Self-Regulatory Organization; Chicago Mercantile Exchange; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Listing Standards for Security Futures Products, 39826-39832 [E5-3620]
Download as PDF
<![CDATA[
39826
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CME does not believe that the
proposed rule change, as amended,
would impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change,
as amended, has become effective
pursuant to Section 19(b)(7) of the
Act.49 Within 60 days of the date of
effectiveness of the proposed rule
change, as amended, the Commission,
after consultation with the CFTC, may
summarily abrogate the proposed rule
change and require that the proposed
rule change be refiled in accordance
with the provisions of Section 19(b)(1)
of the Act.50
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 e-mail to rulecomments@sec.gov. Please include File
Number SR–CME–2005–03 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–CME–2005–03. 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 (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 inspection and copying in
the Commission’s Public Reference
Section. Copies of such filing also will
be available for inspection and copying
at the principal office of CME. 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–CME–2005–03 and should
be submitted on or before August 1,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.51
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–3618 Filed 7–8–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51959; File No. SR–CME–
2005–01]
Self-Regulatory Organization; Chicago
Mercantile Exchange; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating to
Listing Standards for Security Futures
Products
June 30, 2005.
Pursuant to Section 19(b)(7) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–7 thereunder,2
notice is hereby given that on May 4,
2005, the Chicago Mercantile Exchange
(‘‘CME’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I, II, and III
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(7).
2 17 CFR 240.19b–7.
below, which Items have been prepared
by CME.
CME has also certified the proposed
rule change with the Commodity
Futures Trading Commission (‘‘CFTC’’)
under Section 5c(c) of the Commodity
Exchange Act (‘‘CEA’’) 3 on May 4, 2005.
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
CME proposes to amend its Security
Futures Product Listing Standards
(‘‘Listing Standards’’) for purposes of
Section 6(h) of the Act.4 These
amendments are intended to conform
CME Listing Standards for physically
settled security futures products,
including exchange traded funds
(‘‘ETFs’’), trust issued receipts (‘‘TIRs’’),
closed-end funds and narrow-based
indices (‘‘NRIs’’), to current industry
practices. The text of the proposed rule
change is below. Proposed new
language is italicized; and proposed
deletions are in [brackets].
CHAPTER 700: SECURITY FUTURES
PRODUCT LISTING STANDARDS
70000. SCOPE OF CHAPTER
No change.
70001. SINGLE SECURITY FUTURES—
INITIAL LISTING STANDARDS
For a Security Futures Product, that is
physically settled, to be eligible for
initial listing, the security underlying
the futures contract must meet each of
the following requirements:
1.–5. No change.
6. In the case of an underlying
security other than an ETF Share, TIR or
Closed-End Fund Share, it must have
had [an average daily trading volume (in
all markets in which the underlying
security has traded) of at least 109,000
shares or receipts evidencing the
underlying security in each of the
preceding 12 months.] total trading
volume (in all markets in which the
underlying security is traded) of at least
2,400,000 shares or receipts evidencing
the underlying security in the preceding
12 months.
Interpretation of Requirement 6 as
Applied to Restructure Securities
No change.
7. No change.
8. [It must have had a market price
per security of at least $7.50, as
measured by the lowest closing price
51 17
49 15
U.S.C. 78s(b)(7).
50 15 U.S.C. 78s(b)(1).
VerDate jul<14>2003
16:03 Jul 08, 2005
1 15
Jkt 205001
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
37
U.S.C. 7a–2(c).
U.S.C. 78f(h).
4 15
E:\FR\FM\11JYN1.SGM
11JYN1
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
reported in any market in which it has
traded, for the majority of business days
during the three calendar months
preceding the date of selection.] If the
underlying security is a ‘‘covered
security as defined under Section
18(b)(1)(A) of the Securities Act of 1933,
the market price per share of the
underlying security has been at least
$3.00 for the previous five consecutive
business days preceding the date on
which the Exchange commences to list
and trade the Security Futures Product
on said underlying security. For
purposes of this provision, the market
price of such underlying security is
measured by the closing price reported
in the primary market in which the
underlying security is traded.
Interpretation of Requirement 8 as
Applied to Restructure Securities
Look-Back Test: In determining
whether a Restructure Security that is
issued or distributed to the shareholders
of an Original Equity Security (but not
a Restructure Security that is issued
pursuant to a public offering or rights
distribution) satisfies this requirement,
the Exchange may ‘‘look back’’ to the
market price history of the Original
Equity Security prior to the ex-date of
the Restructuring Transaction if the
following Look-Back Test is satisfied:
a. The Restructure Security has an
aggregate market value of at least $500
million;
b. The aggregate market value of the
Restructure Security equals or exceeds
the Relevant Percentage (defined below)
of the aggregate market value of the
Original Equity Security;
c. The aggregate book value of the
assets attributed to the business
represented by the Restructure Security
equals or exceeds both $50 million and
the Relevant Percentage of the aggregate
book value of the assets attributed to the
business represented by the Original
Equity Security; or
d. The revenues attributed to the
business represented by the Restructure
Security equals or exceeds both $50
million and the Relevant Percentage of
the revenues attributed to the business
represented by the Original Equity
Security.
For purposes of determining whether
the Look-Back Test is satisfied, the term
‘‘Relevant Percentage’’ means: (i) 25%,
when the applicable measure
determined with respect to the Original
Equity Security or the business it
represents includes the business
represented by the Restructure Security;
and (ii) 331⁄3%, when the applicable
measure determined with respect to the
Original Equity Security or the business
VerDate jul<14>2003
16:03 Jul 08, 2005
Jkt 205001
it represents excludes the business
represented by the Restructure Security.
In calculating comparative aggregate
market values, the Exchange will use
the Restructure Security’s closing price
on its primary market on the last
business day prior to the Selection Date,
or the Restructure Security’s opening
price on its primary market on the
Selection Date, and will use the
corresponding closing or opening price
of the related Original Equity Security.
Furthermore, in calculating
comparative asset values and revenues,
the Exchange will use the issuer’s (i)
latest annual financial statements or (ii)
most recently available interim financial
statements (so long as such interim
financial statements cover a period of
not less than three months), whichever
are more recent. Those financial
statements may be audited or unaudited
and may be pro forma.
Restructure Securities Issued in
Public Offering or Rights Distribution:
In determining whether a Restructure
Security that is distributed pursuant to
a public offering or a rights distribution
satisfies requirement [(viii)] 8, the
Exchange may look back to the market
price history of the Original Equity
Security if: (i) The foregoing Look-Back
Test is satisfied; (ii) the Restructure
Security trades ‘‘regular way’’ on an
exchange or automatic quotation system
for at least five trading days
immediately preceding the Selection
Date; and (iii) at the close of trading on
each trading day on which the
Restructure Security trades ‘‘regular
way’’ prior to the Selection Date, as well
as at the opening of trading on Selection
Date, the market price of the Restructure
Security was at least [$7.50]; $3.00.
Limitation on Use of Look-Back Test:
Except in the case of a Restructure
Security that is distributed pursuant to
a public offering or rights distribution,
the Exchange will not rely upon the
market price history of an Original
Equity Security for any trading day
unless it also relies upon the trading
volume history for that trading day. In
addition, once the Exchange commences
to rely upon a Restructure Security’s
trading volume and market price history
for any trading day, the Exchange will
not rely upon the trading volume and
market price history of the related
Original Equity Security for any trading
day thereafter.
9. If the underlying security is not a
‘‘covered security as defined under
Section 18(b)(1)(A) of the Securities Act
of 1933, the market price per share of
the underlying security has been at least
$7.50 for the previous five consecutive
business days preceding the date on
which the Exchange commences to list
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
39827
and trade the Security Futures Product
on said underlying security. For
purposes of this provision, the market
price of such underlying security is
measured by the closing price reported
in the primary market in which the
underlying security is traded.
Interpretation of Requirement 9 as
Applied to Restructure Securities
Look-Back Test: In determining
whether a Restructure Security that is
issued or distributed to the shareholders
of an Original Equity Security (but not
a Restructure Security that is issued
pursuant to a public offering or rights
distribution) satisfies this requirement,
the Exchange may ‘‘look back’’ to the
market price history of the Original
Equity Security prior to the ex-date of
the Restructuring Transaction if the
following Look-Back Test is satisfied:
a. The Restructure Security has an
aggregate market value of at least $500
million;
b. The aggregate market value of the
Restructure Security equals or exceeds
the Relevant Percentage (defined below)
of the aggregate market value of the
Original Equity Security;
c. The aggregate book value of the
assets attributed to the business
represented by the Restructure Security
equals or exceeds both $50 million and
the Relevant Percentage of the aggregate
book value of the assets attributed to the
business represented by the Original
Equity Security; or
d. The revenues attributed to the
business represented by the Restructure
Security equals or exceeds both $50
million and the Relevant Percentage of
the revenues attributed to the business
represented by the Original Equity
Security.
