitalization, trading volume, and minimum number of components standards for listing options on narrow-based and broad-based indexes. For a definition of broad-based index (market index) and narrow-based index (industry index), see Rule 1000A(b)(11) and (12), respectively. 28 Rule PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 discusses things such as weighting, capitalization, trading volume, minimum number of components, and where components are listed, is NASDAQ Rule 5705(b)(3)(A)(ii) regarding ETFs (IFSs and PDRs).29 The Exchange believes that these generic listing standards are intended to ensure that securities with substantial market capitalization and trading volume account for a substantial portion of the weight of an index or portfolio. The Exchange believes that this proposed listing standard for options on ETFs is reasonable for international and global indexes, and, when applied in conjunction with the other listing requirements, will result in options overlying ETFs that are sufficiently broad in scope and not readily susceptible to manipulation. The Exchange also believes that allowing the Exchange to list options overlying ETFs that are listed on equities exchanges pursuant to generic standards for series of PDRs and IFSs based on international or global indexes under which a CSSA is not required, will result in options overlying ETFs that are adequately diversified in weighting for any single security or small group of securities to significantly reduce concerns that trading in options overlying ETFs based on international or global indexes could 29 NASDAQ Rule 5705(b)(3)(A)(ii) regarding IFSs, for example, has the following requirements (reproduced in relevant part): a. Component stocks (excluding Derivative Securities Products) that in the aggregate account for at least 90% of the weight of the index or portfolio (excluding Derivative Securities Products) each shall have a minimum market value of at least $100 million; b. component stocks (excluding Derivative Securities Products) that in the aggregate account for at least 70% of the weight of the index or portfolio (excluding Derivative Securities Products) each shall have a minimum worldwide monthly trading volume of at least 250,000 shares, or minimum global notional volume traded per month of $25,000,000, averaged over the last six months; c. the most heavily weighted component stock (excluding Derivative Securities Products) shall not exceed 25% of the weight of the index or portfolio, and, to the extent applicable, the five most heavily weighted component stocks (excluding Derivative Securities Products) shall not exceed 60% of the weight of the index or portfolio; d. the index or portfolio shall include a minimum of 20 component stocks; provided, however, that there shall be no minimum number of component stocks if either one or more series of Index Fund Shares or Portfolio Depositary Receipts constitute, at least in part, components underlying a series of Index Fund Shares, or one or more series of Derivative Securities Products account for 100% of the weight of the index or portfolio; and e. each U.S. Component Stock shall be listed on a national securities exchange and shall be an NMS Stock as defined in Rule 600 of Regulation NMS under the Act, and each Non-U.S. Component Stock shall be listed and traded on an exchange that has last-sale reporting. NASDAQ Rule 5705(a)(3)(A)(ii) has similar standards, but tailored for PDRs. E:\FR\FM\26MRN1.SGM 26MRN1 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES become a surrogate for trading in unregistered securities.30 The Exchange believes that ETFs based on international and global indexes that have been listed pursuant to the generic standards are sufficiently defined so as to make options overlying such ETFs not susceptible instruments for manipulation. The Exchange believes that the threat of manipulation is, as discussed below, sufficiently mitigated for underlying ETFs that have been listed on equities exchanges pursuant to generic listing standards for series of PDRs and IFSs based on international or global indexes under which a comprehensive surveillance agreement is not required and for the overlying options; the Exchange does not see the need for a CSSA to be in place before listing and trading options on such ETFs. The Exchange notes that its proposal does not replace the need for a CSSA as provided in current Commentary .06(b) to Rule 1009. The provisions of Commentary .06(b), including the need for a CSSA, remain materially unchanged and will continue to apply to options on ETFs that are not listed on an equities exchange pursuant to generic listing standards for series of PDRs and IFSs based on international or global indexes. Instead, proposed Commentary .06(b)(i) adds an additional listing mechanism for certain qualifying options on ETFs to be listed on the Exchange. Finally, to account for proposed Commentary .06(b) to Rule 1009 and make Commentary .06 easier to follow, the Exchange proposes technical changes to the formatting of this section of the rule. The Exchange proposes renumbering Commentary .06(b)(i), (ii) and (iii) as Commentary .06(b)(ii)(A), (B), and (C), respectively; and renumbering Commentary .06(b)(iv) and (v) as Commentary .06(b)(iii) and (iv), respectively. This is merely renumbering and there are no changes to the language of these sections of Commentary .06. No Economic Risk The proposal does not raise a concern regarding economic risk or manipulation. The proposal does not increase the risk of manipulation of the ETF itself, as the ETF trades in the U.S. and trading is subject to the U.S. surveillance requirement and follows 30 The Exchange also notes that not affording retail investors the ability to trade on a regulated exchange can be detrimental. While products can be traded off exchange in the over the counter (‘‘OTC’’) market, which has increased settlement, clearing, and market risk as opposed to exchanges, the relatively unregulated OTC market is usually not a viable option for retail and public investors. VerDate Sep<11>2014 18:55 Mar 25, 2015 Jkt 235001 Exchange rules. One might try to argue that the proposal raises a concern about a theoretical manipulation risk of the underlying international components of the ETF trading in the U.S. If such manipulation were successful, the argument would go, then the ETF could be fairly priced relative to its components but the price of the components potentially may not reflect fair market value. The Exchange firmly believes that the proposal does not raise any such theoretical concern. For manipulation to be successful the expected cost of the contemplated manipulation must be less than the expected gain. In other words, manipulation will not be attempted if the prospective profit from the attempt is zero or less, even ignoring the quite real costs associated with regulatory risk. In approving the rules for narrow based indices, it was thought that the costs of manipulating such an index based on component securities with the same parameters as those proposed ETFs would be prohibitive relative to any prospective gains. The Exchange’s proposal does not suggest a different paradigm. Moreover, the Commission reviewed and approved the ability to list ETFs without surveillance agreements if they meet the generic listing standards for ETFs based on international or global indices. The Exchange believes that the argument and economic conclusion that allowing the listing of