Self-Regulatory Organization; OneChicago, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Listing Standards for Security Futures Products and the Final Settlement Price for Futures on Narrow-Based Security Indexes, 45464-45476 [E5-4233]
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Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.8
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–4234 Filed 8–4–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52180; File No. SR–OC–
2005–02]
Self-Regulatory Organization;
OneChicago, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Listing
Standards for Security Futures
Products and the Final Settlement
Price for Futures on Narrow-Based
Security Indexes
July 29, 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 July 20,
2005 OneChicago, LLC (‘‘OneChicago’’
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 OneChicago.3 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
OneChicago also has filed the
proposed rule change with the
Commodity Futures Trading
Commission (‘‘CFTC’’). OneChicago
filed a written certification with CFTC
under Section 5c(c) of the Commodity
Exchange Act (‘‘CEA’’) 4 on July 18,
2005.
I. Self-Regulatory Organization’s
Description of the Proposed Rule
Change
OneChicago is proposing to amend its
listing standards for security futures
products (‘‘SFPs’’) and its rule relating
to the final settlement price for futures
on narrow-based security indexes
(‘‘NBIs’’). The text of the proposed rule
change follows; additions are italicized;
deletions are [bracketed].
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(7).
2 17 CFR 240.19b–7.
3 With the permission of OneChicago, the
Commission made typographical, non-substantive
corrections to the text of the proposed rule change.
Telephone conversations between Madge Piro,
Counsel for OneChicago, and Jennifer Dodd, Special
Counsel, Division of Market Regulation
(‘‘Division’’), Commission, July 21 and 29, 2005.
4 7 U.S.C. 7a–2(c).
1 15
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[Eligibility and Maintenance Criteria
for Security Futures Products]
906 [I.]Listing Standards
(a) Initial listing standards for a
security futures product based on a
single security. [A.] 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:
[(i)] (1) It must be a common stock, an
American Depositary Receipt (‘‘ADR’’)
representing common stock or ordinary
shares, a share of an exchange traded
fund (‘‘ETF Share’’), a trust issued
receipt (‘‘TIR’’) or a share of a registered
closed-end management investment
company (‘‘Closed-End Fund Share’’).
[(ii)] (2) It must be registered under
Section 12 of the Securities Exchange
Act of 1934 (as amended from time to
time, the ‘‘Exchange Act’’), and its
issuer must be in compliance with any
applicable requirements of the Exchange
Act.
[(iii)] (3) It must be listed on a
national securities exchange
(‘‘Exchange’’) or traded through the
facilities of a national securities
association (‘‘Association’’) and
reported as a ‘‘national market system’’
security as set forth in Rule 11Aa3–1
under the Exchange Act (‘‘NMS
security’’).
[(iv)] (4) There must be at least seven
million shares or receipts evidencing
the underlying security outstanding that
are owned by persons other than those
required to report their security
holdings pursuant to Section 16(a) of
the Exchange Act.
Requirement [(iv)] (4) as Applied to
Restructure Securities:
In the case of an equity security that
a company issues or anticipates issuing
as the result of a spin-off,
reorganization, recapitalization,
restructuring or similar corporate
transaction (‘‘Restructure Security’’),
[OneChicago, LLC (‘‘OneChicago’’)] the
Exchange may assume that this
requirement is satisfied if, based on a
reasonable investigation, it determines
that, on the product’s intended listing
date: (A) at least 40 million shares of the
Restructure Security will be issued and
outstanding; or (B) the Restructure
Security will be listed on an Exchange
or automated quotation system that is
subject to an initial listing requirement
of no less than seven million publicly
owned shares.
In the case of a Restructure Security
issued or distributed to the holders of
the equity security that existed prior to
the ex-date of a spin-off, reorganization,
recapitalization, restructuring or similar
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corporate transaction (‘‘Original Equity
Security’’), [OneChicago] the Exchange
may consider the number of outstanding
shares of the Original Equity Security
prior to the spin-off, reorganization,
recapitalization, restructuring or similar
corporate transaction (‘‘Restructuring
Transaction’’).
[(v)] (5) In the case of an underlying
security other than an ETF Share, TIR or
Closed-End Fund Share, there must be
at least 2,000 securityholders.
Requirement [(v)] (5) as Applied to
Restructure Securities:
If the security under consideration is
a Restructure Security, [OneChicago] the
Exchange may assume that this
requirement is satisfied if, based on a
reasonable investigation,[OneChicago]
the Exchange determines that, on the
product’s intended listing date: (A) at
least 40 million shares of the
Restructure Security will be issued and
outstanding; or (B) the Restructure
Security will be listed on an Exchange
or automated quotation system that is
subject to an initial listing requirement
of at least 2,000 shareholders. In the
case of a Restructure Security issued or
distributed to the holders of the Original
Equity Security, [OneChicago]the
Exchange may consider the number of
shareholders of the Original Equity
Security prior to the Restructuring
Transaction.
[(vi)] (6) In the case of an underlying
security other than an ETF Share, TIR or
Closed-End Fund Share, it must have
trading volume (in all markets in which
the underlying security is traded) of at
least 2,400,000 shares in the preceding
12 months.
Requirement [(vi)] (6) 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,[OneChicago] the Exchange
may ‘‘look back’’ to the trading volume
history of the Original Equity Security
prior to the ex-date of the Restructuring
Transaction if the following Look-Back
Test is satisfied:
[(1)] (A) The Restructure Security has
an aggregate market value of at least
$500 million;
[(2)] (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;
[(3)] (C) The aggregate book value of
the assets attributed to the business
represented by the Restructure Security
equals or exceeds $50 million and the
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Relevant Percentage of the aggregate
book value of the assets attributed to the
business represented by the Original
Equity Security; or
[(4)] (D) The revenues attributed to the
business represented by the Restructure
Security equal or exceed $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, [OneChicago] the
Exchange will use the Restructure
Security’s closing price on its primary
market on the last business day prior to
the date on which the Restructure
Security is selected as an underlying
security for a security futures product
(‘‘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,
[OneChicago] 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.
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,
[OneChicago] the Exchange will not rely
upon the trading volume history of an
Original Equity Security for any trading
day unless it also relies upon the market
price history for that trading day.
In addition, once [OneChicago] the
Exchange commences to rely upon a
Restructure Security’s trading volume
and market price history for any trading
day,[OneChicago] the Exchange will not
rely upon the trading volume and
market price history of the Original
Equity Security for any trading day
thereafter.
[(vii)] (7) In the case of an underlying
security that is an ETF Share, TIR or
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Closed-End Fund Share, it must have
had a total trading volume (in all
markets in which the underlying
security has traded) of at least 2,400,000
shares or receipts evidencing the
underlying security in the preceding 12
months.
[(viii)] (8) 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 submits a
certificate to The Options Clearing
Corporation for listing and trading. 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.
Requirement [(viii)] (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,
[OneChicago] the Exchange may ‘‘look
back’’ to the market price history of the
Original Equity Security prior to the exdate of the Restructuring Transaction if
the following Look-Back Test is
satisfied:
[(a)] (A) The Restructure Security has
an aggregate market value of at least
$500 million;
[(b)] (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)] (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)] (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
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45465
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,[OneChicago] 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,
[OneChicago] 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),
[OneChicago] 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 $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,
[OneChicago] 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 [OneChicago] the
Exchange commences to rely upon a
Restructure Security’s trading volume
and market price history for any trading
day, [OneChicago] the Exchange will
not rely upon the trading volume and
market price history of the related
Original Equity Security for any trading
day thereafter.
[(ix)] (9) If the underlying security is
not a ‘‘covered security’’ as defined
under Section 18(b)(1)(A) of the
Securities Act of 1933, it must have had
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Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices
a market price per security of at least
$7.50, as measured by the lowest closing
price 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.
Requirement [(ix)] (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,
[OneChicago] the Exchange may ‘‘look
back’’ to the market price history of the
Original Equity Security prior to the exdate of the Restructuring Transaction if
the following Look-Back Test is
satisfied:
[(a)] (A) The Restructure Security has
an aggregate market value of at least
$500 million;
[(b)] (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)] (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)] (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, [OneChicago] 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.
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Furthermore, in calculating
comparative asset values and revenues,
[OneChicago] 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 [(ix)] (9),
[OneChicago] 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,[OneChicago] 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
[OneChicago] the Exchange commences
to rely upon a Restructure Security’s
trading volume and market price history
for any trading day, [OneChicago] the
Exchange will not rely upon the trading
volume and market price history of the
related Original Equity Security for any
trading day thereafter.
[(x)] (10) If the underlying security is
an ADR:
[(a)] (A) [OneChicago] The Exchange
must have in place an effective
surveillance sharing agreement with the
primary exchange in the home country
where the stock underlying the ADR is
traded;
[(b)] (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 [OneChicago] 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
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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)] (C)(i) The combined trading
volume of the ADR and other related
ADRs and securities in the U.S. ADR
market, and in markets with which
[OneChicago] 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)] (ii) 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)] (iii) 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)] (D) The Securities and Exchange
Commission and Commodity Futures
Trading Commission have otherwise
authorized the listing.
[(xi)] (11) [OneChicago] The Exchange
will not list for trading any security
futures product 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.
[II.] (b) Maintenance standards for a
security futures product based on a
single security.
[A] (1) The Exchange [OneChicago]
will not open for trading any security
futures product that is physically settled
with a new delivery month, and may
prohibit any opening purchase
transactions in the security futures
product 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 security futures
product (as described in [I.A.] 906(a)
above) shall apply in lieu of the
following maintenance requirements:
[(i)] (A) It must be registered under
Section 12 of the Exchange Act.
[(ii)] (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
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holdings pursuant to Section 16(a) of
the Exchange Act.
[(iii)] (C) There must be at least 1,600
securityholders.
[(iv)] (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.
Requirement [(iv)] (D) as Applied to
Restructure Securities:
If a Restructure Security is approved
for a security futures product trading
under the initial listing standards in
[Section I] paragraph (a) of this Rule,
the average daily trading volume history
of the Original Equity Security (as
defined in [Section I] paragraph (a) of
this Rule) prior to the commencement of
trading in the Restructure Security (as
defined in [Section I] paragraph (a) of
this Rule), including ‘‘when-issued’’
trading, may be taken into account in
determining whether this requirement is
satisfied.
[Requirement (v) as Applied to
Restructure Securities:
If a Restructure Security is approved
for security futures product trading
under the initial listing standards in
Section I, the market price history of the
Original Equity Security prior to the
commencement of trading in the
Restructure Security, including ‘‘whenissued’’ trading, may be taken into
account in determining whether this
requirement is satisfied.]