For purposes of determining whether
the Look-Back Test is satisfied, the term
‘‘Relevant Percentage’’ means: (i) 25%,
when the applicable measure
determined with respect to the Original
Equity Security or the business it
represents includes the business
represented by the Restructure Security;
and (ii) 331⁄3%, when the applicable
measure determined with respect to the
Original Equity Security or the business
it represents excludes the business
represented by the Restructure Security.
In calculating comparative aggregate
market values, the Exchange will use
the Restructure Security’s closing price
on its primary market on the last
business day prior to the Selection Date,
or the Restructure Security’s opening
price on its primary market on the
Selection Date, and will use the
corresponding closing or opening price
of the related Original Equity Security.
E:\FR\FM\11JYN1.SGM
11JYN1
39828
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
Furthermore, in calculating
comparative asset values and revenues,
the Exchange will use the issuer’s (i)
latest annual financial statements or (ii)
most recently available interim financial
statements (so long as such interim
financial statements cover a period of
not less than three months), whichever
are more recent. Those financial
statements may be audited or unaudited
and may be pro forma.
Restructure Securities Issued in Public
Offering or Rights Distribution: In
determining whether a Restructure
Security that is distributed pursuant to
a public offering or a rights distribution
satisfies requirement [(viii)] 8, the
Exchange may look back to the market
price history of the Original Equity
Security if: (i) The foregoing Look-Back
Test is satisfied; (ii) the Restructure
Security trades ‘‘regular way’’ on an
exchange or automatic quotation system
for at least five trading days
immediately preceding the Selection
Date; and (iii) at the close of trading on
each trading day on which the
Restructure Security trades ‘‘regular
way’’ prior to the Selection Date, as well
as at the opening of trading on Selection
Date, the market price of the Restructure
Security was at least $7.50.
Limitation on Use of Look-Back Test:
Except in the case of a Restructure
Security that is distributed pursuant to
a public offering or rights distribution,
the Exchange will not rely upon the
market price history of an Original
Equity Security for any trading day
unless it also relies upon the trading
volume history for that trading day. In
addition, once the Exchange
commences to rely upon a Restructure
Security’s trading volume and market
price history for any trading day, the
Exchange will not rely upon the trading
volume and market price history of the
related Original Equity Security for any
trading day thereafter.
[9.] 10. If the underlying security is an
ADR:
a. The Exchange must have an
effective surveillance sharing agreement
with the primary exchange in the home
country where the stock underlying the
ADR is traded;
b. The combined trading volume of
the ADR and other related ADRs and
securities in the U.S. ADR market, or in
markets with which the Exchange has in
place an effective surveillance sharing
agreement, represents (on a share
equivalent basis) at least 50% of the
combined worldwide trading volume in
the ADR, the security underlying the
ADR, other classes of common stock
related to the underlying security, and
ADRs overlying such other stock over
the three-month period preceding the
VerDate jul<14>2003
16:03 Jul 08, 2005
Jkt 205001
dates of selection of the ADR for futures
trading (‘‘Selection Date’’);
c.
(1) The combined trading volume of
the ADR and other related ADRs and
securities in the U.S. ADR market, and
in markets where the Exchange has in
place an effective surveillance sharing
agreement, represents (on a share
equivalent basis) at least 20% of the
combined worldwide trading volume in
the ADR and in other related ADRs and
securities over the three-month period
preceding the Selection Date;
(2) The average daily trading volume
for the ADR in the U.S. markets over the
three-month period preceding the
Selection Date is at least 100,000
receipts; and
(3) The daily trading volume for the
ADR is at least 60,000 receipts in the
U.S. markets on a majority of the trading
days for the three-month period
preceding the Selection Date.
Or
d. The Securities and Exchange
Commission and Commodity Futures
Trading Commission have otherwise
authorized the listing.
[10.] 11. The Exchange will not list for
trading any SFP where the underlying
security is a Restructure Security that is
not yet issued and outstanding,
regardless of whether the Restructure
Security is trading on a ‘‘when issued’’
basis or on another basis that is
contingent upon the issuance or
distribution of securities.
70002. SINGLE SECURITY FUTURES—
MAINTENANCE LISTING STANDARDS
1. [Absent exceptional circumstances,
the] The Exchange will not open for
trading any SFP, that is physically
settled, with a new delivery month, and
may prohibit any opening purchase
transactions in the SFP already trading,
to the extent it deems such action
necessary or appropriate, unless the
underlying security meets each of the
following maintenance requirements;
provided that, if the underlying security
is an ETF Share, TIR or Closed-End
Fund Share, the applicable
requirements for initial listing of the
related SFP (as described in Rule 70001
above) shall apply in lieu of the
following maintenance requirements:
a. It must be registered under Section
12 of the Exchange Act.
[a.] b. There must be at least 6,300,000
shares or receipts evidencing the
underlying security outstanding that are
owned by persons other than those who
are required to report their security
holdings pursuant to Section 16(a) of
the Exchange Act.
[b.] c. There must be at least 1,600
securityholders.
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
[c.] d. It must have had an average
daily trading volume (across all markets
in which the underlying security is
traded) of least 82,000 shares or receipts
evidencing the underlying security in
each of the preceding 12 months.
Interpretation of Requirement [1.c.] 1.d.
as Applied to Restructure Securities
If a Restructure Security is approved
for a SFP trading under the initial listing
standards in [Section I] Rule 70001, the
average daily trading volume history of
the Original Equity Security (as defined
in [Section I] Rule 70001) prior to the
commencement of trading in the
Restructure Security (as defined in
[Section I] Rule 70001), including
‘‘when-issued’’ trading, may be taken
into account in determining whether
this requirement is satisfied.
[d.] The security underlying the
Security Futures Product must have had
a market price of at least $5.00, as
measured by the highest closing price
reported in any market in which it has
traded, for a majority of business days
during the preceding six calendar
months; provided, however, that the
Exchange may waive this requirement
and open for trading a SFP with a new
delivery month, if:
(1) The aggregate market value of the
underlying security equals or exceeds
$50 million;
(2) Customer open interest (reflected
on a two-sided basis) equals or exceeds
4,000 contracts for all delivery months;
(3) Its average daily trading volume
(in all markets in which the underlying
security is traded) has been at least
109,000 shares or receipts evidencing
the underlying security in each of the
preceding 12 months; and
(4) The market price per share or
receipt of the underlying security closed
at $3.00 or above on a majority of the
business days during the preceding six
calendar months, as measured by the
highest closing price for the underlying
security reported in any market in
which the underlying security traded,
and the market price per share or receipt
of the underlying security is at least
$3.00 at the time such additional series
are authorized for trading. During the
next consecutive six calendar month
period, to satisfy this paragraph, the
market price per share or receipt of the
underlying security must be at least
$4.00.]
e. The market price per share or
receipt of the underlying security has
not closed below $3.00 on the previous
trading day to the Expiration Day of the
nearest expiring Contract on the
underlying security. The market price
per share of the underlying security will
be measured by the closing price
E:\FR\FM\11JYN1.SGM
11JYN1
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
reported in the primary market in which
the underlying security traded.
Interpretation of Requirement [d] 1.e. as
Applied to Restructure Securities
If a Restructure Security is approved
for SFP trading under the initial listing
standards per Rule 70001[.8], the market
price history of the Original Equity
Security prior to the commencement of
trading in the Restructure Security,
including ‘‘when-issued’’ trading, may
be taken into account in determining
whether this requirement is satisfied.
[e.] f. If the underlying security is an
ADR and was initially deemed
appropriate for SFP trading per Rule
70001.10.b or Rule 70001.10.c.[.8.b. or
70001.8.c.], the Exchange will not open
for trading SFPs having additional
delivery months on the ADR unless:
(1) The percentage of worldwide
trading volume in the ADR and other
related securities that takes place in the
U.S. and in markets with which the
Exchange has in place effective
surveillance sharing agreements for any
consecutive three-month period is: (1)
At least 30%, without regard to the
average daily trading volume in the
ADR; or (2) at least 15% when the
average U.S. daily trading volume in the
ADR for the previous three months is at
least 70,000 receipts;
(2) The Exchange has in place an
effective surveillance sharing agreement
with the primary exchange in the home
country where the security underlying
the ADR is traded; or
(3) The Securities and Exchange
Commission and Commodity Futures
Trading Commission have otherwise
authorized the listing.
2.–4. No change.
70003. SFPs BASED ON INDEX
COMPOSED OF TWO OR MORE
SECURITIES—INITIAL LISTING
STANDARDS
No change.
index underlying a physically settled
security futures product as described in
the first sentence of (i) will initially be
the last trading day of the year, except
that, if the Exchange has rebalanced
such index on an interim basis as
described in the second sentence of (i),
any following annual rebalancing of
such index will occur on the
anniversary date of the interim
rebalancing. New contracts issued on or
after a date on which the corresponding
index is rebalanced in accordance with
(i) will be based on an index consisting
of the original component securities,
weighted applying the methodology
described under (i) above on the basis
of security prices on the rebalancing
date. Outstanding contracts will not be
affected by any rebalancing.]