options on these same underlying ETFs with components outside the U.S. that are sufficiently large, transparent, diversified, and liquid to make manipulation unprofitable is valid. A second theoretical source of manipulation risk may be seen to be the creation/redemption process for ETFs. If the creation/redemption process could be manipulated then the market price of the ETF could materially differ from the fair value of the ETF derived from a fair market value of the components. Again, the Exchange does not agree that this is a significant manipulation risk for ETFs, let alone options on ETF. As noted, ETFs are a much more mature asset class today than in 2001 when the current rules were adopted. The development of ETFs as an established asset class and the listing and trading of ETFs, including the creation/ redemption process, has developed immensely since the introduction of ETFs, and options on them. Since manipulation of the creation/ redemption process would create economic profits for the manipulator, but such manipulation has not been manifest during the significant expansion of ETFs as an international PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 16075 asset class, this offers convincing evidence that manipulation risk in the creation/redemption process is, indeed, theoretical and not an increased risk with this proposal regarding the listing of ETF options. The Exchange believes that its proposal will not lead to increased economic risk. The Exchange requests approval of its proposal to allow the listing of options overlying ETFs (PDRs and IFSs) based on international or global indexes, without a comprehensive surveillance agreement. The proposal will, as discussed, be beneficial to investors and is in conformity with the Act. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 31 in general, and furthers the objectives of Section 6(b)(5) of the Act 32 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. In particular, the proposed rule change has the potential to reduce the time frame for bringing options on ETFs to market, thereby reducing the burdens on issuers and other market participants. The Exchange also believes that enabling the listing and trading of options on ETFs pursuant to this proposed new listing standard will benefit investors by providing them with valuable risk management tools. The Exchange notes that its proposal does not replace the need for a CSSA as provided in Commentary .06 to Rule 1009. The provisions of current Commentary .06, including the need for a CSSA, remain materially unchanged and will continue to apply to options on ETFs that are not listed on an equities exchange pursuant to generic listing standards for series of PDRs and IFSs based on international or global indexes under which a comprehensive surveillance agreement is not required. Instead, proposed Commentary .06(b)(i) to Rule 1009 adds an additional listing mechanism for certain qualifying options on ETFs to be listed on the Exchange in a manner that 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, to remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in 31 15 32 15 E:\FR\FM\26MRN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 26MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES 16076 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices general, to protect investors and the public interest. The proposal would promote just and equitable principles of trade. The surveillance agreement requirement was instituted in 2001 when ETFs were, comparatively speaking, in a developmental state.33 The first ETF introduced in 1993 was a broad-based domestic equity fund tracking the S&P 500 index. After the introduction of the first ETF in 1993, the development of ETF products was very limited during the first decade of their existence. Since the end of 2001, when there was a total of only 102 ETFs listed on U.S. markets, however, the ETF market has matured tremendously and grown exponentially. With a total of 1,194 listed ETFs at the end of 2012, the ETF market is now one of the most highly-developed, sophisticated markets with many very well known, highly traded and liquid products that provide traders and investors the opportunity to access practically all industries and enterprises. While investor demand for ETFs in all asset classes increased substantially, in 2011 the demand for global and international equity ETFs, to which the requirement applies, more than doubled.34 The Exchange believes that the current surveillance requirement no longer serves a necessary function in today’s highly developed market, and, as discussed, actually creates a dynamic that negatively impacts the number of markets that can competitively trade ETF option products. This hurts market participants. The Exchange therefore proposes to establish that pursuant to proposed Commentary .06(b)(i) to Rule 1009 options may be listed on certain ETFs that are based on global and international funds and meet generic listing standards. The proposal would in general protect investors and the public interest. The Exchange believes that modifying the surveillance agreement requirement for ETFs would not hinder the Exchange from performing surveillance duties designed to protect investors and the public interest. There are various data consolidators, vendors, and outlets that can be used to access data and information regarding ETFs and the underlying securities (e.g., Bloomberg, Dow Jones, FTEN). In addition, firms that list ETFs on an exchange receive vast amounts of data relevant to their products that could be made available to listing exchanges as needed. The 33 See Securities Exchange Act Release No. 43921 (February 2, 2001), 66 FR 9739 (February 9, 2001) (SR–Phlx–2000–107) (ETF approval order). 34 https://www.icifactbook.org/fb_ch3.html. VerDate Sep<11>2014 18:55 Mar 25, 2015 Jkt 235001 Exchange has access to the activity of the direct underlying instrument and the ETF, and through the Intermarket Surveillance Group (‘‘ISG’’) the Exchange can obtain such information related to the underlying security as needed.35 Moreover, other than the surveillance agreement requirement there are, as discussed, numerous requirements in Rule 1009 that must be met to list options on ETFs on the Exchange. The proposal would remove impediments to and perfect the mechanism of a free and open market and a national market system. Multiple listing of ETFs, options, and other securities and competition are some of the central features of the current national market system. The Exchange believes that the surveillance agreement requirement has led to clearly anticompetitive results in a market that is based on competition. As such, the Exchange believes that the surveillance agreement requirement for options on certain ETFs is no longer necessary and proposes new Commentary .06(b)(i) to Rule 1009. The proposed rule change will significantly benefit market participants. As discussed at length, the proposed rule will negate the negative anti-competitive effect of the current surveillance agreement requirement that has resulted in de facto regulatory monopolies where only solitary exchanges, or only a few exchanges, are able to list certain ETF options products. The Exchange believes this is inconsistent with Commission policies and the developing national market system, as well as the competitive nature of the market, and therefore proposes amendment.36 The Exchange believes that the proposal would encourage a more open market and national market system based on competition and multiple listing. The generic listing standards for ETFs based on global or international indexes have specific requirements regarding relative weighting, minimum capitalization, minimum trading volume, and minimum number of components that have been approved by the Commission years ago for foreign ETFs.37 Moreover, 35 See https://www.isgportal.org/home.html. Another global organization similar to ISG is The International Organization of Securities Commissions (‘‘IOSCO’’). 