[(v)] (E) The market price per share 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 reported
in the primary market in which the
underlying security traded.
Requirement [(v)] (E) as Applied to
Restructure Securities:
If a Restructure Security is approved
for security futures product trading
under the initial listing standards in
[Section I] paragraph (a) of this Rule,
the market price history of the Original
Equity Security prior to the
commencement of trading in the
Restructure Security, including ‘‘whenissued’’ trading, may be taken into
account in determining whether this
requirement is satisfied.
[(vi)] (F) If the underlying security is
an ADR and was initially deemed
appropriate for security futures product
trading under paragraph [(x)(b)] (10)(B)
or [(x)(c)] (10)(C) in [Section I]
paragraph (a) of this Rule, [OneChicago]
the Exchange will not open for trading
security futures products having
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additional delivery months on the ADR
unless:
[(a)] (i) 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
[OneChicago] the Exchange has in place
an effective surveillance sharing
agreement for any consecutive threemonth period is: [(1)] (I) at least 30%,
without regard to the average daily
trading volume in the ADR; or [(2)] (II)
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;
[(b)] (ii) The Exchange [OneChicago]
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
[(c)] (iii) The Securities and Exchange
Commission and Commodity Futures
Trading Commission have otherwise
authorized the listing.
[B.] (2) The Exchange [OneChicago]
will not open trading in a security
futures product with a new delivery
month unless:
[(i)] (A) The issuer of the underlying
security satisfies applicable Exchange
Act reporting requirements, or corrects
any failure within 30 days after the date
the report was due to be filed; and
[(ii)] (B) The underlying security is
listed on a national securities exchange
or is principally traded through the
facilities of a national securities
association and is designated as an NMS
security.
[C.] (3) If prior to the withdrawal from
trading of a security futures product
covering an underlying security that has
been found not to meet [OneChicago’s]
the Exchange’s requirements for
continued approval, [OneChicago] the
Exchange determines that the
underlying security again meets
[OneChicago’s] the Exchange’s
requirements, [OneChicago] the
Exchange may open for trading new
delivery months in such security futures
product and may lift any restriction on
opening purchase transactions.
[D.] (4) Whenever [OneChicago] the
Exchange announces that approval of an
underlying security has been withdrawn
for any reason or that [OneChicago] the
Exchange has been informed that the
issuer of an underlying security has
ceased to be in compliance with
Exchange Act reporting requirements,
each Clearing Member and Exchange
Member (as such terms are defined in
the Rules of [OneChicago] the Exchange
as in effect from time to time) shall,
prior to effecting any transaction in
security futures products with respect to
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45467
such underlying security for any
customer, inform such customer of such
fact and that [OneChicago] the Exchange
may prohibit further transactions in
such security futures products as it
determines is necessary and
appropriate.
1006 [III.] Listing Standards
(a) Initial eligibility criteria for a
security futures product based on an
index composed of two or more
securities.
[A.] For a security futures product
[that is physically settled] based on an
index composed of two or more
securities to be eligible for initial listing,
the index must:
[(i)] (1) Meet the definition of a
narrow-based security index in Section
1a(25) of the Commodity Exchange Act
and Section 3(a)(55) of the Exchange
Act; [and]
[(ii)] (2) Meet the following
requirements:
[(a)](A)(i) It must be capitalizationweighted, modified capitalizationweighted, price-weighted, shareweighted, equal dollar-weighted [or], [in
the case of an index underlying
physically settled security futures
products only,] approximately equal
dollar-weighted, or modified equaldollar weighted.
(ii) [Weighting Methodology for
Approximately Equal Dollar-Weighted
Indices Underlying Physically Settled
Security Futures Products:]
In the case of a [physically settled]
security futures product 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 index [S]selection [D]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.
(iii) In the case of a modified equaldollar weighted index, each underlying
component represents a pre-determined
weighting percentage of the entire index.
Each component is assigned a weight
that takes into account the relative
market capitalization of the securities
comprising the index.
(iv) In the case of a share-weighted
index, the index is calculated by
multiplying the price of the component
security by an adjustment factor.
Adjustment factors are chosen to reflect
the investment objective deemed
appropriate by the designer of the index
and will be published by the Exchange
as part of the contract specifications.
The value of the index is calculated by
adding the weight of each component
security and dividing the total by an
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index divisor, calculated to yield a
benchmark index level as of a particular
date. A share-weighted index is not
adjusted to reflect changes in the
number of outstanding shares of its
components.
[(b)] (B) Its component securities must
be registered under Section 12 of the
Exchange Act.
[(c)] (C) Subject to Subparagraphs [(e)]
(E) and [(l)] (O) below, the component
securities that account for at least 90%
of the total index weight and at least
80% of the total number of component
securities in the index must meet the
requirements for listing a single-security
future, as set forth in [Section I] Rule
906(a).
[(d)] (D) Each component security in
the index must have a minimum market
capitalization of at least $75 million,
except that each of the lowest weighted
securities in the index that in the
aggregate account for no more than 10%
of the weight of the index may have a
minimum market capitalization of only
$50 million.
[(e)] (E) The average daily trading
volume in each of the preceding six
months for each component security in
the index must be at least 45,500 shares
or receipts, except that each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than 10% of the
weight of the index may have an average
daily trading volume of only 22,750
shares or receipts for each of the last six
months.
[(f)] (F) Each component security in
the index must be [(1)] (i) listed on an
Exchange or traded through the facilities
of an Association and [(2)] (ii) reported
as an NMS security.
[(g)] (G) Foreign securities or ADRs
thereon that are not subject to
comprehensive surveillance sharing
agreements must not represent more
than 20% of the weight of the index.
[(h)] (H) The current underlying index
value must be reported at least once
every 15 seconds during the time the
security futures product is traded on
[OneChicago] the Exchange.
[(i)] (I) An equal dollar-weighted
index must be rebalanced at least once
every calendar quarter, except that an
approximately equal dollar-weighted
index underlying a [physically settled]
security futures product need only be
rebalanced as provided in [(j)] (L) below.
(J) A modified equal-dollar weighted
index must be rebalanced quarterly.
(K) A share-weighted index will not be
rebalanced.
[(j)] (L) An approximately equal
dollar-weighted index underlying a
[physically settled] security futures
product must be rebalanced annually on
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December 31 of each year if the
[aggregate value (i.e., the original
number of shares multiplied by their
current price) of the security position
with the highest value is two or more
times greater than the aggregate value of
the security position with the lowest
value in the index for any period of 10
consecutive trading days within the last
month preceding the date of
determination. In addition, OneChicago
may from time to time, but no more
frequently than quarterly, elect to
rebalance any approximately equal
dollar-weighted index underlying a
physically settled security futures
product depending on several factors,
including the relative price changes of
the component securities, the levels of
volume and open interest in the
contracts and input from market
participants.] notional value of the
largest component is at least twice the
notional value of the smallest
component for 50 per cent or more of
the trading days in the three months
prior to December 31 of each year. For
purposes of this provision the ‘‘notional
value’’ is the market price of the
component times the number of shares
of the underlying component in the
index. In addition, the Exchange
reserves the right to rebalance quarterly
at its discretion.
[Procedure for Rebalancing under (j):
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 (j) will be the last
trading day of the year. New contracts
issued on or after a date on which the
corresponding index is rebalanced in
accordance with (j) will be based on an
index consisting of the original
component securities, weighted
applying the methodology described
under (a) above on the basis of security
prices on the rebalancing date.
Outstanding contracts will not be
affected by any rebalancing.]
(M) An underlying index may be
rebalanced on interim basis if warranted
as a result of extraordinary changes in
the relative values of the component
securities. To the extent investors with
open position must rely upon the
continuity of the security futures
Contract on the index, outstanding
Contracts are unaffected by
rebalancings.
[(k)] (N) If the underlying index is
maintained by a broker-dealer, the index
must be calculated by a third party who
is not a broker-dealer, and the brokerdealer must have in place an
information barrier around its personnel
who have access to information
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concerning changes in and adjustments
to the index.
[(l)] (O) In a capitalization-weighted
index, the lesser of: [(1)] (i) the five
highest weighted component securities
in the index each have had an average
daily trading volume of at least 90,000
shares or receipts over the past six
months; or [(2)] (ii) the highest weighted
component securities in the index that
in the aggregate represent at least 30%
of the total number of securities in the
index each have had an average daily
trading volume of at least 90,000 shares
or receipts over the past six months.
(P) If a security future on an index is
cash settled, it must be designated as
AM-settled.
[IV.] ((b)) Maintenance standards for a
security futures product based on an
index composed of two or more
securities.
[A.] (1)[OneChicago] The Exchange
will not open for trading security
futures products [that are physically
settled based] on an index composed of
two or more securities with a new
delivery month unless the underlying
index:
[(i)] (A.) Meets the definition of a
narrow-based security index in Section
1a(25) of the Commodity Exchange Act
and Section 3(a)(55) of the Exchange
Act; and
[(ii)] (B.) Meets the following
requirements:
[(a)] (i) Its component securities must
be registered under Section 12 of the
Exchange Act;
[(b)] (ii) Subject to [(d)] (iv) and [(k)]
(xiii) below, the component securities
that account for at least 90% of the total
index weight and at least 80% of the
total number of component securities in
the index must meet the requirements
for listing a single-security future, as set
forth in [Section I] Rule 906(a).
[(c)] (iii) Each component security in
the index must have a market
capitalization of at least $75 million,
except that each of the lowest weighted
component securities that in the
aggregate account for no more than 10%
of the weight of the index may have a
market capitalization of only $50
million.
[(d)] (iv) The average daily trading
volume in each of the preceding six
months for each component security in
the index must be at least 22,750 shares
or receipts, except that each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than 10% of the
weight of the index may have an average
daily trading volume of at least 18,200
shares or receipts for each of the last six
months.
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[(e)] (v) Each component security in
the index must be [(1)] (I) listed on an
Exchange or traded through the facilities
of an Association and [(2)] (II) reported
as an NMS security.
[(f)] (vi) Foreign securities or ADRs
thereon that are not subject to
comprehensive surveillance sharing
agreements must not represent more
than 20% of the weight of the index.
[(g)](vii) The current underlying index
value must be reported at least once
every 15 seconds during the time the
security futures product is traded on
[OneChicago] the Exchange.
[(h)] (viii) An equal dollar-weighted
index must be rebalanced at least once
every calendar quarter, except that an
approximately equal dollar-weighted
index underlying a [physically settled]
security futures product need only be
rebalanced as provided in [(i)] (I) below.