In the case of a physically settled SFP
based on an approximately equal
dollar-weighted index composed of one
or more securities, each component
security will be weighted equally based
on its market price on the Selection
Date, subject to rounding up or down
the number of shares or receipts
evidencing such security to the nearest
multiple of 100 shares or receipts.
j.–l. No change.
*
*
*
*
*
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 or such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
70004. SFPs BASED ON INDEX
COMPOSED OF TWO OR MORE
SECURITIES—MAINTENANCE
LISTING STANDARDS
Interpretation of Requirement 2.i.
Regarding Procedures for Rebalancing
1. Purpose
The Exchange has Listing Standards
applicable to physically settled security
futures products (‘‘SFPs’’) for NBIs and
for single security products, including
ETFs, TIRs, and shares of registered
closed-end management investment
companies (‘‘Closed-End Fund’’).5 The
Exchange proposes to amend its Listing
Standards to conform to current
industry practices. In particular, the
[The date of determination for the
mandatory annual rebalancing of an
approximately equal dollar-weighted
5 See Securities Exchange Act Release No. 46975
(December 9, 2002), 67 FR 77297 (December 17,
2002) (SR–CME–2002–02).
The Exchange will not open for
trading SFPs, that are physically settled,
based on an index composed of two or
more securities with a new delivery
month unless the underlying index:
1. No change.
2. Meets the following requirements:
a.–i. No change.
VerDate jul<14>2003
16:03 Jul 08, 2005
Jkt 205001
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
39829
Exchange proposes to amend the current
requirement that a security underlying a
SFP, other than an ETF, TIR, or ClosedEnd Fund share, must have had an
average daily trading volume of at least
109,000 shares or receipts evidencing
the underlying security in each of the
preceding 12 months to adopt a
requirement, in conformance with
current industry practice (and the
standards for an ETFs, TIRs, and ClosedEnd Fund share), that such security
must evidence total trading volume of at
least 2,400,000 shares or receipts
evidencing the underlying security in
the preceding 12 months. Finally, the
Exchange also proposes to adopt other
minor or technical amendments to its
Listing Standards to conform with
industry practices, such as adjusting the
market price per share of a security
underlying a SFP to distinguish between
a covered security as defined under
Section 18(b)(1)(A) of the Securities Act
of 1933 and a security that is ‘‘not
covered.’’ 6
Section 6(h)(3) of the Act Requirements
Section 6(h)(3) of the Act 7 contains
listing standards and conditions for
trading SFPs. Below is a summary of
each such requirement or condition,
followed by a brief explanation of how
CME would comply with it, whether by
particular provisions in CME Listing
Standards or otherwise.
Clause (A) of Section 6(h)(3) of the
Act 8 requires that any security
underlying a SFP be registered pursuant
to Section 12 of the Act.9 This
requirement is addressed by CME Rules
70001.2, 70003.2.b, 70004.2.a, and
proposed CME Rule 70002.1.a.
Clause (B) of Section 6(h)(3) of the
Act 10 requires that a market on which
a physically settled SFP is traded have
arrangements in place with a registered
clearing agency for the payment and
delivery of the securities underlying the
6 The joint order by the CFTC and the
Commission modifying the requirement specified in
Section 6(h)(3)(D) of the Act and the criterion
specified in Section 2(a)(1)(D)(i)(III) of the CEA to
permit an ETF share, TIR or Closed-End Fund share
to underlie a security future also provides that the
market price of the underlying share be $7.50 for
the majority of business days during the three
calendar months preceding listing of the SFP and
that the issuer of the ETF, TIR, or Closed-End Fund
be in compliance with all of the applicable
requirements of the Act. See Securities Exchange
Act Release No. 46090 (June 19, 2002), 67 FR 42760
(June 25, 2002). CME intends to comply with this
joint order. Telephone conversation between John
Labuszewski, Managing Director, CME, and
Florence E. Harmon, Senior Special Counsel,
Division of Market Regulation (‘‘Division’’),
Commission, on June 28, 2005.
7 15 U.S.C. 78f(h)(3).
8 15 U.S.C. 78f(h)(3)(A).
9 15 U.S.C. 78l.
10 15 U.S.C. 78f(h)(3)(B).
E:\FR\FM\11JYN1.SGM
11JYN1
39830
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
SFP. CME has reached an agreement
with a participant of DTC, a registered
clearing agency, to facilitate the
delivery-versus-payment transactions
which result from an agreement to make
or take delivery of the underlying
security by the market participant.11
This DTC participant would provide
CME with a dedicated DTC account.
This account would be a sub-account of
the participant’s main account and
would be utilized solely for CME
activity with respect to the delivery of,
and payment for, securities delivered
against CME SFPs. CME would act as a
contra party to each delivery
transaction. The CME Clearing House
would submit a delivery instruction for
each transaction to DTC by electronic
interface provided by the DTC
participant. Market participants would
be required to provide proof to CME
outlining their operational and legal
ability to make or take delivery of the
underlying securities. These agreements
and relevant procedures would be fully
operational prior to any possible
delivery event associated with such
SFPs.
Clause (C) of Section 6(h)(3) of the
Act 12 provides that listing standards for
SFPs must be no less restrictive than
comparable listing standards for options
traded on a national securities exchange
or national securities association
registered pursuant to Section 15A(a) of
the Act.13 For the reasons discussed
herein, notwithstanding specified
differences between the Sample Listing
Standards and CME Listing Standards,
CME believes that the latter are no less
restrictive than comparable listing
standards for exchange-traded options.
Clause (D) of Section 6(h)(3) of the
Act 14 requires that each SFP be based
on common stock or such other equity
securities as the Commission and CFTC
jointly determine are appropriate. This
requirement is addressed by CME Rules
70001.1, 70002.1., 70003.2., and
70004.2.
Clause (E) of Section 6(h)(3) of the
Act 15 requires that each SFP be cleared
by a clearing agency that has in place
provisions for linked and coordinated
clearing with other clearing agencies
that clear SFPs, which permits the SFPs
to be purchased on one market and
offset on another market that trades
11 The Exchange clarified its arrangement for the
payment and delivery of securities underlying the
SFPs. Telephone conversation between John
Labuszewski, Managing Director, CME, and
Florence E. Harmon, Senior Special Counsel,
Division, Commission, on June 9, 2005.
12 15 U.S.C. 78f(h)(3)(C).
13 15 U.S.C. 78o–3(a).
14 15 U.S.C. 78f(h)(3)(D).
15 15 U.S.C. 78f(h)(3)(E).
VerDate jul<14>2003
16:03 Jul 08, 2005
Jkt 205001
such product. CME proposes to clear
SFPs traded through Exchange facilities
through CME Clearing House. CME
Clearing House would have in place all
provisions for linked and coordinated
clearing as mandated by law and statute
as of the effective date of such laws and
statutes.
Clause (F) of Section 6(h)(3) of the
Act 16 requires that only a broker or
dealer subject to suitability rules
comparable to those of a national
securities association registered
pursuant to Section 15A(a) of the Act 17
effect transactions in a SFP. CME
clearing members and their
correspondents are bound by the
applicable sales practice rules of the
National Futures Association (‘‘NFA’’),
which is a national securities
association. As such, the sales practice
rules of NFA are, perforce, comparable
to those of a national securities
association registered pursuant to
Section 15A(a) of the Act.18 Moreover,
the application of NFA sales practice
rules is extended beyond the CME
clearing membership to the extent that
NFA By-Law 1101 provides that ‘‘[n]o
member may carry an account, accept
an order or handle a transaction in
commodity futures contracts for or on
behalf of any non-Member of NFA.’’
Clause (G) of Section 6(h)(3) of the
Act 19 requires that each SFP be subject
to the prohibition against dual trading
in Section 4j of CEA 20 and the rules and
regulations thereunder or the provisions
of Section 11(a) of the Act 21 and the
rules and regulations thereunder. CME
Rule 123 requires Exchange members to
comply with all applicable ‘‘provisions
of the Commodity Exchange Act and
regulations duly issued pursuant thereto
by the CFTC.’’
Further, the prohibition of dual
trading in SFPs per Regulation
§ 41.272 22 adopted pursuant to Section
4j(a) of CEA 23 applies to a contract
market operating an electronic trading
system if such market provides
participants with a time or place
advantage or the ability to override a
predetermined matching algorithm. The
Exchange intends to offer SFPs on CME
exclusively on its CME Globex
electronic trading platform. To the
extent that the conditions cited above
do not exist in the context of the CME
Globex system, the CME Rulebook
PO 00000
16 15
U.S.C. 78f(h)(3)(F).
U.S.C. 78o–3(a).
18 15 U.S.C. 78o–3(a).
19 15 U.S.C. 78f(h)(3)(G).
20 15 U.S.C. 4j.
21 15 U.S.C. 78k(a).