36 As discussed, the Exchange is decidedly not proposing that the surveillance agreement requirement be deleted entirely, but rather that only those options on ETFs that do not meet very specific generic listing standards need to have surveillance agreements in order to list on the Exchange. 37 See Securities Exchange Act Release No. 54739 (November 9, 2006), 71 FR 66993 (November 17, 2006) (SR–Amex–2006–78) (initial order relating to PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 such listing standards have been in continuous use for listing options on narrow-based and broad-based indexes on the Exchange.38 Allowing the listing of options on underlying ETFs based on global and international indexes that meet generic listing standards would encourage a free and open market and national market system to the benefit of market participants. Finally, the Exchange’s proposal for limiting the necessity of surveillance agreements to list options on ETFs does not, as discussed above, raise a concern regarding manipulation. The Exchange believes that its proposal is not indicative of increased economic risk. For the above reasons, the Exchange believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. 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. To the contrary, the Exchange believes that the proposal is, as discussed, decidedly procompetitive and is a competitive response to the inability to list products because of the surveillance agreement requirement. The Exchange believes that the proposed rule change will result in additional investment options and opportunities to achieve the investment objectives of market participants seeking efficient trading and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Competition is one of the principal features of the national market system. The Exchange believes that this proposal will expand competitive opportunities to list and trade products on the Exchange as noted. 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. 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 from the date on generic listing standards for ETFs based on international or global indexes). See also NASDAQ Rule 5705(a)(3)(A)(ii) and (b)(3)(A)(ii). 38 See Rule 1009A(b) and (d). E:\FR\FM\26MRN1.SGM 26MRN1 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices which it was filed, or such shorter time as the Commission may designate, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 39 and Rule 19b–4(f)(6) thereunder.40 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 41 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 42 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange stated that waiver of the operative delay will permit the Exchange to list and trade certain ETF options on the same basis as another options market.43 The Commission believes the waiver of the operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the operative delay and designates the proposal operative upon filing.44 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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 furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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: 39 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 41 17 CFR 240.19b–4(f)(6). 42 17 CFR 240.19b–4(f)(6)(iii). 43 See Securities Exchange Act Release No. 74509 (March 13, 2015), 80 FR 14425 (March 19, 2015) (SR–MIAX–2015–04). 44 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). mstockstill on DSK4VPTVN1PROD with NOTICES 40 17 VerDate Sep<11>2014 18:55 Mar 25, 2015 Jkt 235001 Electronic Comments DEPARTMENT OF STATE • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2015–27 on the subject line. 16077 [Public Notice 9070] 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–Phlx–2015–27. This file number should be included on the subject line if email 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 (https://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 10:00 a.m. and 3:00 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–Phlx– 2015–27 and should be submitted on or before April 16, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.45 Brent J. Fields, Secretary. [FR Doc. 2015–06887 Filed 3–25–15; 8:45 am] BILLING CODE 8011–01–P 45 17 PO 00000 CFR 200.30–3(a)(12). Frm 00099 Fmt 4703 Sfmt 4703 Advisory Committee on International Economic Policy; Notice of Open Meeting The Advisory Committee on International Economic Policy (ACIEP) will meet between 2:00 and 5:00 p.m., on Tuesday, April 14, 2015, in Room 4477 of the Harry S Truman Building at the U.S. Department of State, 2201 C Street NW., Washington, DC. The meeting will be hosted by the Assistant Secretary of State for Economic and Business Affairs, Charles H. Rivkin and Committee Chair Paul R. Charron. The ACIEP serves the U.S. government in a solely advisory capacity, and provides advice concerning topics in international economic policy. The meeting will examine ‘‘The President’s Trade Agenda.’’ It is expected that the ACIEP subcommittees will provide updates on their work. This meeting is open to public participation, though seating is limited. Entry to the building is controlled. To obtain pre-clearance for entry, members of the public planning to attend should no later than Tuesday April 7, provide their full name, professional affiliation, valid government-issued ID number (i.e., U.S. government ID, U.S. military ID, passport [country], or driver’s license [state]), date of birth, and citizenship, to Gregory Maggio by email: Maggiogf@state.gov. All persons wishing to attend the meeting must use the 21st Street entrance on 21st Street near Virginia Avenue (not the ‘‘jogger’s’’ entrance or the C Street entrance) of the State Department. Due to escorting requirements, non-government attendees should plan to arrive no later than 15 minutes before the meeting begins. Requests for reasonable accommodation should be made to Gregory Maggio before Tuesday, April 7. Requests made after that date will be considered, but might not be possible to fulfill. Personal data is requested pursuant to Public Law 99–399 (Omnibus Diplomatic Security and Antiterrorism Act of 1986), as amended; Public Law 107–56 (USA PATRIOT Act); and Executive Order 13356. The purpose of the collection is to validate the identity of individuals who enter Department facilities. The data will be entered into the Visitor Access Control System (VACS–D) database. Please see the Security Records System of Records Notice (State-36) at https://www.state. gov/documents/organization/ 103419.pdf for additional information. E:\FR\FM\26MRN1.SGM 26MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 58 (Thursday, March 26, 2015)]
[Notices]
[Pages 16072-16077]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06887]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74553; File No. SR-Phlx-2015-27]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Surveillance Agreements