[(i)] (ix) An approximately equal
dollar-weighted index underlying a
physically settled security futures
product must be rebalanced annually on
December 31 of each year if [the
aggregate value (i.e., the original number
of shares multiplied by their current
price) of the security position with the
highest value is two or more times
greater than the aggregate value of the
security position with the lowest value
in the index for any period of 10
consecutive trading days within the last
month preceding the date of
determination. In addition, OneChicago
may from time to time, but no more
frequently than quarterly, elect to
rebalance any approximately equal
dollar-weighted index underlying a
physically settled security futures
product depending on several factors,
including the relative price changes of
the component securities, the levels of
volume and open interest in the
contracts and input from market
participants.] the notional value of the
largest component is at least twice the
notional value of the smallest
component for 50 per cent or more of
the trading days in the three months
prior to December 31 of each year. For
purposes of this provision the ‘‘notional
value’’ is the market price of the
component times the number of shares
of the underlying component in the
index. In addition, the Exchange
reserves the right to rebalance quarterly
at its discretion.
[Procedure for Rebalancing under (i):
See under III.A.(ii)(j) above.]
(x) In a modified equal-dollar
weighted index the Exchange will rebalance the index quarterly.
(xi) In a share-weighted index, if a
share-weighted Index fails to meet the
maintenance listing standards under
Rule 1006(b), the Exchange will not re-
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balance the index and will not issue
Contracts for new delivery months for
that index.
[(j)] (xii) If the underlying index is
maintained by a broker-dealer, the index
must be calculated by a third party who
is not a broker-dealer, and the brokerdealer must have in place an
information barrier around its personnel
who have access to information
concerning changes in and adjustments
to the index.
[(k)] (xiii) In a capitalization-weighted
index, the lesser of: [(1)] (I) the five
highest weighted component securities
in the index each have had an average
daily trading volume of at least 45,500
shares or receipts over the past six
months; [and] or [(2)] (II) the highest
weighted component securities in the
index that in the aggregate represent at
least 30% of the total number of stocks
in the index each have had an average
daily trading volume of at least 45,500
shares or receipts over the past six
months.
[(l)] (xiv) The total number of
component securities in the index must
not increase or decrease by more than
33–1/3% from the number of
component securities in the index at the
time of its initial listing.
[E.] (2) If the foregoing maintenance
standards in subparagraph (b) are not
satisfied, [OneChicago] the Exchange
will not open for trading a security
futures product based on an index
composed of two or more securities
with a new delivery month, unless it
receives the approval of the Securities
and Exchange Commission and the
Commodity Futures Trading
Commission.
1007 LISTING STANDARDS
For MicroSectors
Cash Settled narrow-based index
futures
[V.] (a) Initial eligibility criteria for a
MicroSector security futures product,
based on an index composed of two or
more securities.
[A.] Notwithstanding Rule 1006, [F]for
a cash settled Dow Jones MicroSector
security futures product, the Dow Jones
MicroSector Index must:
[(i)] (1) Meet the definition of a
narrow-based security index in Section
1a(25) of the Commodity Exchange Act
and Section 3(a)(55) of the Exchange
Act; and
[(ii)] (2) Meet the following
requirements:
[(a)] (A) It must be approximately
equal dollar-weighted composed of one
or more securities in which each
component security will be weighted
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45469
equally based on its market price on the
Selection Date.
[(b)] (B) Each of its component
securities must be registered under
Section 12 of the Exchange Act.
[(c)] (C) Each of its component
securities must be a component security
in the Dow Jones U.S. Total Market
Index or an ADR linked to a security in
the Dow Jones Global Index.
[(d)] (D) Each of its component
securities must be the subject of a U.S.
exchange-traded option on the date of
selection for inclusion in the index.
[(e)] (E) Each of its component
securities must have a trading history on
a U.S. exchange for at least 12 months.
[(f)] (F) Each of its component
securities must have a ‘‘float market
capitalization’’ of at least one billion
dollars.
[(g)] (G) Each of its component
securities close at or above $7.50 for
each of the trading days in the three
months prior to selection for the index.
[(h)] (H) Subject to [(g), (i) and (k)] (G),
(I) and (K) below, component securities
that account for at least 90 per cent of
the total index weight and at least 80
per cent of the total number of
component securities in the index must
meet the requirements for listing a
single-security future contract, as set
forth in [Section I] Rule 906(a).
[(i)] (I) Each of its component
securities must have an average daily
trading volume in each of the preceding
12 months prior to selection for
inclusion in the index greater than
109,000 shares (an ADR must have an
average daily trading volume greater
than 100,000 receipts).
[(j)] (J) Each of its component
securities must be [(1)] (i) listed on an
Exchange or traded through the facilities
of an Association and [(2)] (ii) reported
as an NMS security.
[(k)] (K)[(1)] (i) [OneChicago] The
Exchange must have in place an
effective surveillance sharing agreement
with the primary exchange in the home
country where the stock underlying
each component ADR is traded;
[(2)] (ii) The combined trading volume
of each component ADR and other
related ADRs and securities in the U.S.
ADR market, or in markets with which
[OneChicago] 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’’);
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[(3)(A)] (iii) (I) The combined trading
volume of each component ADR and
other related ADRs and securities in the
U.S. ADR market, and in markets with
which [OneChicago] 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 threemonth period preceding the Selection
Date;
[(B)] (II) 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
[(C)] (III) 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;
[(4)] (iv) The Securities and Exchange
Commission and Commodity Futures
Trading Commission have otherwise
authorized the listing; or
[(5)] (v) Foreign securities or ADRs
thereon that are not subject to
comprehensive surveillance sharing
agreements must not represent more
than 20% of the weight of the index.
[(l)] (L) The current underlying index
value must be reported at least once
every 15 seconds during the time the
MicroSector futures product is traded
on [OneChicago] the Exchange.
[(m)] (M) An index underlying a
MicroSector future must be
reconstituted and rebalanced if the
notional value of the largest component
is at least twice the notional [volume]
value of the smallest component for 50
per cent or more of the trading days in
the three months prior to December 31
of each year. For purposes of this
provision the ‘‘notional value’’ is the
market price of the component times the
number of shares of the underlying
component in the index. Reconstitution
and rebalancing are also mandatory if
the number of component securities in
the index is greater than five at the time
of rebalancing. In addition,
[OneChicago] the Exchange reserves the
right to rebalance quarterly at its
discretion.
[(n)] (N) The MicroSector futures
products will be AM settled.
[(o)] (O) The initial indexes
underlying MicroSector futures
products will be created only for
industry groups that have five or more
qualifying securities.
[VI] (b) Maintenance standards for a
MicroSector futures product based on
an index composed of two or more
securities.
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[A.] [OneChicago] The Exchange will
not open for trading MicroSector futures
products that are cash settled based on
an index composed of two or more
securities with a new delivery month
unless the underlying index:
[(i)] (1) Meets the definition of a
narrow-based security index in Section
1a(25) of the Commodity Exchange Act
and Section 3(a)(55) of the Exchange
Act; and
[(ii)] (2) Meets the following
requirements:
[(a)] (A) All of its component
securities must be registered under
Section 12 of the Exchange Act;
[(b)] (B) Subject to [(d) and (k)] (D)
and (K) below, component securities
that account for at least 90 per cent of
the total index weight and at least 80
per cent of the total number of
component securities in the index must
meet the requirements for listing a
single-security future, as set forth in
[Section I] Rule 906(a).
[(c)] (C) Each component security in
the index must have a market
capitalization of at least $75 million,
except that each of the lowest weighted
component securities that in the
aggregate account for no more than 10
per cent of the weight of the index may
have a market capitalization of only $50
million.
[(d)] (D) The average daily trading
volume in each of the preceding six
months for each component security in
the index must be at least 22,750 shares
or receipts, except that each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than 10 per cent of
the weight of the index may have an
average daily trading volume of at least
18,200 shares for each of the last six
months
[(e)] (E) Each component security in
the index must be [(1)] (i) listed on an
Exchange or traded through the facilities
of an Association and [(2)] (ii) reported
as an NMS security.
[(f)] (F) The current underlying index
value must be reported at least once
every 15 seconds during the time the
security futures product is traded on
[OneChicago] the Exchange.
[(g)] (G) An approximately equal
dollar weighted index underlying a
MicroSector future must be
reconstituted and rebalanced if the
notional value of the largest component
is at least twice the notional volume of
the smallest component for 50 per cent
or more of the trading days in the three
months prior to December 31 of each
year. For purposes of this provision the
‘‘notional value’’ is the market price of
the component times the number of
shares of the underlying component in
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the index. Reconstitution and
rebalancing are also mandatory if the
number of component securities in the
index is greater than five at the time of
rebalancing. In addition, [OneChicago]
the Exchange reserves the right to
rebalance quarterly at its discretion.
[(h)] (H) The total number of
component securities in the index must
not increase or decrease by more than
33-1⁄3% from the number of component
securities in the index at the time of its
initial listing.
[(i)] (I) [(1)] (i) The Exchange
[OneChicago] must have in place an
effective surveillance sharing agreement
with the primary exchange in the home
country where the stock underlying
each component ADR is traded;
[(2)] (ii) The combined trading volume
of each component ADR and other
related ADRs and securities in the U.S.
ADR market, or in markets with which
[OneChicago] the Exchange has in place
an effective surveillance sharing
agreement, represents (on a share
equivalent basis) at least 50 per cent 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’’);
[(3)] (iii)[(a)] (I)The combined trading
volume of the ADR and other related
ADRs and securities in the U.S. ADR
market, and in markets with which
[OneChicago] the Exchange has in place
an effective surveillance sharing
agreement, represents (on a share
equivalent basis) at least 20 per cent of
the combined worldwide trading
volume in the ADR and in other related
ADRs and securities over the threemonth period preceding the Selection
Date;
[(b)] (II) 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
[(c)] (III) 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;
[(4)] (iv) The Securities and Exchange
Commission and Commodity Futures
Trading Commission have otherwise
authorized the listing, or
[(5)] (v) Foreign securities or ADRs
thereon that are not subject to
comprehensive surveillance sharing
agreements must not represent more
than 20 per cent of the weight of the
index.
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[B.] (2) If the foregoing maintenance
standards are not satisfied prior to
opening a MicroSector futures product
with a new delivery month,
[OneChicago] the Exchange will either
(i) replace the component security or
securities that fail to meet the
maintenance standards with a security
or securities that qualify under the
initial listing standards for MicroSector
futures products set forth in [Section V]
paragraph (a) of this Rule, or (ii) receive
the approval of the Securities and
Exchange Commission and the
Commodity Futures Trading
Commission.