22 17 CFR 41.27.
23 7 U.S.C. 6j(a).
17 15
Frm 00116
Fmt 4703
Sfmt 4703
contains no specific rule relating to dual
trading in an electronic forum.
Clause (H) of Section 6(h)(3) of the
Act 24 provides that trading in a SFP
must not be readily susceptible to
manipulation of the price of such SFP,
nor to causing or being used in the
manipulation of the price of any
underlying security, option on such
security, or option on a group or index
including such securities. CME believes
that CME Listing Standards are designed
to ensure that CME SFPs and the
underlying securities would not be
readily susceptible to price
manipulation. Under CME Rule 432, an
activity ‘‘to manipulate prices or to
attempt to manipulate prices’’ is a
‘‘major offense’’ punishable, per CME
Rule 430, by ‘‘expulsion, suspension,
and/or a fine of not more than
$1,000,000 plus the monetary value of
any benefit received as a result of the
violative action.’’
Clause (I) of Section 6(h)(3) of the
Act 25 requires that procedures be in
place for coordinated surveillance
amongst the market on which a SFP is
traded, any market on which any
security underlying the SFP is traded,
and other markets on which any related
security is traded to detect manipulation
and insider trading. The Exchange has
surveillance procedures in place to
detect manipulation on a coordinated
basis with other markets. In particular,
CME is an affiliate member of the
Intermarket Surveillance Group (‘‘ISG’’)
and is party to an affiliate agreement
and an agreement to share market
surveillance and regulatory information
with the other ISG members. Further,
CME is party to a supplemental
agreement with the other ISG members
to address the concerns expressed by
the Commission with respect to affiliate
ISG membership.26 Finally, CME Rule
424 permits CME to enter into
agreements for the exchange of
information and other forms of mutual
assistance with domestic or foreign selfregulatory organizations, associations,
boards of trade, and their respective
regulators.
Clause (J) of Section 6(h)(3) of the
Act 27 requires that a market on which
a SFP is traded have in place audit trails
necessary or appropriate to facilitate the
coordinated surveillance referred to in
the preceding paragraph. The Exchange
states that it relies upon its Market
24 15
U.S.C. 78f(h)(3)(H).
U.S.C. 78f(h)(3)(I).
26 See Securities Exchange Act Release No. 45956
(May 17, 2002), 67 FR 36740 (May 24, 2002) (joint
CFTC and Commission rule relating to cash
settlement and regulatory halt requirements for
SFPs).
27 15 U.S.C. 78f(h)(3)(J).
25 15
E:\FR\FM\11JYN1.SGM
11JYN1
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
Regulation Department and its large,
highly trained staff to actively monitor
market participants and their trading
practices and to enforce compliance
with CME rules. CME Market Regulation
Department staff is organized into
Compliance and Market Surveillance
Groups. In performing its functions,
CME Market Regulation Department
routinely works closely with CME Audit
Department, CME Clearing House, CME
Legal Department, CME Globex Control
Center, and CME Information
Technology Department.
CME Compliance is responsible for
enforcing the trading practice rules of
the Exchange through detection,
investigation, and prosecution of those
who may attempt to violate those CME
Rules. Further, CME Compliance is
responsible for handling customer
complaints, ensuring the integrity of the
Exchange’s audit trail, and
administering an arbitration program for
the resolution of disputes. CME
Compliance employs investigators,
attorneys, trading floor investigators,
data analysts, and a computer
programming and regulatory systems
design staff.
CME believes that CME Market
Regulation Department has created
some of the most sophisticated tools in
the world to assist with the detection of
possible rule violations and monitoring
of the market. Among the systems it
uses are the Regulatory Trade Browser
(‘‘RTB’’), the Virtual Detection System
(‘‘VDS’’), the Reportable Position
System (‘‘RPS’’), and the RegWeb Profile
System (‘‘RegWeb’’). These systems
include information on all CME Globex
users, all transactions, large positions,
and statistical information on trading
entities.
CME Market Surveillance is dedicated
to the detection and prevention of
market manipulation and other similar
forms of market disruption. As part of
these responsibilities, CME Market
Surveillance enforces the Exchange’s
position limit rules, administers the
hedge approval process, and maintains
the Exchange’s RPS system.
CME believes that the foundation of
the CME Market Surveillance program is
the deep knowledge of its staff about the
major users, brokers, and clearing firms,
along with its relationship with other
regulators. Day-to-day monitoring of
market positions is handled by a
dedicated group of surveillance analysts
assigned to specific market(s). Each
analyst develops in-depth expertise of
the factors that influence the market in
question. The Exchange estimates that
perhaps 90% of the market users at any
single time are known to the Exchange.
VerDate jul<14>2003
16:03 Jul 08, 2005
Jkt 205001
Daily surveillance staff activities
include:
• Monitoring positions for size based
on percentage of open interest and
historic user participation in each
contract.
• Aggregation of positions across
clearing members with the use of CME
trade reporting systems to account for
all positions held by any single
participant. CME believes that this daily
review permits the surveillance analyst
to promptly identify unusual market
activity.
• As a contract approaches maturity,
large positions are scrutinized to
determine whether such activity is
consistent with prior experience,
allowing prompt regulatory intervention
if necessary.
• Analysts closely monitor market
news through on-line and print media.
• Staff conducts on-site visits to large
market participants periodically.
CME Market Regulation staff
investigates possible misconduct and,
when appropriate, initiates disciplinary
action. CME Rule 430 empowers the
Exchange’s disciplinary committees to
discipline, limit, suspend, or terminate
a member’s activities for cause, amongst
other sanctions. Further, per CME Rule
123, the Exchange requires its members
to be responsible for ‘‘the filing of
reports, maintenance of books and
records, and permitting inspection and
visitation’’ in order to facilitate such
investigations by Exchange staff.
CME Rule 536 requires that certain
information be recorded with respect to
each order, including: Time entered,
terms of the order, order type,
instrument and contract month, price,
quantity, account type, account
designation, user code, and clearing
firm. This information may be recorded
manually on timestamped order tickets,
electronically in a clearing firms system,
or by entering the orders with the
required information into CME Globex
immediately upon receipt. A complete
CME Globex electronic audit trail is
archived and maintained by CME for at
least a five year period. Clearing firms
must also maintain any written or
electronic order records for a period of
five years.
Clause (K) of Section 6(h)(3) of the
Act 28 requires that a market on which
a SFP is traded have in place procedures
to coordinate trading halts between such
market and any market on which any
security underlying the SFP is traded
and other markets on which any related
security is traded. The Exchange filed
with the Commission CME Rules
establishing a generalized framework for
PO 00000
28 15
U.S.C. 78f(h)(3)(K).
Frm 00117
Fmt 4703
Sfmt 4703
39831
the trade of SFPs.29 In particular,
proposed CME Rule 71001.F. provides,
in accordance with Regulation
§ 41.25(a)(2) of CEA,30 that ‘‘[t]rading of
Physically Delivered Single Security
Futures shall be halted at all times that
a regulatory halt, as defined per SEC
Rule 6h–1(a)(3) and CFTC Regulation
§ 41.1(1), has been instituted for the
underlying security.’’
Clause (L) of Section 6(h)(3) of the
Act 31 requires that the margin
requirements for a SFP comply with the
regulations prescribed pursuant to
Section 7(c)(2)(B) of the Act.32 CME has
margin rules in place.33 Thus, CME
believes that its customer margin rules
are consistent with the requirements of
the Act.
For the reasons described above, CME
believes that CME Listing Standards
submitted herewith satisfy the
requirements set forth in Section 6(h)(3)
of the Act.34
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act,35 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,36 in particular, in that it is
designed to remove impediments to and
perfect the mechanism for a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CME does not believe that the
proposed rule change would impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
29 See
SR–CME–2005–03.
CFR 41.25(a)(2).
31 15 U.S.C. 78f(h)(3)(L).
32 15 U.S.C. 78g(c)(2)(B).
33 See Securities Exchange Act Release No. 46637
(October 10, 2002), 67 FR 64672 (October 21, 2002)
(SR–CME–2002–01).
34 15 U.S.C. 78f(h)(3).
35 15 U.S.C. 78f(b).
36 15 U.S.C. 78f(b)(5).
30 17
E:\FR\FM\11JYN1.SGM
11JYN1
39832
Federal Register / Vol. 70, No. 131 / Monday, July 11, 2005 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
has become effective pursuant to
Section 19(b)(7) of the Act.37 Within 60
days of the date of effectiveness of the
proposed rule change, the Commission,
after consultation with the CFTC, may
summarily abrogate the proposed rule
change and require that the proposed
rule change be refiled in accordance
with the provisions of Section 19(b)(1)
of the Act.38
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 e-mail to rulecomments@sec.gov. Please include File
Number SR–CME–2005–01 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–CME–2005–01. 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 (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 inspection and copying in
the Commission’s Public Reference
Section. Copies of such filing also will
be available for inspection and copying
at the principal office of CME. All
comments received will be posted
37 15
38 15
U.S.C. 78s(b)(7).