March 20, 2015.
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 March 16, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
\3\ filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. 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\ The Exchange, The NASDAQ Stock Market LLC (``NASDAQ''), and
NASDAQ OMX BX, Inc. (``BX'') are self-regulatory organizations
(``SROs'') that are wholly owned subsidiaries of The NASDAQ OMX
Group, Inc. (the ``Group'').
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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 Rule 1009 (Criteria for Underlying
Securities) to allow the listing of options overlying Exchange-Traded
Fund Shares (``ETFs'') that are listed pursuant to generic listing
standards on equities exchanges for series of portfolio depositary
receipts (``PDRs'') and index fund shares (``IFSs'') based on
international or global indexes, pursuant to which a comprehensive
surveillance agreement \4\ is not required.
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\4\ Surveillance agreements are also referred to in Exchange
rules as ``surveillance sharing agreements'' or ``comprehensive
surveillance sharing agreements'' (``CSSA''). See, e.g., Rules 1009
and 803.
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The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
at the principal office of the Exchange, 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 Exchange 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. The Exchange 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 Exchange proposes to amend Commentary .06 to Rule 1009 to allow
the listing of options overlying ETFs \5\ that are listed pursuant to
generic listing standards on equities exchanges for series of PDRs and
IFSs based on international or global indexes under which a CSSA is not
required.\6\ Adding proposed new Commentary .06(b)(i) to Rule 1009 will
enable the Exchange to list and trade options on ETFs without a CSSA
provided that the underlying ETF is listed on an equities exchange
pursuant to the generic listings standards that do not require a CSSA
pursuant to Rule 19b-4(e) of the Exchange Act.\7\
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\5\ ETFs are also referred to in Exchange rules as ``Fund
Shares.'' See, e.g., Rules 1009 and 1009A [sic].
\6\ NASDAQ is the principal exchange within the Group for
listing ETFs. NASDAQ has generic listing standards for PDRs and
IFSs. See NASDAQ Rule 5705(b)(3)(A)(ii) regarding IFSs and
5705(a)(3)(A)(ii) regarding PDRs (IFSs and PDRs are together known
as ETFs in NASDAQ Rule 5705). See also NYSE MKT Rule 1000 Commentary
.03(a)(B); NYSE Arca Equities Rule 5.2(j)(3) Commentary .01(a)(B);
and BATS Rule 14.11(b)(3)(A)(ii).
\7\ 17 CFR 240.19b-4(e).
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Rule 19b-4(e) provides that the listing and trading of a new
derivative securities product by an SRO shall not be deemed a proposed
rule change, pursuant to paragraph (c)(l) of Rule 19b-4 \8\ if the
Commission has approved, pursuant to Section 19(b) of the Act,\9\ the
SRO's trading rules, procedures and listing standards for the product
class that would include the new derivatives securities product, and
the SRO has a surveillance program for the product class.\10\ This
proposal allows the Exchange to list and trade options on ETFs based on
international or global indexes that meet the generic listing
standards.\11\
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\8\ 17 CFR 240.19b-4(c)(1).
\9\ 15 U.S.C. 78s(b).
\10\ When relying on Rule 19b-4(e), the SRO must submit Form
19b-4(e) to the Commission within five business days after the SRO
begins trading the new derivative securities products. See
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR
70952 (December 22, 1998).
\11\ See NASDAQ Rule 5705(a)(3)(A)(ii) and (b)(3)(A)(ii); NYSE
MKT Rule 1000, Commentary .03(a)(B); NYSE Arca Equities Rule
5.20)(3) [sic], Commentary .01(a)(B); and BATS Rule
14.11(b)(3)(A)(ii).