*
*
*
*
*
1002. Contract Specifications
*
*
*
*
*
(i)(1) No Change
(2) Final Settlement Price. (A) No
Change
(B) Notwithstanding subparagraph
(2)(A) of this Rule, if an opening price
for one or more securities underlying a
Stock Index Future is not readily
available, [the Chief Executive Officer of
the Exchange or his designee for such
purpose (referred to hereafter in this
Rule 1002(i) as the ‘‘Designated
Officer’’)] the Exchange will determine
whether the security or securities are
likely to open within a reasonable time.
(i) If the [Designated Officer]
Exchange determines that one or more
component securities are not likely to
open within a reasonable time, then for
the component security or securities
which the [Designated Officer]
Exchange determined were not likely to
open within a reasonable time, the last
trading price of the underlying security
or securities during the most recent
regular trading session for such security
or securities will be used to calculate
the special opening quotation.
(ii) If the [Designated Officer]
Exchange determines that the security
or securities are likely to open within a
reasonable time, then for the component
security or securities which the
[Designated Officer] Exchange
determined were likely to open within
a reasonable time, the next available
opening price of such security or
securities will be used to calculate the
special opening quotation.
(C) No Change
(D) 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
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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
OneChicago proposes to amend its
Eligibility and Maintenance Criteria for
Security Futures Products (‘‘Listing
Standards’’) by incorporating them into
the rules of the Exchange, deleting all
references to ‘‘physically settled’’ in the
Listing Standards pertaining to NBIs,
permitting futures on modified equaldollar weighted and share-weighted
indexes, amending provisions related to
the rebalancing of various NBIs,
requiring AM settlement for cash settled
security futures, and other conforming
changes. The proposed rule change
would also amend OneChicago Rule
1002(i)(2)(B) regarding the
determination of when an opening price
for one or more securities underlying a
futures on an NBI (‘‘Stock Index
Futures’’) is not available to determine
the final settlement price of the Stock
Index Future.
The proposed rule change would
amend the numbering of the Listing
Standards to incorporate them into the
rules of the Exchange. The Listing
Standards pertaining to futures on a
single security would be incorporated
without changes (other than numbering)
into new OneChicago Rule 906. The
Listing Standards pertaining to NBIs
would be incorporated into new
OneChicago Rule 1006, and the Listing
Standards for MicroSectors would be
new OneChicago Rule 1007.
The proposed rule change would
delete all references to ‘‘physically
settled’’ NBIs, making OneChicago
Rules 1006(a) and (b) generic as to the
type of settlement process. Thus, the
Listing Standards in OneChicago Rule
1006 would apply to cash settled and
physically settled NBI contracts.5 This
5 All futures on NBIs would be subject to the
applicable position limits in OneChicago Rules 414
and 1002(e). The position limit for each cash settled
future on an NBI would be calculated according to
the Market Cap Position Limit or SSF Position Limit
formula in OneChicago Rule 1002(e)(2). The
position limit for physically settled futures on NBIs
would be established by the Exchange in
conformance with CFTC Regulation 41.25 as
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45471
proposed change is consistent with the
listing standards for options on NBIs.6
The proposed rule change would add
share-weighted and modified equaldollar weighted to the list of permissible
indexes. New provisions would also be
added to define modified equal-dollar
weighted and share-weighted indexes.
These provisions are consistent with
options listing standards previously
approved by the Commission.7 A
modified equal-dollar weighted index is
designed to be a fair measurement of a
particular industry or sector but without
assigning an excessive weight to one or
more index component(s) that have a
large market capitalization relative to
other index components. In a modified
equal-dollar weighted index, each
underlying component security
represents a pre-determined weighting
percentage of the entire index. Each
security in the index is assigned a
weight that takes into account the
relative market capitalization of the
securities comprising the index.
A share-weighted index is calculated
by multiplying the price of the
component security by an adjustment
factor. Adjustment factors are chosen to
reflect the investment objective deemed
appropriate by the designer of the index
and would be published by the
Exchange as part of the contract
specifications. The value of the index is
calculated by adding the weight of each
component security and dividing the
total by an index divisor, calculated to
yield a benchmark index level as of a
particular date. A share-weighted index
is not adjusted to reflect changes in the
number of outstanding shares of its
components.
New provisions would also be added
regarding rebalancing of these indexes.
Under the proposed rule change, a
modified equal-dollar weighted index
must be rebalanced quarterly and a
share-weighted index would not be
rebalanced. The proposed rule change
would also amend the rebalancing
language pertaining to approximately
equal dollar-weighted index. Under the
proposed rule change, an approximately
equal dollar-weighted index would be
required to be rebalanced annually on
December 31 of each year if the notional
value of the largest component is at least
twice the notional value of the smallest
component for 50 percent or more of the
trading days in the three months prior
to December 31 of each year. The
required in OneChicago Rule 414(a). See 17 CFR
41.25.
6 See Chicago Board Options Exchange (‘‘CBOE’’)
Rules 24.2(d) and (e).
7 Securities Exchange Act Release No. 49932
(June 28, 2004), 69 FR 40994 (July 7, 2004)
(SR√CBOE–2002–24).
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Exchange would retain the right to
rebalance quarterly at its discretion.
This rebalancing requirement was
adopted by the Exchange for
MicroSector futures.8
The proposed rule change would also
permit the Exchange to rebalance an
index on an interim basis if there are
extraordinary changes in the relative
values of the component securities. To
the extent investors with open position
must rely upon the continuity of the
security futures contract on the index,
the proposed rule change would leave
outstanding contracts unaffected by the
rebalancing.
Consistent with OneChicago Rule
1002(i), the proposed rule change adds
a provision that requires AM settlement
for cash settled security futures on NBIs.
Under the proposed rule change,
OneChicago Rule 1002(i)(2)(B), which
relates to the final settlement price of a
Stock Index Future, would be amended
by permitting the Exchange to make a
determination when an opening price
for one or more securities underlying a
Stock Index Future is not readily
available. Under the current
OneChicago Rule, only the Chief
Executive Officer of the Exchange or his
designee, referred to as the Designated
Officer, may make the determination
whether the security or securities are
likely to open within a reasonable time.
The Exchange believes that it is more
appropriate and provides more
flexibility to state that the Exchange
would make this determination.
CFMA Listing Standard Requirements
for Security Futures. Section 6(h) of the
Act 9 requires that certain standards be
met in order for an exchange to trade
SFPs. OneChicago previously
established that it met those standards
in the proposed rule change submitted
to the Commission.10 OneChicago also
established that it met those standards
in the proposed rule change it submitted
to the Commission regarding listing
standards for MicroSectors.11 The
Exchange believes that the proposed
8 See Section V.A.ii.m of the Listing Standards for
MicroSectors Cash Settled Narrow-Based Index
Futures. In addition to rebalancing, the NBIs may
be adjusted due to corporate events. Attached as
Exhibit A is the Corporate Action Summary A for
Approximately Equal Dollar-Weighted Indexes and
Exhibit B is the Corporate Action Summary B for
Share-Weighted Indexes. Depending on the index
design, the Corporate Action Summary A or B may
be modified. The Exchange would notify the public
of the Corporate Actions that would be taken in
regards to an index before the index begins trading.
9 15 U.S.C. 78f(h).
10 Securities Exchange Act Release No. 47114
(December 31, 2002), 68 FR 837 (January 7, 2003)
(SR–OC–2002–24).
11 Securities Exchange Act Release No. 48191
(July 17, 2003), 68 FR 43555 (July 23, 2003) (SR–
OC–2003–06).
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rule change OneChicago submits at this
time merely amends the current
OneChicago Listing Standards and does
not alter its ability to meet the standards
required under section 6(h) of the Act.12
Section 6(h)(3)(A) of the Act 13
requires that each security underlying
an SFP must be registered pursuant to
section 12 of the Act.14 OneChicago
believes that the Listing Standards
continue to meet this requirement.
Section 6(h)(3)(B) of the Act 15
requires the 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
SFP. The proposed rule change would
not make amendments related to this
requirement. OneChicago has entered
into arrangements with both The
Options Clearing Corporation (‘‘OCC’’)
and the clearinghouse of the Chicago
Mercantile Exchange Inc. (‘‘CME’’), both
of which are registered clearing
agencies, relating to the clearing of
SFPs. By virtue of the CME
clearinghouse being an associated
clearinghouse of OCC, and OCC having
in place arrangements with the National
Securities Clearing Corporation for the
delivery of securities underlying
physically settled SFPs, One Chicago
believes that it meets the requirements
of section 6(h)(3)(B) of the Act.16
Section 6(h)(3)(C) of the Act 17
requires Listing Standards for security
futures be no less restrictive than
comparable Listing Standards for
options traded on a national securities
exchange. The Commission has
approved a similar rule for CBOE.18
Since CBOE has comparable listing
standards, OneChicago believes that the
proposed rule change meets the
requirement of section 6(h)(3)(C) of the
Act.19
Section 6(h)(3)(D) of the Act 20
requires that all SFPs be based on
common stock and such other equity
securities as the Commission and CFTC
have jointly determined is appropriate.
The Commission and CFTC have jointly
permitted that SFPs be based on
U.S.C. 78f(h).
U.S.C. 78f(h)(3)(A).
14 15 U.S.C. 781.
15 15 U.S.C. 78f(h)(3)(B).
16 Id.
The Exchange clarified its belief that the
proposed rule change meets the requirement of
Section 6(h)(3)(B) of the Act. Telephone
conversation between Madge Piro, Counsel for
OneChicago, and Jennifer Dodd, Special Counsel,
Division, Commission, July 28, 2005.
17 15 U.S.C. 78f(h)(3)(C).
18 See note 6 supra.
19 15 U.S.C. 78f(h)(3)(C).
20 15 U.S.C. 78f(h)(3)(D).
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12 15
13 15
Frm 00120
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depositary shares,21 a share of an
exchange traded fund, a trust issued
receipt, or a share of a registered closedend management investment
company.22 The proposed rule change
would not amend the provisions in the
Listing Standards pertaining to this
requirement. Therefore, OneChicago
believes that it continues to meet this
requirement.
Section 6(h)(3)(E) of the Act 23
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 an SFP
to be purchased on one market and
offset on another market that trades
such product. OneChicago notes that
pursuant to section 6(h)(7) of the Act,24
the foregoing requirement is deferred
until the ‘‘compliance date’’ (as defined
therein). OneChicago expects that both
OCC and CME clearinghouses would
have in place procedures complying
with the requirements of clause (E) after
such ‘‘compliance date.’’ Therefore,
OneChicago believes that it continues to
meet this requirement.