U.S.C. 78s(b)(1).
VerDate jul<14>2003
16:03 Jul 08, 2005
Jkt 205001
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–CME–2005–01 and should
be submitted on or before August 1,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.39
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–3620 Filed 7–8–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51948; File No. SR–ISE–
2005–28]
Self-Regulatory Organizations;
International Securities Exchange, Inc.;
Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Fee Changes for
Transactions in Options on the
Standard & Poor’s Depository
Receipts on a Retroactive Basis
June 30, 2005.
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 May 20,
2005, the International Securities
Exchange, Inc. (‘‘Exchange’’ or ‘‘ISE’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
On June 15, 2005, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to amend its
Schedule of Fees to adopt a $.10 per
contract surcharge for certain
transactions in options based on the
Standard & Poor’s Depository
Receipts(), or SPDRs() (‘‘SPDRs’’) to
become effective retroactively as of
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, the Exchange made nonsubstantive changes to clarify the purpose for the
fee change.
PO 00000
39 17
1 15
Frm 00118
Fmt 4703
Sfmt 4703
January 10, 2005.4 The text of the
proposed rule change, as amended, is
available on the Exchange’s Internet
Web site (https://www.iseoptions.com), at
the Exchange’s Office of the Secretary,
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 its
Schedule of Fees to retroactively
establish, as of January 10, 2005, a $.10
per contract surcharge fee for certain
transactions in options on SPDRs 5 that
became effective on May 20, 2005
pursuant to a previous proposed rule
change submitted by the Exchange.6
The Exchange’s Schedule of Fees
currently has in place a surcharge fee
item that calls for a $.10 per contract fee
for transactions in certain licensed
products. The Exchange entered into a
license agreement with Standard and
Poor’s, a unit of McGraw-Hill
Companies, Inc., authorizing the
Exchange to list SPDR options. The
Exchange is adopting this fee for
transactions in SPDR options to defray
the licensing costs. The Exchange
believes that charging the participants
that trade these instruments is the most
equitable means of recovering the costs
4 The Exchange filed with the Commission an
identical proposed revision to its Schedule of Fees
on May 20, 2005 (SR–ISE–2005–06), which was
immediately effective as of that date under Section
19(b)(3)(A) of the Act and Rule 19b–4(f)(2)
thereunder. The Exchange filed Amendment No. 1
thereto on June 15, 2005. That proposal was
published in Exchange Act Release No. 51901 (June
22, 2005), 70 FR 37455 (June 29, 2005). Because the
Exchange seeks to apply the surcharge to its
Schedule of Fees on a retroactive basis as of January
10, 2005, the Exchange is submitting this proposal
to the Commission under Section 19(b)(2) of the
Act, to be published for notice and comment.
5 The Exchange represents that these fees will be
charged only to Exchange members.
6 See supra note 4.
E:\FR\FM\11JYN1.SGM
11JYN1
]]>Agencies
[Federal Register Volume 70, Number 131 (Monday, July 11, 2005)]
[Notices]
[Pages 39826-39832]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3620]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51959; File No. SR-CME-2005-01]
Self-Regulatory Organization; Chicago Mercantile Exchange; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Listing Standards for Security Futures Products
June 30, 2005.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-7 thereunder,\2\ notice is hereby given that
on May 4, 2005, the Chicago Mercantile Exchange (``CME'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change described in Items I, II, and
III below, which Items have been prepared by CME.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(7).
\2\ 17 CFR 240.19b-7.
---------------------------------------------------------------------------
CME has also certified the proposed rule change with the Commodity
Futures Trading Commission (``CFTC'') under Section 5c(c) of the
Commodity Exchange Act (``CEA'') \3\ on May 4, 2005. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\3\ 7 U.S.C. 7a-2(c).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CME proposes to amend its Security Futures Product Listing
Standards (``Listing Standards'') for purposes of Section 6(h) of the
Act.\4\ These amendments are intended to conform CME Listing Standards
for physically settled security futures products, including exchange
traded funds (``ETFs''), trust issued receipts (``TIRs''), closed-end
funds and narrow-based indices (``NRIs''), to current industry
practices. The text of the proposed rule change is below. Proposed new
language is italicized; and proposed deletions are in [brackets].
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(h).
---------------------------------------------------------------------------
CHAPTER 700: SECURITY FUTURES PRODUCT LISTING STANDARDS
70000. SCOPE OF CHAPTER
No change.
70001. SINGLE SECURITY FUTURES--INITIAL LISTING STANDARDS
For a Security Futures Product, that is physically settled, to be
eligible for initial listing, the security underlying the futures
contract must meet each of the following requirements:
1.-5. No change.
6. In the case of an underlying security other than an ETF Share,
TIR or Closed-End Fund Share, it must have had [an average daily
trading volume (in all markets in which the underlying security has
traded) of at least 109,000 shares or receipts evidencing the
underlying security in each of the preceding 12 months.] total trading
volume (in all markets in which the underlying security is traded) of
at least 2,400,000 shares or receipts evidencing the underlying
security in the preceding 12 months.
Interpretation of Requirement 6 as Applied to Restructure Securities
No change.
7. No change.
8. [It must have had a market price per security of at least $7.50,
as measured by the lowest closing price
[[Page 39827]]
reported in any market in which it has traded, for the majority of
business days during the three calendar months preceding the date of
selection.] If the underlying security is a ``covered security as
defined under Section 18(b)(1)(A) of the Securities Act of 1933, the
market price per share of the underlying security has been at least
$3.00 for the previous five consecutive business days preceding the
date on which the Exchange commences to list and trade the Security
Futures Product on said underlying security. For purposes of this
provision, the market price of such underlying security is measured by
the closing price reported in the primary market in which the
underlying security is traded.
Interpretation of Requirement 8 as Applied to Restructure Securities
Look-Back Test: In determining whether a Restructure Security that
is issued or distributed to the shareholders of an Original Equity
Security (but not a Restructure Security that is issued pursuant to a
public offering or rights distribution) satisfies this requirement, the
Exchange may ``look back'' to the market price history of the Original
Equity Security prior to the ex-date of the Restructuring Transaction
if the following Look-Back Test is satisfied:
a. The Restructure Security has an aggregate market value of at
least $500 million;
b. The aggregate market value of the Restructure Security equals or
exceeds the Relevant Percentage (defined below) of the aggregate market
value of the Original Equity Security;
c. The aggregate book value of the assets attributed to the
business represented by the Restructure Security equals or exceeds both
$50 million and the Relevant Percentage of the aggregate book value of
the assets attributed to the business represented by the Original
Equity Security; or
d. The revenues attributed to the business represented by the
Restructure Security equals or exceeds both $50 million and the
Relevant Percentage of the revenues attributed to the business
represented by the Original Equity Security.
For purposes of determining whether the Look-Back Test is
satisfied, the term ``Relevant Percentage'' means: (i) 25%, when the
applicable measure determined with respect to the Original Equity
Security or the business it represents includes the business
represented by the Restructure Security; and (ii) 33\1/3\%, when the
applicable measure determined with respect to the Original Equity
Security or the business it represents excludes the business
represented by the Restructure Security.
In calculating comparative aggregate market values, the Exchange
will use the Restructure Security's closing price on its primary market
on the last business day prior to the Selection Date, or the
Restructure Security's opening price on its primary market on the
Selection Date, and will use the corresponding closing or opening price
of the related Original Equity Security.
Furthermore, in calculating comparative asset values and revenues,
the Exchange will use the issuer's (i) latest annual financial
statements or (ii) most recently available interim financial statements
(so long as such interim financial statements cover a period of not
less than three months), whichever are more recent. Those financial
statements may be audited or unaudited and may be pro forma.
Restructure Securities Issued in Public Offering or Rights
Distribution: In determining whether a Restructure Security that is
distributed pursuant to a public offering or a rights distribution
satisfies requirement [(viii)] 8, the Exchange may look back to the
market price history of the Original Equity Security if: (i) The
foregoing Look-Back Test is satisfied; (ii) the Restructure Security
trades ``regular way'' on an exchange or automatic quotation system for
at least five trading days immediately preceding the Selection Date;
and (iii) at the close of trading on each trading day on which the
Restructure Security trades ``regular way'' prior to the Selection
Date, as well as at the opening of trading on Selection Date, the
market price of the Restructure Security was at least [$7.50]; $3.00.
Limitation on Use of Look-Back Test: Except in the case of a
Restructure Security that is distributed pursuant to a public offering
or rights distribution, the Exchange will not rely upon the market
price history of an Original Equity Security for any trading day unless
it also relies upon the trading volume history for that trading day. In
addition, once the Exchange commences to rely upon a Restructure
Security's trading volume and market price history for any trading day,
the Exchange will not rely upon the trading volume and market price
history of the related Original Equity Security for any trading day
thereafter.