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[[Page 16073]]

The Surveillance Agreement Requirement for Options on Exchange-Traded
Funds
The surveillance agreement requirement (also known as the
``requirement'' or ``regime'') was initially put into effect for
options on ETFs well over a decade ago but has proven to have anti-
competitive effects that are detrimental to investors.\12\
Specifically, the requirement limits the investing public's ability to
hedge risk or engage in options strategies that may be afforded to
other investors in domestic securities.\13\
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\12\ See Securities Exchange Act Release No. 43921 (February 2,
2001), 66 FR 9739 (February 9, 2001) (SR-Phlx-2000-107) (notice of
filing and approval order regarding trading of options on ETFs with
surveillance agreements) (the ``ETF approval order''). At about the
same time, the Exchange instituted surveillance agreement
requirements for options on Trust Issued Receipts (``TIRs''), and
thereafter other products. See Securities Exchange Act Release No.
44709 (August 16, 2001), 66 FR 44194 (August 22, 2001) (SR-Phlx-
2001-71) (notice of filing and approval order regarding trading of
options on TIRs with surveillance agreements). Other exchanges have
similar requirements. The changes proposed herein relate only to
surveillance agreements for options on global or international ETFs.
\13\ Moreover, as noted below the surveillance agreement
requirement is present for the derivative options on ETFs but not
for the underlying ETFs.
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The Exchange allows for the listing and trading of options on ETFs.
Commentary .06 to Rule 1009 provides the listings standards for options
on ETFs, which includes [sic] ETFs with non-U.S. component securities,
such as ETFs based on international or global indexes. Currently,
Commentary .06 to Rule 1009 regarding options on ETFs has a three-level
surveillance agreement requirement (reproduced in relevant part):
(i) Whether any non-U.S. component stocks on which the Fund Shares
are based that are not subject to comprehensive surveillance agreements
do not in the aggregate represent more than 50% of the weight of the
index or portfolio;
(ii) stocks for which the primary market is in any one country that
is not subject to a comprehensive surveillance agreement do not
represent 20% or more of the weight of the index; and
(iii) stocks for which the primary market is in any two countries
that are not subject to comprehensive surveillance agreements do not
represent 33% or more of the weight of the index.\14\
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\14\ See Commentary .06(b)(i)-(iii) to Rule 1009, which is re-
numbered as Commentary .06(b)(ii)(A)-(C) to Rule 1009.
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The Exchange proposes to modify the surveillance agreement requirement
for options on ETFs that are listed pursuant to generic listing
standards for series of PDRs and IFSs, based on international or global
indexes--for which case a comprehensive surveillance agreement is not
required.
The surveillance agreement requirement was instituted in 2001 when
ETFs were, comparatively speaking, in a developmental state.\15\ The
first ETF introduced in 1993 was a broad-based domestic equity fund
tracking the S&P 500 index. The development of ETF products was very
limited during the first decade of their existence, such that at the
end of 2001, there was a total of only 102 ETFs listed on U.S. markets.
Since 2001, however, the ETF market has matured tremendously and grown
exponentially, such that at the end of 2012 there were a total of 1,194
listed ETFs.\16\ Many of these are very well known, highly traded and
liquid products, such as, for example, SPDR S&P 500 Trust ETF (SPY),
iShares MSCI Emerging Markets ETF (EEM), and PowerShares QQQ Trust,
Series 1 ETF (QQQQ) [sic], that market participants from institutional
to retail and public investors have been using for trading, hedging,
and investing purposes with varying timelines.\17\ The ETF market is
one of the most highly-developed, sophisticated markets that provide
traders and investors the opportunity to access practically all
industries and enterprises. In 2012 investor demand for ETFs in all
asset classes increased substantially. And in 2011 the demand for
global and international equity ETFs, to which the requirement applies,
more than doubled.\18\ The Exchange believes that the surveillance
agreement requirement no longer serves a necessary (or indispensable)
function in today's highly developed ETF market,\19\ and actually
creates a dynamic that negatively impacts the number of markets that
can competitively trade ETF option products, to the detriment of market
participants.
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\15\ See Securities Exchange Act Release No. 43921 (February 2,
2001), 66 FR 9739 (February 9, 2001) (SR-Phlx-2000-107) (ETF
approval order).
\16\ https://www.icifactbook.org/fb_ch3.html.
\17\ These can be from intraday exposure (e.g., using Daily S&P
500 Bear 3x Shares (SPXS)) to long-term 401(k) or retirement fund
exposure (e.g., using SPY).
\18\ https://www.icifactbook.org/fb_ch3.html.
\19\ ETFs and ETPs listed in the United States gathered $24.6
billion USD in net new assets in June 2014 which, when combined with
positive market performance, pushed the ETF/ETP industry in the
United States to a new record high of $1.86 trillion USD invested in
1,613 ETFs/ETPs, from 58 providers listed on 3 exchanges. And
according to ETFGI, an independent ETF/ETP research and consultancy
firm in the U.K., ETFs and ETPs listed globally reached $2.64
trillion USD in assets, a new record high, at the end of Q2 2014.
https://www.mondovisione.com/media-and-resources/news/according-to-etfgi-etfs-and-etps-listed-globally-reached-us264-trillion-in-as/.
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The current surveillance requirement has, at times, resulted in the
investing public having to forego the opportunity to hedge risk or
engage in other listed options strategies in a competitive environment.
ETFs may lack active options contracts that would be more likely to
develop if multiple exchanges could compete to offer and promote them.
For example, an investor in the iShare [sic] MSCI Indonesia ETF (EIDO)
is not permitted to sell call options or purchase protective puts
simply because the Exchange cannot obtain a surveillance agreement with
Bursa Efek Indonesia. However, an investor in iShare [sic] MSCI
Emerging Markets Fund (EEM) is afforded the right to engage in listed
options trading to hedge risk or execute other beneficial options
strategies. Both underlying exchange-traded funds, EIDO and EEM, are
listed for trading in the U.S., subject to constant regulatory
scrutiny, and permitted to be purchased and sold via registered broker/
dealers, yet, options can now be offered only on EEM. The Exchange
believes this disparate treatment between investors of foreign-based
instruments, especially between those that buy and sell options
contracts on ETFs, which currently require surveillance agreements, as
opposed to those that buy and sell shares of the underlying ETFs, which
currently do not have the same onerous surveillance agreement
requirement that ETF options have,\20\ is not in the best interest. The
Exchange therefore proposes to establish that options on generically-
listed global