Section 6(h)(3)(F) of the Act 25
requires that broker-dealers must be
subject to suitability rules comparable to
those of a national securities association
to effect transactions in SFPs.
OneChicago believes it continues to
satisfy this requirement through
OneChicago Rule 605 which requires
members to comply with the sales
practice rules of the National Futures
Association (‘‘NFA’’) or the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), which include suitability
rules.
Section 6(h)(3)(G) of the Act 26
requires that SFPs be subject to the
prohibition against dual trading in
Section 4j of CEA 27 and CFTC
regulations. Pursuant to section 4j of
CEA,28 CFTC promulgated Regulation
41.27,29 which states that an electronic
futures exchange is subject to the dual
trading rule if the exchange provides
market participants with a time or place
advantage or the ability to override a
predetermined algorithm. OneChicago
market participants have no such
advantage or ability. Therefore,
OneChicago believes that the dual
21 See Securities Exchange Act Release No. 44725
(August 20, 2001), 67 FR 42670 (June 25, 2002).
22 See Securities Exchange Act Release No. 46090
(June 19, 2002), 67 FR 42670 (June 25, 2002).
23 15 U.S.C. 78f(h)(3)(E).
24 15 U.S.C. 78f(h)(7).
25 15 U.S.C. 78f(h)(3)(F).
26 15 U.S.C. 78f(h)(3)(G).
27 7 U.S.C. 4j.
28 Id.
29 17 CFR 41.27.
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trading rule does not apply to
OneChicago.
Section 6(h)(3)(H) of the Act 30
provides that SFPs must not be readily
susceptible to manipulation of the price
of the SFP, the price of the underlying
security, the price of the option on such
security, or options on a group or index
including such securities. Nothing in
the proposed rule change would alter
OneChicago’s fulfillment of this
requirement. Therefore, OneChicago
believes that it continues to meet this
requirement. OneChicago Rule 603
specifically prohibits market
manipulation, and OneChicago Rule 604
prohibits OneChicago members or
access persons from violating applicable
laws.
Section 6(h)(3)(I) 31 of the Act requires
that procedures be in place for
coordinated surveillance among the
markets on which an SFP is traded, any
market on which any security
underlying an SFP is traded, and other
markets on which any related security is
traded to detect manipulation and
insider trading. OneChicago believes
that it continues to meet this
requirement through its affiliation with
the Intermarket Surveillance Group,
under which it has an agreement to
share market surveillance and
regulatory information with other
members of the group, which includes
all of the predominant U.S. securities
exchanges. OneChicago is also a
member of the Joint Audit Committee,
in which the futures self-regulatory
organizations have an agreement to
share information for regulatory
purposes. Therefore, OneChicago
believes it continues to meet this
requirement.
Section 6(h)(3)(J) of the Act 32 requires
that an exchange have audit trails that
are necessary or appropriate to facilitate
the coordinated surveillance required
under section 6(h)(3)(I) of the Act.33
OneChicago believes that it continues to
meet this requirement. The audit trail
capability provided by CBOEdirect, the
trade matching engine used by
OneChicago, creates and maintains an
electronic transaction history database
that contains information with respect
to all orders, whether executed or not,
and resulting transactions on the
Exchange. This applies to orders entered
through CBOEdirect terminals as well
as to orders routed to CBOEdirect
through CME’s Globex system. The
information recorded with respect to
each order includes: time received (by
30 15
U.S.C. 78f(h)(3)(H).
U.S.C. 78f(h)(3)(I).
32 15 U.S.C. 78f(h)(3)(J).
33 15 U.S.C. 78f(h)(3)(I).
31 15
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CBOEdirect or Globex), terms of the
order, order type, instrument and
contract month, price quantity, account
type, account designation, user code,
and clearing firm.
OneChicago’s electronic audit trail
consists of data recorded by
CBOEdirect and Globex, and
OneChicago has full access to all such
data. Information logged by
CBOEdirect, including orders received
through CBOEdirect terminals, are
archived and provided to OneChicago
each day. Orders received through
Globex are archived and maintained at
CME. Together, these data sets enable
OneChicago to trace each order back to
the clearing firm by or through which it
was submitted. If any question or issue
arises as to the source of an order prior
to submission by or through a clearing
firm, OneChicago would request that the
clearing firm provide an electronic or
other record of the order.
For orders that cannot be immediately
entered into either CBOEdirect and
Globex, and therefore would not be
recorded electronically at the time they
are placed, OneChicago Rule 403(b)
requires that the Clearing Member or, if
applicable, the Exchange Member or the
Access Person receiving such order
must prepare an order form in a nonalterable written medium, which must
be time-stamped when received and
include the account designation, date,
and other required information (i.e.,
order terms, order type, instrument and
contract month, price, and quantity).
Each such form must be retained for at
least five years from the time it was
prepared. In addition, OneChicago Rule
501 establishes a general recordkeeping
requirement pursuant to which each
Clearing Member, Exchange Member,
and Access Person must keep all books
and records as required to be kept by it
pursuant to CEA, CFTC regulations, the
Act, regulations under the Act, and
OneChicago Rules. OneChicago Rule
501 also requires that such books and
records be made available to the
Exchange upon request. Current CFTC
regulations require books and records to
be maintained for a period of five years.
OneChicago believes that its audit trail
continues to meet the requirement of
section 6(h)(3)(J) of the Act.34
Block trades are entered in
CBOEdirect by OneChicago’s
operations management after they are
reported by designated individuals at
the Clearing Member for the selling
party. Similar procedures apply to the
exchange of futures for physical (‘‘EFP’’)
transactions. Since block trades and EFP
transactions involve orders that cannot
34 15
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45473
be immediately entered into either
CBOE’s or CME’s systems, the Clearing
Members or, if applicable, Exchange
Members or Access Persons involved
must comply with the relevant
OneChicago policy and procedures
regarding these transactions.
Section 6(h)(3)(K) of the Act 35
requires that a market on which an SFP
is traded have in place procedures to
coordinate trading halts between such
market and any market on which any
security underlying an SFP is traded
and other markets on which any related
security is traded. OneChicago believes
that it continues to meet this
requirement through OneChicago Rule
419, which requires that trading in a
security future be halted at all times that
a regulatory halt has been instituted for
the relevant underlying security or
securities.
Section 6(h)(3)(L) of the Act 36
requires that the margin requirements
for an SFP comply with the regulations
prescribed pursuant to section 7(c)(2)(B)
of the Act.37 OneChicago believes that
its current Rule 515 continues to fulfill
this requirement.38
2. Statutory Basis
OneChicago believes that the
proposed rule change is consistent with
section 6(b)(5) of the Act 39 in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
OneChicago further believes that the
proposed changes would promote
competition and are designed to protect
investors and the public interest by
permitting investors to use new,
competitive, and innovative products
for hedging and speculative purposes.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
OneChicago believes that the
proposed rule change would not unduly
burden competition. In fact, OneChicago
believes that the proposed rule change
would promote competition by
permitting OneChicago to list a broader
35 15
U.S.C. 78f(h)(3)(K).
U.S.C. 78f(h)(3)(L).
37 15 U.S.C. 78g(c)(2)(B).
38 Securities Exchange Act Release No. 46787
(November 7, 2002), 67 FR 69059 (November 14,
2002) (SR–OC–2002–01); Securities Exchange Act
Release No. 47810 (May 7, 2003), 68 FR 26369 (May
15, 2003) (SR–OC–2003–05); Securities Exchange
Act Release No. 50115 (July 29, 2004), 69 FR 48261
(August 9, 2004) (SR–OC–2004–01).
39 15 U.S.C. 78f(b)(5).
36 15
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array of futures, without jeopardizing
investor protection.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Comments on the proposed rule
change have not been solicited nor
received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The proposed rule change has become
effective on July 20, 2005. 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.40
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
41 17
CFR 200.30–3(a)(15).
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amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
Electronic Comments
proposed rule change between the
• Use the Commission’s Internet
Commission and any person, other than
comment form (https://www.sec.gov/
those that may be withheld from the
rules/sro.shtml); or
public in accordance with the
• Send an e-mail to ruleprovisions of 5 U.S.C. 552, will be
comments@sec.gov. Please include File
available for inspection and copying in
Number SR–OC–2005–02 on the subject the Commission’s Public Reference
line.
Room. Copies of such filing also will be
available for inspection and copying at
Paper Comments
the principal office of OneChicago. All
• Send paper comments in triplicate
comments received will be posted
to Jonathan G. Katz, Secretary,
without change; the Commission does
Securities and Exchange Commission,
not edit personal identifying
Station Place, 100 F Street, NE.,
information from submissions. You
Washington, DC 20549–9303.
should submit only information that
All submissions should refer to File
you wish to make available publicly. All
Number SR–OC–2005–02. This file
submissions should refer to File
number should be included on the
Number SR–OC–2005–02 and should be
subject line if e-mail is used. To help the submitted on or before August 26, 2005.
Commission process and review your
For the Commission, by the Division of
comments more efficiently, please use
Market Regulation, pursuant to delegated
only one method. The Commission will
authority.41
post all comments on the Commission’s
Jill M. Peterson,
Internet Web site (https://www.sec.gov/
Assistant Secretary.
rules/sro.shtml). Copies of the
BILLING CODE 8010–01–P
submission, all subsequent
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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CFR 200.30–3(a)(15).
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BILLING CODE 8010–01–C
]]>Agencies
[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45464-45476]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4233]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52180; File No. SR-OC-2005-02]
Self-Regulatory Organization; OneChicago, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change Relating to
Listing Standards for Security Futures Products and the Final
Settlement Price for Futures on Narrow-Based Security Indexes
July 29, 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 July 20, 2005 OneChicago, LLC (``OneChicago'' 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 OneChicago.\3\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(7).
\2\ 17 CFR 240.19b-7.
\3\ With the permission of OneChicago, the Commission made
typographical, non-substantive corrections to the text of the
proposed rule change. Telephone conversations between Madge Piro,
Counsel for OneChicago, and Jennifer Dodd, Special Counsel, Division
of Market Regulation (``Division''), Commission, July 21 and 29,
2005.
---------------------------------------------------------------------------
OneChicago also has filed the proposed rule change with the
Commodity Futures Trading Commission (``CFTC''). OneChicago filed a
written certification with CFTC under Section 5c(c) of the Commodity
Exchange Act (``CEA'') \4\ on July 18, 2005.