9. If the underlying security is not a ``covered security as
defined under Section 18(b)(1)(A) of the Securities Act of 1933, the
market price per share of the underlying security has been at least
$7.50 for the previous five consecutive business days preceding the
date on which the Exchange commences to list and trade the Security
Futures Product on said underlying security. For purposes of this
provision, the market price of such underlying security is measured by
the closing price reported in the primary market in which the
underlying security is traded.
Interpretation of Requirement 9 as Applied to Restructure Securities
Look-Back Test: In determining whether a Restructure Security that
is issued or distributed to the shareholders of an Original Equity
Security (but not a Restructure Security that is issued pursuant to a
public offering or rights distribution) satisfies this requirement, the
Exchange may ``look back'' to the market price history of the Original
Equity Security prior to the ex-date of the Restructuring Transaction
if the following Look-Back Test is satisfied:
a. The Restructure Security has an aggregate market value of at
least $500 million;
b. The aggregate market value of the Restructure Security equals or
exceeds the Relevant Percentage (defined below) of the aggregate market
value of the Original Equity Security;
c. The aggregate book value of the assets attributed to the
business represented by the Restructure Security equals or exceeds both
$50 million and the Relevant Percentage of the aggregate book value of
the assets attributed to the business represented by the Original
Equity Security; or
d. The revenues attributed to the business represented by the
Restructure Security equals or exceeds both $50 million and the
Relevant Percentage of the revenues attributed to the business
represented by the Original Equity Security.
For purposes of determining whether the Look-Back Test is
satisfied, the term ``Relevant Percentage'' means: (i) 25%, when the
applicable measure determined with respect to the Original Equity
Security or the business it represents includes the business
represented by the Restructure Security; and (ii) 33\1/3\%, when the
applicable measure determined with respect to the Original Equity
Security or the business it represents excludes the business
represented by the Restructure Security.
In calculating comparative aggregate market values, the Exchange
will use the Restructure Security's closing price on its primary market
on the last business day prior to the Selection Date, or the
Restructure Security's opening price on its primary market on the
Selection Date, and will use the corresponding closing or opening price
of the related Original Equity Security.
[[Page 39828]]
Furthermore, in calculating comparative asset values and revenues,
the Exchange will use the issuer's (i) latest annual financial
statements or (ii) most recently available interim financial statements
(so long as such interim financial statements cover a period of not
less than three months), whichever are more recent. Those financial
statements may be audited or unaudited and may be pro forma.
Restructure Securities Issued in Public Offering or Rights
Distribution: In determining whether a Restructure Security that is
distributed pursuant to a public offering or a rights distribution
satisfies requirement [(viii)] 8, the Exchange may look back to the
market price history of the Original Equity Security if: (i) The
foregoing Look-Back Test is satisfied; (ii) the Restructure Security
trades ``regular way'' on an exchange or automatic quotation system for
at least five trading days immediately preceding the Selection Date;
and (iii) at the close of trading on each trading day on which the
Restructure Security trades ``regular way'' prior to the Selection
Date, as well as at the opening of trading on Selection Date, the
market price of the Restructure Security was at least $7.50.
Limitation on Use of Look-Back Test: Except in the case of a
Restructure Security that is distributed pursuant to a public offering
or rights distribution, the Exchange will not rely upon the market
price history of an Original Equity Security for any trading day unless
it also relies upon the trading volume history for that trading day. In
addition, once the Exchange commences to rely upon a Restructure
Security's trading volume and market price history for any trading day,
the Exchange will not rely upon the trading volume and market price
history of the related Original Equity Security for any trading day
thereafter.
[9.] 10. If the underlying security is an ADR:
a. The Exchange must have an effective surveillance sharing
agreement with the primary exchange in the home country where the stock
underlying the ADR is traded;
b. The combined trading volume of the ADR and other related ADRs
and securities in the U.S. ADR market, or in markets with which the
Exchange has in place an effective surveillance sharing agreement,
represents (on a share equivalent basis) at least 50% of the combined
worldwide trading volume in the ADR, the security underlying the ADR,
other classes of common stock related to the underlying security, and
ADRs overlying such other stock over the three-month period preceding
the dates of selection of the ADR for futures trading (``Selection
Date'');
c.
(1) The combined trading volume of the ADR and other related ADRs
and securities in the U.S. ADR market, and in markets where the
Exchange has in place an effective surveillance sharing agreement,
represents (on a share equivalent basis) at least 20% of the combined
worldwide trading volume in the ADR and in other related ADRs and
securities over the three-month period preceding the Selection Date;
(2) The average daily trading volume for the ADR in the U.S.
markets over the three-month period preceding the Selection Date is at
least 100,000 receipts; and
(3) The daily trading volume for the ADR is at least 60,000
receipts in the U.S. markets on a majority of the trading days for the
three-month period preceding the Selection Date.
Or
d. The Securities and Exchange Commission and Commodity Futures
Trading Commission have otherwise authorized the listing.
[10.] 11. The Exchange will not list for trading any SFP where the
underlying security is a Restructure Security that is not yet issued
and outstanding, regardless of whether the Restructure Security is
trading on a ``when issued'' basis or on another basis that is
contingent upon the issuance or distribution of securities.
70002. SINGLE SECURITY FUTURES--MAINTENANCE LISTING STANDARDS
1. [Absent exceptional circumstances, the] The Exchange will not
open for trading any SFP, that is physically settled, with a new
delivery month, and may prohibit any opening purchase transactions in
the SFP already trading, to the extent it deems such action necessary
or appropriate, unless the underlying security meets each of the
following maintenance requirements; provided that, if the underlying
security is an ETF Share, TIR or Closed-End Fund Share, the applicable
requirements for initial listing of the related SFP (as described in
Rule 70001 above) shall apply in lieu of the following maintenance
requirements:
a. It must be registered under Section 12 of the Exchange Act.
[a.] b. There must be at least 6,300,000 shares or receipts
evidencing the underlying security outstanding that are owned by
persons other than those who are required to report their security
holdings pursuant to Section 16(a) of the Exchange Act.
[b.] c. There must be at least 1,600 securityholders.
[c.] d. It must have had an average daily trading volume (across
all markets in which the underlying security is traded) of least 82,000
shares or receipts evidencing the underlying security in each of the
preceding 12 months.
Interpretation of Requirement [1.c.] 1.d. as Applied to Restructure
Securities
If a Restructure Security is approved for a SFP trading under the
initial listing standards in [Section I] Rule 70001, the average daily
trading volume history of the Original Equity Security (as defined in
[Section I] Rule 70001) prior to the commencement of trading in the
Restructure Security (as defined in [Section I] Rule 70001), including
``when-issued'' trading, may be taken into account in determining
whether this requirement is satisfied.
[d.] The security underlying the Security Futures Product must have
had a market price of at least $5.00, as measured by the highest
closing price reported in any market in which it has traded, for a
majority of business days during the preceding six calendar months;
provided, however, that the Exchange may waive this requirement and
open for trading a SFP with a new delivery month, if:
(1) The aggregate market value of the underlying security equals or
exceeds $50 million;
(2) Customer open interest (reflected on a two-sided basis) equals
or exceeds 4,000 contracts for all delivery months;
(3) Its average daily trading volume (in all markets in which the
underlying security is traded) has been at least 109,000 shares or
receipts evidencing the underlying security in each of the preceding 12
months; and
(4) The market price per share or receipt of the underlying
security closed at $3.00 or above on a majority of the business days
during the preceding six calendar months, as measured by the highest
closing price for the underlying security reported in any market in
which the underlying security traded, and the market price per share or
receipt of the underlying security is at least $3.00 at the time such
additional series are authorized for trading. During the next
consecutive six calendar month period, to satisfy this paragraph, the
market price per share or receipt of the underlying security must be at
least $4.00.]
e. The market price per share or receipt of the underlying security
has not closed below $3.00 on the previous trading day to the
Expiration Day of the nearest expiring Contract on the underlying
security. The market price per share of the underlying security will be
measured by the closing price
[[Page 39829]]
reported in the primary market in which the underlying security traded.
Interpretation of Requirement [d] 1.e. as Applied to Restructure
Securities
If a Restructure Security is approved for SFP trading under the
initial listing standards per Rule 70001[.8], the market price history
of the Original Equity Security prior to the commencement of trading in
the Restructure Security, including ``when-issued'' trading, may be
taken into account in determining whether this requirement is
satisfied.
[e.] f. If the underlying security is an ADR and was initially
deemed appropriate for SFP trading per Rule 70001.10.b or Rule
70001.10.c.[.8.b. or 70001.8.c.], the Exchange will not open for
trading SFPs having additional delivery months on the ADR unless:
(1) The percentage of worldwide trading volume in the ADR and other
related securities that takes place in the U.S. and in markets with
which the Exchange has in place effective surveillance sharing
agreements for any consecutive three-month period is: (1) At least 30%,
without regard to the average daily trading volume in the ADR; or (2)
at least 15% when the average U.S. daily trading volume in the ADR for
the previous three months is at least 70,000 receipts;
(2) The Exchange has in place an effective surveillance sharing
agreement with the primary exchange in the home country where the
security underlying the ADR is traded; or
(3) The Securities and Exchange Commission and Commodity Futures
Trading Commission have otherwise authorized the listing.