[[Page 16074]]

or international ETFs would not require surveillance agreements for
listing.
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\20\ While the surveillance agreement requirement for options on
ETFs found in Commentary .06 to Rule 1009 (see note 14 and related
text) has resulted in significant negative implications for market
participants, there is no such surveillance agreement requirement
for the underlying ETFs. In particular, when looking to the rules of
NASDAQ, the primary ETF listing venue in the Group, NASDAQ Rules
5705 regarding ETFs and 5735 regarding Managed Fund Shares
(``MFSs'') have no explicit requirements concerning surveillance
agreements for regularly listed (non-generic) ETFs and MFSs, and
simply state that FINRA will implement written surveillance
procedures. Section 19(b)(2) filings regarding ETFs and MFSs
typically indicate that the Exchange may obtain information
regarding trading in the shares from FINRA and markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''), which includes securities and futures exchanges, or with
which the Exchange has in place a surveillance agreement (which is
not required by rule). Regarding ETFs and MFSs listed pursuant to
generic (19b-4(e)) standards and reviewed and approved for trading
under Section 19(b)(2) of the Act, Rules 5705 and 5735 [sic] simply
note that the Commission's approval order may reference surveillance
sharing agreements with respect to non-U.S. component stocks.
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The current surveillance agreement requirements, as well as all
other requirements to list options on ETFs,\21\ are not affected by
this proposal and will continue to remain in place for options on ETFs
that do not meet generic listing standards on equities exchanges for
ETFs based on international and global indexes.
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\21\ For purposes of brevity, these other requirements are not
set forth, but can be found in Commentary .06 to Rule 1009.
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Generic Listing Standards for Exchange-Traded Funds
The Exchange notes that the Commission has previously approved
generic listing standards pursuant to Rule 19b-4(e) of the Exchange Act
\22\ for ETFs based on indexes that consist of stocks listed on U.S.
exchanges including NASDAQ, the ETF listing exchange within the
Group.\23\ In general, the criteria for the underlying component
securities in the international and global indexes are similar to those
for the domestic indexes, but with modifications as appropriate for the
issues and risks associated with non-U.S. securities.
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\22\ 17 CFR 240.19b-4(e).
\23\ See Securities Exchange Act Release No. 54739 (November 9,
2006), 71 FR 66993 (November 17, 2006) (SR-Amex-2006-78) (initial
order relating to generic listing standards for ETFs based on
international or global indexes). See also NASDAQ Rule
5705(a)(3)(A)(ii) and (b)(3)(A)(ii).
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In addition, the Commission has previously approved proposals for
the listing and trading of options on ETFs based on international
indexes as well as global indexes (e.g., based on non-U.S. and U.S.
component stocks).\24\ In approving ETFs for equities exchange trading,
the Commission thoroughly considered the structure of the ETFs, their
usefulness to investors and to the markets, and SRO rules that govern
their trading. The Exchange believes that allowing the listing of
options overlying ETFs that are listed pursuant to the generic listing
standards on equities exchanges for ETFs based on international and
global indexes and applying Rule 19b-4(e) \25\ should fulfill the
intended objective of that rule by allowing options on those ETFs that
have satisfied the generic listing standards to commence trading,
without the need for the public comment period and Commission approval.
The proposed rule has the potential to reduce the time frame for
bringing options on ETFs to market, thereby reducing the burdens on
issuers and other market participants. The failure of a particular ETF
to comply with the generic listing standards under Rule 19b-4(e) \26\
would not, however, preclude the Exchange from submitting a separate
filing pursuant to Section 19(b)(2),\27\ requesting Commission approval
to list and trade options on a particular ETF. Moreover, the Exchange
notes that the generic standards such as those in proposed Commentary
.06(b)(i) to Rule 1009 are not new in the options world, and have been
used extensively for listing options on narrow-based and broad-based
indexes.\28\
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\24\ See, e.g., Securities Exchange Act Release Nos. 57013
(December 20, 2007), 72 FR 73923 (December 28, 2007) (SR-CBOE-2007-
140) (approval order to list and trade options on iShares MSCI
Mexico Index Fund, when CBOE did not have in place a surveillance
agreement with the Bolsa Mexicana de Valores (the ``Bolsa'')); 57014
(December 20, 2007), 72 FR 73934 (December 28, 2007) (SR-ISE-2007-
111) (approval order to list and trade options on iShares MSCI
Mexico Index Fund, when ISE did not have in place a surveillance
agreement with the Bolsa); 56778 (November 9, 2007), 72 FR 65113
(November 19, 2007) (SR-AMEX-2007-100) (approval order to list and
trade options on iShares MSCI Mexico Index Fund, when AMEX did not
have in place a surveillance agreement with the Bolsa); and 55648
(April 19, 2007), 72 FR 20902 (April 26, 2007) (SR-AMEX-2007-09)
(approval order to list and trade options on Vanguard Emerging
Markets ETF, when AMEX did not have in place a surveillance
agreement with the Bolsa). See also Securities Exchange Act Release
Nos. 50189 (August 12, 2004), 69 FR 51723 (August 20, 2004) (SR-
AMEX-2001-05) [sic] (approving the listing and trading of certain
Vanguard International Equity Index Funds); and 44700 (August 14,
2001), 66 FR 43927 (August 21, 2001) (SR-2001-34) [sic] (approving
the listing and trading of series of the iShares Trust based on
foreign stock indexes).
\25\ 17 CFR 240.19b-4(e).
\26\ Id.
\27\ 15 U.S.C. 78s(b)(2).
\28\ Rule 1009A has, for example, weighting, capitalization,
trading volume, and minimum number of components standards for
listing options on narrow-based and broad-based indexes. For a
definition of broad-based index (market index) and narrow-based
index (industry index), see Rule 1000A(b)(11) and (12),
respectively.
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Requirements for Listing and Trading Options Overlying ETFs Based on
International and Global Indexes
Options on ETFs listed pursuant to these generic standards for
international and global indexes would be traded, in all other
respects, under the Exchange's existing trading rules and procedures
that apply to options on ETFs and would be covered under the Exchange's
surveillance program for options on ETFs.
Pursuant to proposed Commentary .06(b)(i) to Rule 1009, the
Exchange may list and trade options on an ETF without a CSSA provided
that the ETF is listed pursuant to generic listing standards for series
of PDRs and IFSs based on international or global indexes, in which
case a comprehensive surveillance agreement is not required. As noted,
one such rule, which discusses things such as weighting,
capitalization, trading volume, minimum number of components, and where
components are listed, is NASDAQ Rule 5705(b)(3)(A)(ii) regarding ETFs
(IFSs and PDRs).\29\ The Exchange believes that these generic listing
standards are intended to ensure that securities with substantial
market capitalization and trading volume account for a substantial
portion of the weight of an index or portfolio.
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\29\ NASDAQ Rule 5705(b)(3)(A)(ii) regarding IFSs, for example,
has the following requirements (reproduced in relevant part): a.
Component stocks (excluding Derivative Securities Products) that in
the aggregate account for at least 90% of the weight of the index or
portfolio (excluding Derivative Securities Products) each shall have
a minimum market value of at least $100 million; b. component stocks
(excluding Derivative Securities Products) that in the aggregate
account for at least 70% of the weight of the index or portfolio
(excluding Derivative Securities Products) each shall have a minimum
worldwide monthly trading volume of at least 250,000 shares, or
minimum global notional volume traded per month of $25,000,000,
averaged over the last six months; c. the most heavily weighted
component stock (excluding Derivative Securities Products) shall not
exceed 25% of the weight of the index or portfolio, and, to the
extent applicable, the five most heavily weighted component stocks
(excluding Derivative Securities Products) shall not exceed 60% of
the weight of the index or portfolio; d. the index or portfolio
shall include a minimum of 20 component stocks; provided, however,
that there shall be no minimum number of component stocks if either
one or more series of Index Fund Shares or Portfolio Depositary
Receipts constitute, at least in part, components underlying a
series of Index Fund Shares, or one or more series of Derivative
Securities Products account for 100% of the weight of the index or
portfolio; and e. each U.S. Component Stock shall be listed on a
national securities exchange and shall be an NMS Stock as defined in
Rule 600 of Regulation NMS under the Act, and each Non-U.S.
Component Stock shall be listed and traded on an exchange that has
last-sale reporting. NASDAQ Rule 5705(a)(3)(A)(ii) has similar
standards, but tailored for PDRs.
---------------------------------------------------------------------------

The Exchange believes that this proposed listing standard for
options on ETFs is reasonable for international and global indexes,
and, when applied in conjunction with the other listing requirements,
will result in options overlying ETFs that are sufficiently broad in
scope and not readily susceptible to manipulation. The Exchange also
believes that allowing the Exchange to list options overlying ETFs that
are listed on equities exchanges pursuant to generic standards for
series of PDRs and IFSs based on international or global indexes under
which a CSSA is not required, will result in options overlying ETFs
that are adequately diversified in weighting for any single security or
small group of securities to significantly reduce concerns that trading
in options overlying ETFs based on international or global indexes
could