---------------------------------------------------------------------------
\4\ 7 U.S.C. 7a-2(c).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Description of the Proposed Rule
Change
OneChicago is proposing to amend its listing standards for security
futures products (``SFPs'') and its rule relating to the final
settlement price for futures on narrow-based security indexes
(``NBIs''). The text of the proposed rule change follows; additions are
italicized; deletions are [bracketed].
[Eligibility and Maintenance Criteria for Security Futures Products]
906 [I.]Listing Standards
(a) Initial listing standards for a security futures product based
on a single security. [A.] 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:
[(i)] (1) It must be a common stock, an American Depositary Receipt
(``ADR'') representing common stock or ordinary shares, a share of an
exchange traded fund (``ETF Share''), a trust issued receipt (``TIR'')
or a share of a registered closed-end management investment company
(``Closed-End Fund Share'').
[(ii)] (2) It must be registered under Section 12 of the Securities
Exchange Act of 1934 (as amended from time to time, the ``Exchange
Act''), and its issuer must be in compliance with any applicable
requirements of the Exchange Act.
[(iii)] (3) It must be listed on a national securities exchange
(``Exchange'') or traded through the facilities of a national
securities association (``Association'') and reported as a ``national
market system'' security as set forth in Rule 11Aa3-1 under the
Exchange Act (``NMS security'').
[(iv)] (4) There must be at least seven million shares or receipts
evidencing the underlying security outstanding that are owned by
persons other than those required to report their security holdings
pursuant to Section 16(a) of the Exchange Act.
Requirement [(iv)] (4) as Applied to Restructure Securities:
In the case of an equity security that a company issues or
anticipates issuing as the result of a spin-off, reorganization,
recapitalization, restructuring or similar corporate transaction
(``Restructure Security''), [OneChicago, LLC (``OneChicago'')] the
Exchange may assume that this requirement is satisfied if, based on a
reasonable investigation, it determines that, on the product's intended
listing date: (A) at least 40 million shares of the Restructure
Security will be issued and outstanding; or (B) the Restructure
Security will be listed on an Exchange or automated quotation system
that is subject to an initial listing requirement of no less than seven
million publicly owned shares.
In the case of a Restructure Security issued or distributed to the
holders of the equity security that existed prior to the ex-date of a
spin-off, reorganization, recapitalization, restructuring or similar
corporate transaction (``Original Equity Security''), [OneChicago] the
Exchange may consider the number of outstanding shares of the Original
Equity Security prior to the spin-off, reorganization,
recapitalization, restructuring or similar corporate transaction
(``Restructuring Transaction'').
[(v)] (5) In the case of an underlying security other than an ETF
Share, TIR or Closed-End Fund Share, there must be at least 2,000
securityholders.
Requirement [(v)] (5) as Applied to Restructure Securities:
If the security under consideration is a Restructure Security,
[OneChicago] the Exchange may assume that this requirement is satisfied
if, based on a reasonable investigation,[OneChicago] the Exchange
determines that, on the product's intended listing date: (A) at least
40 million shares of the Restructure Security will be issued and
outstanding; or (B) the Restructure Security will be listed on an
Exchange or automated quotation system that is subject to an initial
listing requirement of at least 2,000 shareholders. In the case of a
Restructure Security issued or distributed to the holders of the
Original Equity Security, [OneChicago]the Exchange may consider the
number of shareholders of the Original Equity Security prior to the
Restructuring Transaction.
[(vi)] (6) In the case of an underlying security other than an ETF
Share, TIR or Closed-End Fund Share, it must have trading volume (in
all markets in which the underlying security is traded) of at least
2,400,000 shares in the preceding 12 months.
Requirement [(vi)] (6) 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,[OneChicago] the Exchange may ``look back'' to the trading
volume history of the Original Equity Security prior to the ex-date of
the Restructuring Transaction if the following Look-Back Test is
satisfied:
[(1)] (A) The Restructure Security has an aggregate market value of
at least $500 million;
[(2)] (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;
[(3)] (C) The aggregate book value of the assets attributed to the
business represented by the Restructure Security equals or exceeds $50
million and the
[[Page 45465]]
Relevant Percentage of the aggregate book value of the assets
attributed to the business represented by the Original Equity Security;
or
[(4)] (D) The revenues attributed to the business represented by
the Restructure Security equal or exceed $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, [OneChicago]
the Exchange will use the Restructure Security's closing price on its
primary market on the last business day prior to the date on which the
Restructure Security is selected as an underlying security for a
security futures product (``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,
[OneChicago] 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.
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, [OneChicago] the Exchange will not rely upon
the trading volume history of an Original Equity Security for any
trading day unless it also relies upon the market price history for
that trading day.
In addition, once [OneChicago] the Exchange commences to rely upon
a Restructure Security's trading volume and market price history for
any trading day,[OneChicago] the Exchange will not rely upon the
trading volume and market price history of the Original Equity Security
for any trading day thereafter.
[(vii)] (7) In the case of an underlying security that is an ETF
Share, TIR or Closed-End Fund Share, it must have had a total trading
volume (in all markets in which the underlying security has traded) of
at least 2,400,000 shares or receipts evidencing the underlying
security in the preceding 12 months.
[(viii)] (8) 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 submits a certificate to The Options
Clearing Corporation for listing and trading. 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.
Requirement [(viii)] (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,
[OneChicago] 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)] (A) The Restructure Security has an aggregate market value of
at least $500 million;
[(b)] (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)] (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)] (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,[OneChicago] 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,
[OneChicago] 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), [OneChicago] 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 $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, [OneChicago] 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 [OneChicago] the Exchange commences to
rely upon a Restructure Security's trading volume and market price
history for any trading day, [OneChicago] the Exchange will not rely
upon the trading volume and market price history of the related
Original Equity Security for any trading day thereafter.
[(ix)] (9) If the underlying security is not a ``covered security''
as defined under Section 18(b)(1)(A) of the Securities Act of 1933, it
must have had
[[Page 45466]]
a market price per security of at least $7.50, as measured by the
lowest closing price 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.
Requirement [(ix)] (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,
[OneChicago] 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)] (A) The Restructure Security has an aggregate market value of
at least $500 million;
[(b)] (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)] (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)] (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, [OneChicago]
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,
[OneChicago] 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 [(ix)] (9), [OneChicago] 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,[OneChicago] 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 [OneChicago] the Exchange commences to rely upon
a Restructure Security's trading volume and market price history for
any trading day, [OneChicago] the Exchange will not rely upon the
trading volume and market price history of the related Original Equity
Security for any trading day thereafter.
[(x)] (10) If the underlying security is an ADR:
[(a)] (A) [OneChicago] The Exchange must have in place an effective
surveillance sharing agreement with the primary exchange in the home
country where the stock underlying the ADR is traded;
[(b)] (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
[OneChicago] 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)] (C)(i) The combined trading volume of the ADR and other
related ADRs and securities in the U.S. ADR market, and in markets with
which [OneChicago] 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)] (ii) 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)] (iii) 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)] (D) The Securities and Exchange Commission and Commodity
Futures Trading Commission have otherwise authorized the listing.
[(xi)] (11) [OneChicago] The Exchange will not list for trading any
security futures product 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.
[II.] (b) Maintenance standards for a security futures product
based on a single security.
[A] (1) The Exchange [OneChicago] will not open for trading any
security futures product that is physically settled with a new delivery
month, and may prohibit any opening purchase transactions in the
security futures product 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 security
futures product (as described in [I.A.] 906(a) above) shall apply in
lieu of the following maintenance requirements:
[(i)] (A) It must be registered under Section 12 of the Exchange
Act.
[(ii)] (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
[[Page 45467]]
holdings pursuant to Section 16(a) of the Exchange Act.
[(iii)] (C) There must be at least 1,600 securityholders.
[(iv)] (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.
Requirement [(iv)] (D) as Applied to Restructure Securities:
If a Restructure Security is approved for a security futures
product trading under the initial listing standards in [Section I]
paragraph (a) of this Rule, the average daily trading volume history of
the Original Equity Security (as defined in [Section I] paragraph (a)
of this Rule) prior to the commencement of trading in the Restructure
Security (as defined in [Section I] paragraph (a) of this Rule),
including ``when-issued'' trading, may be taken into account in
determining whether this requirement is satisfied.
[Requirement (v) as Applied to Restructure Securities:
If a Restructure Security is approved for security futures product
trading under the initial listing standards in Section I, 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.]
[(v)] (E) The market price per share 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 reported in the primary market in which the
underlying security traded.
Requirement [(v)] (E) as Applied to Restructure Securities:
If a Restructure Security is approved for security futures product
trading under the initial listing standards in [Section I] paragraph
(a) of this Rule, 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.
[(vi)] (F) If the underlying security is an ADR and was initially
deemed appropriate for security futures product trading under paragraph
[(x)(b)] (10)(B) or [(x)(c)] (10)(C) in [Section I] paragraph (a) of
this Rule, [OneChicago] the Exchange will not open for trading security
futures products having additional delivery months on the ADR unless:
[(a)] (i) 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 [OneChicago] the Exchange has in place an effective
surveillance sharing agreement for any consecutive three-month period
is: [(1)] (I) at least 30%, without regard to the average daily trading
volume in the ADR; or [(2)] (II) 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;
[(b)] (ii) The Exchange [OneChicago] 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
[(c)] (iii) The Securities and Exchange Commission and Commodity
Futures Trading Commission have otherwise authorized the listing.
[B.] (2) The Exchange [OneChicago] will not open trading in a
security futures product with a new delivery month unless:
[(i)] (A) The issuer of the underlying security satisfies
applicable Exchange Act reporting requirements, or corrects any failure
within 30 days after the date the report was due to be filed; and
[(ii)] (B) The underlying security is listed on a national
securities exchange or is principally traded through the facilities of
a national securities association and is designated as an NMS security.
[C.] (3) If prior to the withdrawal from trading of a security
futures product covering an underlying security that has been found not
to meet [OneChicago's] the Exchange's requirements for continued
approval, [OneChicago] the Exchange determines that the underlying
security again meets [OneChicago's] the Exchange's requirements,
[OneChicago] the Exchange may open for trading new delivery months in
such security futures product and may lift any restriction on opening
purchase transactions.