2.-4. No change.
70003. SFPs BASED ON INDEX COMPOSED OF TWO OR MORE SECURITIES--INITIAL
LISTING STANDARDS
No change.
70004. SFPs BASED ON INDEX COMPOSED OF TWO OR MORE SECURITIES--
MAINTENANCE LISTING STANDARDS
The Exchange will not open for trading SFPs, that are physically
settled, based on an index composed of two or more securities with a
new delivery month unless the underlying index:
1. No change.
2. Meets the following requirements:
a.-i. No change.
Interpretation of Requirement 2.i. Regarding Procedures for Rebalancing
[The date of determination for the mandatory annual rebalancing of
an approximately equal dollar-weighted index underlying a physically
settled security futures product as described in the first sentence of
(i) will initially be the last trading day of the year, except that, if
the Exchange has rebalanced such index on an interim basis as described
in the second sentence of (i), any following annual rebalancing of such
index will occur on the anniversary date of the interim rebalancing.
New contracts issued on or after a date on which the corresponding
index is rebalanced in accordance with (i) will be based on an index
consisting of the original component securities, weighted applying the
methodology described under (i) above on the basis of security prices
on the rebalancing date. Outstanding contracts will not be affected by
any rebalancing.]
In the case of a physically settled SFP based on an approximately
equal dollar-weighted index composed of one or more securities, each
component security will be weighted equally based on its market price
on the Selection Date, subject to rounding up or down the number of
shares or receipts evidencing such security to the nearest multiple of
100 shares or receipts.
j.-l. No change.
* * * * *
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 or such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange has Listing Standards applicable to physically settled
security futures products (``SFPs'') for NBIs and for single security
products, including ETFs, TIRs, and shares of registered closed-end
management investment companies (``Closed-End Fund'').\5\ The Exchange
proposes to amend its Listing Standards to conform to current industry
practices. In particular, the Exchange proposes to amend the current
requirement that a security underlying a SFP, other than an ETF, TIR,
or Closed-End Fund share, must have had an average daily trading volume
of at least 109,000 shares or receipts evidencing the underlying
security in each of the preceding 12 months to adopt a requirement, in
conformance with current industry practice (and the standards for an
ETFs, TIRs, and Closed-End Fund share), that such security must
evidence total trading volume of at least 2,400,000 shares or receipts
evidencing the underlying security in the preceding 12 months. Finally,
the Exchange also proposes to adopt other minor or technical amendments
to its Listing Standards to conform with industry practices, such as
adjusting the market price per share of a security underlying a SFP to
distinguish between a covered security as defined under Section
18(b)(1)(A) of the Securities Act of 1933 and a security that is ``not
covered.'' \6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 46975 (December 9,
2002), 67 FR 77297 (December 17, 2002) (SR-CME-2002-02).
\6\ The joint order by the CFTC and the Commission modifying the
requirement specified in Section 6(h)(3)(D) of the Act and the
criterion specified in Section 2(a)(1)(D)(i)(III) of the CEA to
permit an ETF share, TIR or Closed-End Fund share to underlie a
security future also provides that the market price of the
underlying share be $7.50 for the majority of business days during
the three calendar months preceding listing of the SFP and that the
issuer of the ETF, TIR, or Closed-End Fund be in compliance with all
of the applicable requirements of the Act. See Securities Exchange
Act Release No. 46090 (June 19, 2002), 67 FR 42760 (June 25, 2002).
CME intends to comply with this joint order. Telephone conversation
between John Labuszewski, Managing Director, CME, and Florence E.
Harmon, Senior Special Counsel, Division of Market Regulation
(``Division''), Commission, on June 28, 2005.
---------------------------------------------------------------------------
Section 6(h)(3) of the Act Requirements
Section 6(h)(3) of the Act \7\ contains listing standards and
conditions for trading SFPs. Below is a summary of each such
requirement or condition, followed by a brief explanation of how CME
would comply with it, whether by particular provisions in CME Listing
Standards or otherwise.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(h)(3).
---------------------------------------------------------------------------
Clause (A) of Section 6(h)(3) of the Act \8\ requires that any
security underlying a SFP be registered pursuant to Section 12 of the
Act.\9\ This requirement is addressed by CME Rules 70001.2, 70003.2.b,
70004.2.a, and proposed CME Rule 70002.1.a.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(h)(3)(A).
\9\ 15 U.S.C. 78l.
---------------------------------------------------------------------------
Clause (B) of Section 6(h)(3) of the Act \10\ requires that a
market on which a physically settled SFP is traded have arrangements in
place with a registered clearing agency for the payment and delivery of
the securities underlying the
[[Page 39830]]
SFP. CME has reached an agreement with a participant of DTC, a
registered clearing agency, to facilitate the delivery-versus-payment
transactions which result from an agreement to make or take delivery of
the underlying security by the market participant.\11\ This DTC
participant would provide CME with a dedicated DTC account. This
account would be a sub-account of the participant's main account and
would be utilized solely for CME activity with respect to the delivery
of, and payment for, securities delivered against CME SFPs. CME would
act as a contra party to each delivery transaction. The CME Clearing
House would submit a delivery instruction for each transaction to DTC
by electronic interface provided by the DTC participant. Market
participants would be required to provide proof to CME outlining their
operational and legal ability to make or take delivery of the
underlying securities. These agreements and relevant procedures would
be fully operational prior to any possible delivery event associated
with such SFPs.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(h)(3)(B).
\11\ The Exchange clarified its arrangement for the payment and
delivery of securities underlying the SFPs. Telephone conversation
between John Labuszewski, Managing Director, CME, and Florence E.
Harmon, Senior Special Counsel, Division, Commission, on June 9,
2005.
---------------------------------------------------------------------------
Clause (C) of Section 6(h)(3) of the Act \12\ provides that listing
standards for SFPs must be no less restrictive than comparable listing
standards for options traded on a national securities exchange or
national securities association registered pursuant to Section 15A(a)
of the Act.\13\ For the reasons discussed herein, notwithstanding
specified differences between the Sample Listing Standards and CME
Listing Standards, CME believes that the latter are no less restrictive
than comparable listing standards for exchange-traded options.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(h)(3)(C).
\13\ 15 U.S.C. 78o-3(a).
---------------------------------------------------------------------------
Clause (D) of Section 6(h)(3) of the Act \14\ requires that each
SFP be based on common stock or such other equity securities as the
Commission and CFTC jointly determine are appropriate. This requirement
is addressed by CME Rules 70001.1, 70002.1., 70003.2., and 70004.2.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(h)(3)(D).
---------------------------------------------------------------------------
Clause (E) of Section 6(h)(3) of the Act \15\ requires that each
SFP be cleared by a clearing agency that has in place provisions for
linked and coordinated clearing with other clearing agencies that clear
SFPs, which permits the SFPs to be purchased on one market and offset
on another market that trades such product. CME proposes to clear SFPs
traded through Exchange facilities through CME Clearing House. CME
Clearing House would have in place all provisions for linked and
coordinated clearing as mandated by law and statute as of the effective
date of such laws and statutes.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(h)(3)(E).
---------------------------------------------------------------------------
Clause (F) of Section 6(h)(3) of the Act \16\ requires that only a
broker or dealer subject to suitability rules comparable to those of a
national securities association registered pursuant to Section 15A(a)
of the Act \17\ effect transactions in a SFP. CME clearing members and
their correspondents are bound by the applicable sales practice rules
of the National Futures Association (``NFA''), which is a national
securities association. As such, the sales practice rules of NFA are,
perforce, comparable to those of a national securities association
registered pursuant to Section 15A(a) of the Act.\18\ Moreover, the
application of NFA sales practice rules is extended beyond the CME
clearing membership to the extent that NFA By-Law 1101 provides that
``[n]o member may carry an account, accept an order or handle a
transaction in commodity futures contracts for or on behalf of any non-
Member of NFA.''
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(h)(3)(F).
\17\ 15 U.S.C. 78o-3(a).
\18\ 15 U.S.C. 78o-3(a).
---------------------------------------------------------------------------
Clause (G) of Section 6(h)(3) of the Act \19\ requires that each
SFP be subject to the prohibition against dual trading in Section 4j of
CEA \20\ and the rules and regulations thereunder or the provisions of
Section 11(a) of the Act \21\ and the rules and regulations thereunder.
CME Rule 123 requires Exchange members to comply with all applicable
``provisions of the Commodity Exchange Act and regulations duly issued
pursuant thereto by the CFTC.''
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(h)(3)(G).
\20\ 15 U.S.C. 4j.
\21\ 15 U.S.C. 78k(a).