[[Page 16075]]

become a surrogate for trading in unregistered securities.\30\
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\30\ The Exchange also notes that not affording retail investors
the ability to trade on a regulated exchange can be detrimental.
While products can be traded off exchange in the over the counter
(``OTC'') market, which has increased settlement, clearing, and
market risk as opposed to exchanges, the relatively unregulated OTC
market is usually not a viable option for retail and public
investors.
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The Exchange believes that ETFs based on international and global
indexes that have been listed pursuant to the generic standards are
sufficiently defined so as to make options overlying such ETFs not
susceptible instruments for manipulation. The Exchange believes that
the threat of manipulation is, as discussed below, sufficiently
mitigated for underlying ETFs that have been listed on equities
exchanges pursuant to generic listing standards for series of PDRs and
IFSs based on international or global indexes under which a
comprehensive surveillance agreement is not required and for the
overlying options; the Exchange does not see the need for a CSSA to be
in place before listing and trading options on such ETFs. The Exchange
notes that its proposal does not replace the need for a CSSA as
provided in current Commentary .06(b) to Rule 1009. The provisions of
Commentary .06(b), including the need for a CSSA, remain materially
unchanged and will continue to apply to options on ETFs that are not
listed on an equities exchange pursuant to generic listing standards
for series of PDRs and IFSs based on international or global indexes.
Instead, proposed Commentary .06(b)(i) adds an additional listing
mechanism for certain qualifying options on ETFs to be listed on the
Exchange.
Finally, to account for proposed Commentary .06(b) to Rule 1009 and
make Commentary .06 easier to follow, the Exchange proposes technical
changes to the formatting of this section of the rule. The Exchange
proposes re-numbering Commentary .06(b)(i), (ii) and (iii) as
Commentary .06(b)(ii)(A), (B), and (C), respectively; and re-numbering
Commentary .06(b)(iv) and (v) as Commentary .06(b)(iii) and (iv),
respectively. This is merely re-numbering and there are no changes to
the language of these sections of Commentary .06.
No Economic Risk
The proposal does not raise a concern regarding economic risk or
manipulation. The proposal does not increase the risk of manipulation
of the ETF itself, as the ETF trades in the U.S. and trading is subject
to the U.S. surveillance requirement and follows Exchange rules. One
might try to argue that the proposal raises a concern about a
theoretical manipulation risk of the underlying international
components of the ETF trading in the U.S. If such manipulation were
successful, the argument would go, then the ETF could be fairly priced
relative to its components but the price of the components potentially
may not reflect fair market value. The Exchange firmly believes that
the proposal does not raise any such theoretical concern.
For manipulation to be successful the expected cost of the
contemplated manipulation must be less than the expected gain. In other
words, manipulation will not be attempted if the prospective profit
from the attempt is zero or less, even ignoring the quite real costs
associated with regulatory risk. In approving the rules for narrow
based indices, it was thought that the costs of manipulating such an
index based on component securities with the same parameters as those
proposed ETFs would be prohibitive relative to any prospective gains.
The Exchange's proposal does not suggest a different paradigm.
Moreover, the Commission reviewed and approved the ability to list
ETFs without surveillance agreements if they meet the generic listing
standards for ETFs based on international or global indices. The
Exchange believes that the argument and economic conclusion that
allowing the listing of options on these same underlying ETFs with
components outside the U.S. that are sufficiently large, transparent,
diversified, and liquid to make manipulation unprofitable is valid.
A second theoretical source of manipulation risk may be seen to be
the creation/redemption process for ETFs. If the creation/redemption
process could be manipulated then the market price of the ETF could
materially differ from the fair value of the ETF derived from a fair
market value of the components. Again, the Exchange does not agree that
this is a significant manipulation risk for ETFs, let alone options on
ETF. As noted, ETFs are a much more mature asset class today than in
2001 when the current rules were adopted. The development of ETFs as an
established asset class and the listing and trading of ETFs, including
the creation/redemption process, has developed immensely since the
introduction of ETFs, and options on them. Since manipulation of the
creation/redemption process would create economic profits for the
manipulator, but such manipulation has not been manifest during the
significant expansion of ETFs as an international asset class, this
offers convincing evidence that manipulation risk in the creation/
redemption process is, indeed, theoretical and not an increased risk
with this proposal regarding the listing of ETF options. The Exchange
believes that its proposal will not lead to increased economic risk.
The Exchange requests approval of its proposal to allow the listing
of options overlying ETFs (PDRs and IFSs) based on international or
global indexes, without a comprehensive surveillance agreement. The
proposal will, as discussed, be beneficial to investors and is in
conformity with the Act.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \31\ in general, and furthers the objectives of Section
6(b)(5) of the Act \32\ 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. In particular, the proposed rule change has the potential to
reduce the time frame for bringing options on ETFs to market, thereby
reducing the burdens on issuers and other market participants. The
Exchange also believes that enabling the listing and trading of options
on ETFs pursuant to this proposed new listing standard will benefit
investors by providing them with valuable risk management tools. The
Exchange notes that its proposal does not replace the need for a CSSA
as provided in Commentary .06 to Rule 1009. The provisions of current
Commentary .06, including the need for a CSSA, remain materially
unchanged and will continue to apply to options on ETFs that are not
listed on an equities exchange pursuant to generic listing standards
for series of PDRs and IFSs based on international or global indexes
under which a comprehensive surveillance agreement is not required.
Instead, proposed Commentary .06(b)(i) to Rule 1009 adds an additional
listing mechanism for certain qualifying options on ETFs to be listed
on the Exchange in a manner that 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, to remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in

[[Page 16076]]

general, to protect investors and the public interest.
---------------------------------------------------------------------------