[D.] (4) Whenever [OneChicago] the Exchange announces that approval
of an underlying security has been withdrawn for any reason or that
[OneChicago] the Exchange has been informed that the issuer of an
underlying security has ceased to be in compliance with Exchange Act
reporting requirements, each Clearing Member and Exchange Member (as
such terms are defined in the Rules of [OneChicago] the Exchange as in
effect from time to time) shall, prior to effecting any transaction in
security futures products with respect to such underlying security for
any customer, inform such customer of such fact and that [OneChicago]
the Exchange may prohibit further transactions in such security futures
products as it determines is necessary and appropriate.
1006 [III.] Listing Standards
(a) Initial eligibility criteria for a security futures product
based on an index composed of two or more securities.
[A.] For a security futures product [that is physically settled]
based on an index composed of two or more securities to be eligible for
initial listing, the index must:
[(i)] (1) Meet the definition of a narrow-based security index in
Section 1a(25) of the Commodity Exchange Act and Section 3(a)(55) of
the Exchange Act; [and]
[(ii)] (2) Meet the following requirements:
[(a)](A)(i) It must be capitalization-weighted, modified
capitalization-weighted, price-weighted, share-weighted, equal dollar-
weighted [or], [in the case of an index underlying physically settled
security futures products only,] approximately equal dollar-weighted,
or modified equal-dollar weighted.
(ii) [Weighting Methodology for Approximately Equal Dollar-Weighted
Indices Underlying Physically Settled Security Futures Products:]
In the case of a [physically settled] security futures product
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 index [S]selection [D]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.
(iii) In the case of a modified equal-dollar weighted index, each
underlying component represents a pre-determined weighting percentage
of the entire index. Each component is assigned a weight that takes
into account the relative market capitalization of the securities
comprising the index.
(iv) In the case of a share-weighted index, the index is calculated
by multiplying the price of the component security by an adjustment
factor. Adjustment factors are chosen to reflect the investment
objective deemed appropriate by the designer of the index and will be
published by the Exchange as part of the contract specifications. The
value of the index is calculated by adding the weight of each component
security and dividing the total by an
[[Page 45468]]
index divisor, calculated to yield a benchmark index level as of a
particular date. A share-weighted index is not adjusted to reflect
changes in the number of outstanding shares of its components.
[(b)] (B) Its component securities must be registered under Section
12 of the Exchange Act.
[(c)] (C) Subject to Subparagraphs [(e)] (E) and [(l)] (O) below,
the component securities that account for at least 90% of the total
index weight and at least 80% of the total number of component
securities in the index must meet the requirements for listing a
single-security future, as set forth in [Section I] Rule 906(a).
[(d)] (D) Each component security in the index must have a minimum
market capitalization of at least $75 million, except that each of the
lowest weighted securities in the index that in the aggregate account
for no more than 10% of the weight of the index may have a minimum
market capitalization of only $50 million.
[(e)] (E) The average daily trading volume in each of the preceding
six months for each component security in the index must be at least
45,500 shares or receipts, except that each of the lowest weighted
component securities in the index that in the aggregate account for no
more than 10% of the weight of the index may have an average daily
trading volume of only 22,750 shares or receipts for each of the last
six months.
[(f)] (F) Each component security in the index must be [(1)] (i)
listed on an Exchange or traded through the facilities of an
Association and [(2)] (ii) reported as an NMS security.
[(g)] (G) Foreign securities or ADRs thereon that are not subject
to comprehensive surveillance sharing agreements must not represent
more than 20% of the weight of the index.
[(h)] (H) The current underlying index value must be reported at
least once every 15 seconds during the time the security futures
product is traded on [OneChicago] the Exchange.
[(i)] (I) An equal dollar-weighted index must be rebalanced at
least once every calendar quarter, except that an approximately equal
dollar-weighted index underlying a [physically settled] security
futures product need only be rebalanced as provided in [(j)] (L) below.
(J) A modified equal-dollar weighted index must be rebalanced
quarterly.
(K) A share-weighted index will not be rebalanced.
[(j)] (L) An approximately equal dollar-weighted index underlying a
[physically settled] security futures product must be rebalanced
annually on December 31 of each year if the [aggregate value (i.e., the
original number of shares multiplied by their current price) of the
security position with the highest value is two or more times greater
than the aggregate value of the security position with the lowest value
in the index for any period of 10 consecutive trading days within the
last month preceding the date of determination. In addition, OneChicago
may from time to time, but no more frequently than quarterly, elect to
rebalance any approximately equal dollar-weighted index underlying a
physically settled security futures product depending on several
factors, including the relative price changes of the component
securities, the levels of volume and open interest in the contracts and
input from market participants.] notional value of the largest
component is at least twice the notional value of the smallest
component for 50 per cent or more of the trading days in the three
months prior to December 31 of each year. For purposes of this
provision the ``notional value'' is the market price of the component
times the number of shares of the underlying component in the index. In
addition, the Exchange reserves the right to rebalance quarterly at its
discretion.
[Procedure for Rebalancing under (j):
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
(j) will be the last trading day of the year. New contracts issued on
or after a date on which the corresponding index is rebalanced in
accordance with (j) will be based on an index consisting of the
original component securities, weighted applying the methodology
described under (a) above on the basis of security prices on the
rebalancing date. Outstanding contracts will not be affected by any
rebalancing.]
(M) An underlying index may be rebalanced on interim basis if
warranted as a result of extraordinary changes in the relative values
of the component securities. To the extent investors with open position
must rely upon the continuity of the security futures Contract on the
index, outstanding Contracts are unaffected by rebalancings.
[(k)] (N) If the underlying index is maintained by a broker-dealer,
the index must be calculated by a third party who is not a broker-
dealer, and the broker-dealer must have in place an information barrier
around its personnel who have access to information concerning changes
in and adjustments to the index.
[(l)] (O) In a capitalization-weighted index, the lesser of: [(1)]
(i) the five highest weighted component securities in the index each
have had an average daily trading volume of at least 90,000 shares or
receipts over the past six months; or [(2)] (ii) the highest weighted
component securities in the index that in the aggregate represent at
least 30% of the total number of securities in the index each have had
an average daily trading volume of at least 90,000 shares or receipts
over the past six months.
(P) If a security future on an index is cash settled, it must be
designated as AM-settled.
[IV.] ((b)) Maintenance standards for a security futures product
based on an index composed of two or more securities.
[A.] (1)[OneChicago] The Exchange will not open for trading
security futures products [that are physically settled based] on an
index composed of two or more securities with a new delivery month
unless the underlying index:
[(i)] (A.) Meets the definition of a narrow-based security index in
Section 1a(25) of the Commodity Exchange Act and Section 3(a)(55) of
the Exchange Act; and
[(ii)] (B.) Meets the following requirements:
[(a)] (i) Its component securities must be registered under Section
12 of the Exchange Act;
[(b)] (ii) Subject to [(d)] (iv) and [(k)] (xiii) below, the
component securities that account for at least 90% of the total index
weight and at least 80% of the total number of component securities in
the index must meet the requirements for listing a single-security
future, as set forth in [Section I] Rule 906(a).
[(c)] (iii) Each component security in the index must have a market
capitalization of at least $75 million, except that each of the lowest
weighted component securities that in the aggregate account for no more
than 10% of the weight of the index may have a market capitalization of
only $50 million.
[(d)] (iv) The average daily trading volume in each of the
preceding six months for each component security in the index must be
at least 22,750 shares or receipts, except that each of the lowest
weighted component securities in the index that in the aggregate
account for no more than 10% of the weight of the index may have an
average daily trading volume of at least 18,200 shares or receipts for
each of the last six months.
[[Page 45469]]
[(e)] (v) Each component security in the index must be [(1)] (I)
listed on an Exchange or traded through the facilities of an
Association and [(2)] (II) reported as an NMS security.
[(f)] (vi) Foreign securities or ADRs thereon that are not subject
to comprehensive surveillance sharing agreements must not represent
more than 20% of the weight of the index.
[(g)](vii) The current underlying index value must be reported at
least once every 15 seconds during the time the security futures
product is traded on [OneChicago] the Exchange.
[(h)] (viii) An equal dollar-weighted index must be rebalanced at
least once every calendar quarter, except that an approximately equal
dollar-weighted index underlying a [physically settled] security
futures product need only be rebalanced as provided in [(i)] (I) below.
[(i)] (ix) An approximately equal dollar-weighted index underlying
a physically settled security futures product must be rebalanced
annually on December 31 of each year if [the aggregate value (i.e., the
original number of shares multiplied by their current price) of the
security position with the highest value is two or more times greater
than the aggregate value of the security position with the lowest value
in the index for any period of 10 consecutive trading days within the
last month preceding the date of determination. In addition, OneChicago
may from time to time, but no more frequently than quarterly, elect to
rebalance any approximately equal dollar-weighted index underlying a
physically settled security futures product depending on several
factors, including the relative price changes of the component
securities, the levels of volume and open interest in the contracts and
input from market participants.] the notional value of the largest
component is at least twice the notional value of the smallest
component for 50 per cent or more of the trading days in the three
months prior to December 31 of each year. For purposes of this
provision the ``notional value'' is the market price of the component
times the number of shares of the underlying component in the index. In
addition, the Exchange reserves the right to rebalance quarterly at its
discretion.
[Procedure for Rebalancing under (i):
See under III.A.(ii)(j) above.]
(x) In a modified equal-dollar weighted index the Exchange will re-
balance the index quarterly.
(xi) In a share-weighted index, if a share-weighted Index fails to
meet the maintenance listing standards under Rule 1006(b), the Exchange
will not re-balance the index and will not issue Contracts for new
delivery months for that index.
[(j)] (xii) If the underlying index is maintained by a broker-
dealer, the index must be calculated by a third party who is not a
broker-dealer, and the broker-dealer must have in place an information
barrier around its personnel who have access to information concerning
changes in and adjustments to the index.
[(k)] (xiii) In a capitalization-weighted index, the lesser of:
[(1)] (I) the five highest weighted component securities in the index
each have had an average daily trading volume of at least 45,500 shares
or receipts over the past six months; [and] or [(2)] (II) the highest
weighted component securities in the index that in the aggregate
represent at least 30% of the total number of stocks in the index each
have had an average daily trading volume of at least 45,500 shares or
receipts over the past six months.
[(l)] (xiv) The total number of component securities in the index
must not increase or decrease by more than 33-1/3% from the number of
component securities in the index at the time of its initial listing.
[E.] (2) If the foregoing maintenance standards in subparagraph (b)
are not satisfied, [OneChicago] the Exchange will not open for trading
a security futures product based on an index composed of two or more
securities with a new delivery month, unless it receives the approval
of the Securities and Exchange Commission and the Commodity Futures
Trading Commission.