---------------------------------------------------------------------------
Further, the prohibition of dual trading in SFPs per Regulation
Sec. 41.272 \22\ adopted pursuant to Section 4j(a) of CEA \23\ applies
to a contract market operating an electronic trading system if such
market provides participants with a time or place advantage or the
ability to override a predetermined matching algorithm. The Exchange
intends to offer SFPs on CME exclusively on its CME Globex electronic
trading platform. To the extent that the conditions cited above do not
exist in the context of the CME Globex system, the CME Rulebook
contains no specific rule relating to dual trading in an electronic
forum.
---------------------------------------------------------------------------
\22\ 17 CFR 41.27.
\23\ 7 U.S.C. 6j(a).
---------------------------------------------------------------------------
Clause (H) of Section 6(h)(3) of the Act \24\ provides that trading
in a SFP must not be readily susceptible to manipulation of the price
of such SFP, nor to causing or being used in the manipulation of the
price of any underlying security, option on such security, or option on
a group or index including such securities. CME believes that CME
Listing Standards are designed to ensure that CME SFPs and the
underlying securities would not be readily susceptible to price
manipulation. Under CME Rule 432, an activity ``to manipulate prices or
to attempt to manipulate prices'' is a ``major offense'' punishable,
per CME Rule 430, by ``expulsion, suspension, and/or a fine of not more
than $1,000,000 plus the monetary value of any benefit received as a
result of the violative action.''
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(h)(3)(H).
---------------------------------------------------------------------------
Clause (I) of Section 6(h)(3) of the Act \25\ requires that
procedures be in place for coordinated surveillance amongst the market
on which a SFP is traded, any market on which any security underlying
the SFP is traded, and other markets on which any related security is
traded to detect manipulation and insider trading. The Exchange has
surveillance procedures in place to detect manipulation on a
coordinated basis with other markets. In particular, CME is an
affiliate member of the Intermarket Surveillance Group (``ISG'') and is
party to an affiliate agreement and an agreement to share market
surveillance and regulatory information with the other ISG members.
Further, CME is party to a supplemental agreement with the other ISG
members to address the concerns expressed by the Commission with
respect to affiliate ISG membership.\26\ Finally, CME Rule 424 permits
CME to enter into agreements for the exchange of information and other
forms of mutual assistance with domestic or foreign self-regulatory
organizations, associations, boards of trade, and their respective
regulators.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(h)(3)(I).
\26\ See Securities Exchange Act Release No. 45956 (May 17,
2002), 67 FR 36740 (May 24, 2002) (joint CFTC and Commission rule
relating to cash settlement and regulatory halt requirements for
SFPs).
---------------------------------------------------------------------------
Clause (J) of Section 6(h)(3) of the Act \27\ requires that a
market on which a SFP is traded have in place audit trails necessary or
appropriate to facilitate the coordinated surveillance referred to in
the preceding paragraph. The Exchange states that it relies upon its
Market
[[Page 39831]]
Regulation Department and its large, highly trained staff to actively
monitor market participants and their trading practices and to enforce
compliance with CME rules. CME Market Regulation Department staff is
organized into Compliance and Market Surveillance Groups. In performing
its functions, CME Market Regulation Department routinely works closely
with CME Audit Department, CME Clearing House, CME Legal Department,
CME Globex Control Center, and CME Information Technology Department.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(h)(3)(J).
---------------------------------------------------------------------------
CME Compliance is responsible for enforcing the trading practice
rules of the Exchange through detection, investigation, and prosecution
of those who may attempt to violate those CME Rules. Further, CME
Compliance is responsible for handling customer complaints, ensuring
the integrity of the Exchange's audit trail, and administering an
arbitration program for the resolution of disputes. CME Compliance
employs investigators, attorneys, trading floor investigators, data
analysts, and a computer programming and regulatory systems design
staff.
CME believes that CME Market Regulation Department has created some
of the most sophisticated tools in the world to assist with the
detection of possible rule violations and monitoring of the market.
Among the systems it uses are the Regulatory Trade Browser (``RTB''),
the Virtual Detection System (``VDS''), the Reportable Position System
(``RPS''), and the RegWeb Profile System (``RegWeb''). These systems
include information on all CME Globex users, all transactions, large
positions, and statistical information on trading entities.
CME Market Surveillance is dedicated to the detection and
prevention of market manipulation and other similar forms of market
disruption. As part of these responsibilities, CME Market Surveillance
enforces the Exchange's position limit rules, administers the hedge
approval process, and maintains the Exchange's RPS system.
CME believes that the foundation of the CME Market Surveillance
program is the deep knowledge of its staff about the major users,
brokers, and clearing firms, along with its relationship with other
regulators. Day-to-day monitoring of market positions is handled by a
dedicated group of surveillance analysts assigned to specific
market(s). Each analyst develops in-depth expertise of the factors that
influence the market in question. The Exchange estimates that perhaps
90% of the market users at any single time are known to the Exchange.
Daily surveillance staff activities include:
Monitoring positions for size based on percentage of open
interest and historic user participation in each contract.
Aggregation of positions across clearing members with the
use of CME trade reporting systems to account for all positions held by
any single participant. CME believes that this daily review permits the
surveillance analyst to promptly identify unusual market activity.
As a contract approaches maturity, large positions are
scrutinized to determine whether such activity is consistent with prior
experience, allowing prompt regulatory intervention if necessary.
Analysts closely monitor market news through on-line and
print media.
Staff conducts on-site visits to large market participants
periodically.
CME Market Regulation staff investigates possible misconduct and,
when appropriate, initiates disciplinary action. CME Rule 430 empowers
the Exchange's disciplinary committees to discipline, limit, suspend,
or terminate a member's activities for cause, amongst other sanctions.
Further, per CME Rule 123, the Exchange requires its members to be
responsible for ``the filing of reports, maintenance of books and
records, and permitting inspection and visitation'' in order to
facilitate such investigations by Exchange staff.
CME Rule 536 requires that certain information be recorded with
respect to each order, including: Time entered, terms of the order,
order type, instrument and contract month, price, quantity, account
type, account designation, user code, and clearing firm. This
information may be recorded manually on timestamped order tickets,
electronically in a clearing firms system, or by entering the orders
with the required information into CME Globex immediately upon receipt.
A complete CME Globex electronic audit trail is archived and maintained
by CME for at least a five year period. Clearing firms must also
maintain any written or electronic order records for a period of five
years.
Clause (K) of Section 6(h)(3) of the Act \28\ requires that a
market on which a SFP is traded have in place procedures to coordinate
trading halts between such market and any market on which any security
underlying the SFP is traded and other markets on which any related
security is traded. The Exchange filed with the Commission CME Rules
establishing a generalized framework for the trade of SFPs.\29\ In
particular, proposed CME Rule 71001.F. provides, in accordance with
Regulation Sec. 41.25(a)(2) of CEA,\30\ that ``[t]rading of Physically
Delivered Single Security Futures shall be halted at all times that a
regulatory halt, as defined per SEC Rule 6h-1(a)(3) and CFTC Regulation
Sec. 41.1(1), has been instituted for the underlying security.''
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f(h)(3)(K).
\29\ See SR-CME-2005-03.
\30\ 17 CFR 41.25(a)(2).
---------------------------------------------------------------------------
Clause (L) of Section 6(h)(3) of the Act \31\ requires that the
margin requirements for a SFP comply with the regulations prescribed
pursuant to Section 7(c)(2)(B) of the Act.\32\ CME has margin rules in
place.\33\ Thus, CME believes that its customer margin rules are
consistent with the requirements of the Act.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(h)(3)(L).
\32\ 15 U.S.C. 78g(c)(2)(B).
\33\ See Securities Exchange Act Release No. 46637 (October 10,
2002), 67 FR 64672 (October 21, 2002) (SR-CME-2002-01).
---------------------------------------------------------------------------
For the reasons described above, CME believes that CME Listing
Standards submitted herewith satisfy the requirements set forth in
Section 6(h)(3) of the Act.\34\
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(h)(3).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act,\35\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\36\ in particular, in that it
is designed to remove impediments to and perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78f(b).
\36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
CME does not believe that the proposed rule change would impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
[[Page 39832]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has become effective pursuant to
Section 19(b)(7) of the Act.\37\ Within 60 days of the date of
effectiveness of the proposed rule change, the Commission, after
consultation with the CFTC, may summarily abrogate the proposed rule
change and require that the proposed rule change be refiled in
accordance with the provisions of Section 19(b)(1) of the Act.\38\
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78s(b)(7).
\38\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
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 e-mail to rule-comments@sec.gov. Please include
File Number SR-CME-2005-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-CME-2005-01. 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 (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 inspection
and copying in the Commission's Public Reference Section. Copies of
such filing also will be available for inspection and copying at the
principal office of CME. 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-CME-2005-01 and should be submitted on or before August 1, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\39\
---------------------------------------------------------------------------
\39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3620 Filed 7-8-05; 8:45 am]
BILLING CODE 8010-01-P