\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The proposal would promote just and equitable principles of trade.
The surveillance agreement requirement was instituted in 2001 when ETFs
were, comparatively speaking, in a developmental state.\33\ The first
ETF introduced in 1993 was a broad-based domestic equity fund tracking
the S&P 500 index. After the introduction of the first ETF in 1993, the
development of ETF products was very limited during the first decade of
their existence. Since the end of 2001, when there was a total of only
102 ETFs listed on U.S. markets, however, the ETF market has matured
tremendously and grown exponentially. With a total of 1,194 listed ETFs
at the end of 2012, the ETF market is now one of the most highly-
developed, sophisticated markets with many very well known, highly
traded and liquid products that provide traders and investors the
opportunity to access practically all industries and enterprises. While
investor demand for ETFs in all asset classes increased substantially,
in 2011 the demand for global and international equity ETFs, to which
the requirement applies, more than doubled.\34\ The Exchange believes
that the current surveillance requirement no longer serves a necessary
function in today's highly developed market, and, as discussed,
actually creates a dynamic that negatively impacts the number of
markets that can competitively trade ETF option products. This hurts
market participants. The Exchange therefore proposes to establish that
pursuant to proposed Commentary .06(b)(i) to Rule 1009 options may be
listed on certain ETFs that are based on global and international funds
and meet generic listing standards.
---------------------------------------------------------------------------

\33\ See Securities Exchange Act Release No. 43921 (February 2,
2001), 66 FR 9739 (February 9, 2001) (SR-Phlx-2000-107) (ETF
approval order).
\34\ https://www.icifactbook.org/fb_ch3.html.
---------------------------------------------------------------------------

The proposal would in general protect investors and the public
interest. The Exchange believes that modifying the surveillance
agreement requirement for ETFs would not hinder the Exchange from
performing surveillance duties designed to protect investors and the
public interest. There are various data consolidators, vendors, and
outlets that can be used to access data and information regarding ETFs
and the underlying securities (e.g., Bloomberg, Dow Jones, FTEN). In
addition, firms that list ETFs on an exchange receive vast amounts of
data relevant to their products that could be made available to listing
exchanges as needed. The Exchange has access to the activity of the
direct underlying instrument and the ETF, and through the Intermarket
Surveillance Group (``ISG'') the Exchange can obtain such information
related to the underlying security as needed.\35\ Moreover, other than
the surveillance agreement requirement there are, as discussed,
numerous requirements in Rule 1009 that must be met to list options on
ETFs on the Exchange.
---------------------------------------------------------------------------

\35\ See https://www.isgportal.org/home.html. Another global
organization similar to ISG is The International Organization of
Securities Commissions (``IOSCO'').
---------------------------------------------------------------------------

The proposal would remove impediments to and perfect the mechanism
of a free and open market and a national market system. Multiple
listing of ETFs, options, and other securities and competition are some
of the central features of the current national market system. The
Exchange believes that the surveillance agreement requirement has led
to clearly anti-competitive results in a market that is based on
competition. As such, the Exchange believes that the surveillance
agreement requirement for options on certain ETFs is no longer
necessary and proposes new Commentary .06(b)(i) to Rule 1009. The
proposed rule change will significantly benefit market participants. As
discussed at length, the proposed rule will negate the negative anti-
competitive effect of the current surveillance agreement requirement
that has resulted in de facto regulatory monopolies where only solitary
exchanges, or only a few exchanges, are able to list certain ETF
options products. The Exchange believes this is inconsistent with
Commission policies and the developing national market system, as well
as the competitive nature of the market, and therefore proposes
amendment.\36\ The Exchange believes that the proposal would encourage
a more open market and national market system based on competition and
multiple listing. The generic listing standards for ETFs based on
global or international indexes have specific requirements regarding
relative weighting, minimum capitalization, minimum trading volume, and
minimum number of components that have been approved by the Commission
years ago for foreign ETFs.\37\ Moreover, such listing standards have
been in continuous use for listing options on narrow-based and broad-
based indexes on the Exchange.\38\ Allowing the listing of options on
underlying ETFs based on global and international indexes that meet
generic listing standards would encourage a free and open market and
national market system to the benefit of market participants.
---------------------------------------------------------------------------

\36\ As discussed, the Exchange is decidedly not proposing that
the surveillance agreement requirement be deleted entirely, but
rather that only those options on ETFs that do not meet very
specific generic listing standards need to have surveillance
agreements in order to list on the Exchange.
\37\ See Securities Exchange Act Release No. 54739 (November 9,
2006), 71 FR 66993 (November 17, 2006) (SR-Amex-2006-78) (initial
order relating to generic listing standards for ETFs based on
international or global indexes). See also NASDAQ Rule
5705(a)(3)(A)(ii) and (b)(3)(A)(ii).
\38\ See Rule 1009A(b) and (d).
---------------------------------------------------------------------------

Finally, the Exchange's proposal for limiting the necessity of
surveillance agreements to list options on ETFs does not, as discussed
above, raise a concern regarding manipulation. The Exchange believes
that its proposal is not indicative of increased economic risk.
For the above reasons, the Exchange believes the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

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. To the contrary, the
Exchange believes that the proposal is, as discussed, decidedly pro-
competitive and is a competitive response to the inability to list
products because of the surveillance agreement requirement. The
Exchange believes that the proposed rule change will result in
additional investment options and opportunities to achieve the
investment objectives of market participants seeking efficient trading
and hedging vehicles, to the benefit of investors, market participants,
and the marketplace in general. Competition is one of the principal
features of the national market system. The Exchange believes that this
proposal will expand competitive opportunities to list and trade
products on the Exchange as noted.

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. 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 from the date on

[[Page 16077]]

which it was filed, or such shorter time as the Commission may
designate, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \39\ and Rule 19b-4(f)(6)
thereunder.\40\
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\39\ 15 U.S.C. 78s(b)(3)(A).
\40\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \41\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \42\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
stated that waiver of the operative delay will permit the Exchange to
list and trade certain ETF options on the same basis as another options
market.\43\ The Commission believes the waiver of the operative delay
is consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposal operative upon filing.\44\
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\41\ 17 CFR 240.19b-4(f)(6).
\42\ 17 CFR 240.19b-4(f)(6)(iii).
\43\ See Securities Exchange Act Release No. 74509 (March 13,
2015), 80 FR 14425 (March 19, 2015) (SR-MIAX-2015-04).
\44\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend 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 furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2015-27 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-Phlx-2015-27. This file
number should be included on the subject line if email 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 (https://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
10:00 a.m. and 3:00 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-Phlx-2015-27 and should be
submitted on or before April 16, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
---------------------------------------------------------------------------

\45\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-06887 Filed 3-25-15; 8:45 am]
BILLING CODE 8011-01-P

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