1007 LISTING STANDARDS
For MicroSectors
Cash Settled narrow-based index futures
[V.] (a) Initial eligibility criteria for a MicroSector security
futures product, based on an index composed of two or more securities.
[A.] Notwithstanding Rule 1006, [F]for a cash settled Dow Jones
MicroSector security futures product, the Dow Jones MicroSector Index
must:
[(i)] (1) Meet the definition of a narrow-based security index in
Section 1a(25) of the Commodity Exchange Act and Section 3(a)(55) of
the Exchange Act; and
[(ii)] (2) Meet the following requirements:
[(a)] (A) It must be approximately equal dollar-weighted composed
of one or more securities in which each component security will be
weighted equally based on its market price on the Selection Date.
[(b)] (B) Each of its component securities must be registered under
Section 12 of the Exchange Act.
[(c)] (C) Each of its component securities must be a component
security in the Dow Jones U.S. Total Market Index or an ADR linked to a
security in the Dow Jones Global Index.
[(d)] (D) Each of its component securities must be the subject of a
U.S. exchange-traded option on the date of selection for inclusion in
the index.
[(e)] (E) Each of its component securities must have a trading
history on a U.S. exchange for at least 12 months.
[(f)] (F) Each of its component securities must have a ``float
market capitalization'' of at least one billion dollars.
[(g)] (G) Each of its component securities close at or above $7.50
for each of the trading days in the three months prior to selection for
the index.
[(h)] (H) Subject to [(g), (i) and (k)] (G), (I) and (K) below,
component securities that account for at least 90 per cent of the total
index weight and at least 80 per cent of the total number of component
securities in the index must meet the requirements for listing a
single-security future contract, as set forth in [Section I] Rule
906(a).
[(i)] (I) Each of its component securities must have an average
daily trading volume in each of the preceding 12 months prior to
selection for inclusion in the index greater than 109,000 shares (an
ADR must have an average daily trading volume greater than 100,000
receipts).
[(j)] (J) Each of its component securities must be [(1)] (i) listed
on an Exchange or traded through the facilities of an Association and
[(2)] (ii) reported as an NMS security.
[(k)] (K)[(1)] (i) [OneChicago] The Exchange must have in place an
effective surveillance sharing agreement with the primary exchange in
the home country where the stock underlying each component ADR is
traded;
[(2)] (ii) The combined trading volume of each component ADR and
other related ADRs and securities in the U.S. ADR market, or in markets
with which [OneChicago] 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'');
[[Page 45470]]
[(3)(A)] (iii) (I) The combined trading volume of each component
ADR and other related ADRs and securities in the U.S. ADR market, and
in markets with which [OneChicago] 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;
[(B)] (II) 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
[(C)] (III) 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;
[(4)] (iv) The Securities and Exchange Commission and Commodity
Futures Trading Commission have otherwise authorized the listing; or
[(5)] (v) Foreign securities or ADRs thereon that are not subject
to comprehensive surveillance sharing agreements must not represent
more than 20% of the weight of the index.
[(l)] (L) The current underlying index value must be reported at
least once every 15 seconds during the time the MicroSector futures
product is traded on [OneChicago] the Exchange.
[(m)] (M) An index underlying a MicroSector future must be
reconstituted and rebalanced if the notional value of the largest
component is at least twice the notional [volume] value of the smallest
component for 50 per cent or more of the trading days in the three
months prior to December 31 of each year. For purposes of this
provision the ``notional value'' is the market price of the component
times the number of shares of the underlying component in the index.
Reconstitution and rebalancing are also mandatory if the number of
component securities in the index is greater than five at the time of
rebalancing. In addition, [OneChicago] the Exchange reserves the right
to rebalance quarterly at its discretion.
[(n)] (N) The MicroSector futures products will be AM settled.
[(o)] (O) The initial indexes underlying MicroSector futures
products will be created only for industry groups that have five or
more qualifying securities.
[VI] (b) Maintenance standards for a MicroSector futures product
based on an index composed of two or more securities.
[A.] [OneChicago] The Exchange will not open for trading
MicroSector futures products that are cash settled based on an index
composed of two or more securities with a new delivery month unless the
underlying index:
[(i)] (1) Meets the definition of a narrow-based security index in
Section 1a(25) of the Commodity Exchange Act and Section 3(a)(55) of
the Exchange Act; and
[(ii)] (2) Meets the following requirements:
[(a)] (A) All of its component securities must be registered under
Section 12 of the Exchange Act;
[(b)] (B) Subject to [(d) and (k)] (D) and (K) below, component
securities that account for at least 90 per cent of the total index
weight and at least 80 per cent of the total number of component
securities in the index must meet the requirements for listing a
single-security future, as set forth in [Section I] Rule 906(a).
[(c)] (C) Each component security in the index must have a market
capitalization of at least $75 million, except that each of the lowest
weighted component securities that in the aggregate account for no more
than 10 per cent of the weight of the index may have a market
capitalization of only $50 million.
[(d)] (D) The average daily trading volume in each of the preceding
six months for each component security in the index must be at least
22,750 shares or receipts, except that each of the lowest weighted
component securities in the index that in the aggregate account for no
more than 10 per cent of the weight of the index may have an average
daily trading volume of at least 18,200 shares for each of the last six
months
[(e)] (E) Each component security in the index must be [(1)] (i)
listed on an Exchange or traded through the facilities of an
Association and [(2)] (ii) reported as an NMS security.
[(f)] (F) The current underlying index value must be reported at
least once every 15 seconds during the time the security futures
product is traded on [OneChicago] the Exchange.
[(g)] (G) An approximately equal dollar weighted index underlying a
MicroSector future must be reconstituted and rebalanced if the notional
value of the largest component is at least twice the notional volume of
the smallest component for 50 per cent or more of the trading days in
the three months prior to December 31 of each year. For purposes of
this provision the ``notional value'' is the market price of the
component times the number of shares of the underlying component in the
index. Reconstitution and rebalancing are also mandatory if the number
of component securities in the index is greater than five at the time
of rebalancing. In addition, [OneChicago] the Exchange reserves the
right to rebalance quarterly at its discretion.
[(h)] (H) The total number of component securities in the index
must not increase or decrease by more than 33-\1/3\% from the number of
component securities in the index at the time of its initial listing.
[(i)] (I) [(1)] (i) The Exchange [OneChicago] must have in place an
effective surveillance sharing agreement with the primary exchange in
the home country where the stock underlying each component ADR is
traded;
[(2)] (ii) The combined trading volume of each component ADR and
other related ADRs and securities in the U.S. ADR market, or in markets
with which [OneChicago] the Exchange has in place an effective
surveillance sharing agreement, represents (on a share equivalent
basis) at least 50 per cent 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'');
[(3)] (iii)[(a)] (I)The combined trading volume of the ADR and
other related ADRs and securities in the U.S. ADR market, and in
markets with which [OneChicago] the Exchange has in place an effective
surveillance sharing agreement, represents (on a share equivalent
basis) at least 20 per cent 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;
[(b)] (II) 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
[(c)] (III) 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;
[(4)] (iv) The Securities and Exchange Commission and Commodity
Futures Trading Commission have otherwise authorized the listing, or
[(5)] (v) Foreign securities or ADRs thereon that are not subject
to comprehensive surveillance sharing agreements must not represent
more than 20 per cent of the weight of the index.
[[Page 45471]]
[B.] (2) If the foregoing maintenance standards are not satisfied
prior to opening a MicroSector futures product with a new delivery
month, [OneChicago] the Exchange will either (i) replace the component
security or securities that fail to meet the maintenance standards with
a security or securities that qualify under the initial listing
standards for MicroSector futures products set forth in [Section V]
paragraph (a) of this Rule, or (ii) receive the approval of the
Securities and Exchange Commission and the Commodity Futures Trading
Commission.
* * * * *
1002. Contract Specifications
* * * * *
(i)(1) No Change
(2) Final Settlement Price. (A) No Change
(B) Notwithstanding subparagraph (2)(A) of this Rule, if an opening
price for one or more securities underlying a Stock Index Future is not
readily available, [the Chief Executive Officer of the Exchange or his
designee for such purpose (referred to hereafter in this Rule 1002(i)
as the ``Designated Officer'')] the Exchange will determine whether the
security or securities are likely to open within a reasonable time.
(i) If the [Designated Officer] Exchange determines that one or
more component securities are not likely to open within a reasonable
time, then for the component security or securities which the
[Designated Officer] Exchange determined were not likely to open within
a reasonable time, the last trading price of the underlying security or
securities during the most recent regular trading session for such
security or securities will be used to calculate the special opening
quotation.
(ii) If the [Designated Officer] Exchange determines that the
security or securities are likely to open within a reasonable time,
then for the component security or securities which the [Designated
Officer] Exchange determined were likely to open within a reasonable
time, the next available opening price of such security or securities
will be used to calculate the special opening quotation.
(C) No Change
(D) 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 of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
OneChicago proposes to amend its Eligibility and Maintenance
Criteria for Security Futures Products (``Listing Standards'') by
incorporating them into the rules of the Exchange, deleting all
references to ``physically settled'' in the Listing Standards
pertaining to NBIs, permitting futures on modified equal-dollar
weighted and share-weighted indexes, amending provisions related to the
rebalancing of various NBIs, requiring AM settlement for cash settled
security futures, and other conforming changes. The proposed rule
change would also amend OneChicago Rule 1002(i)(2)(B) regarding the
determination of when an opening price for one or more securities
underlying a futures on an NBI (``Stock Index Futures'') is not
available to determine the final settlement price of the Stock Index
Future.
The proposed rule change would amend the numbering of the Listing
Standards to incorporate them into the rules of the Exchange. The
Listing Standards pertaining to futures on a single security would be
incorporated without changes (other than numbering) into new OneChicago
Rule 906. The Listing Standards pertaining to NBIs would be
incorporated into new OneChicago Rule 1006, and the Listing Standards
for MicroSectors would be new OneChicago Rule 1007.
The proposed rule change would delete all references to
``physically settled'' NBIs, making OneChicago Rules 1006(a) and (b)
generic as to the type of settlement process. Thus, the Listing
Standards in OneChicago Rule 1006 would apply to cash settled and
physically settled NBI contracts.\5\ This proposed change is consistent
with the listing standards for options on NBIs.\6\
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\5\ All futures on NBIs would be subject to the applicable
position limits in OneChicago Rules 414 and 1002(e). The position
limit for each cash settled future on an NBI would be calculated
according to the Market Cap Position Limit or SSF Position Limit
formula in OneChicago Rule 1002(e)(2). The position limit for
physically settled futures on NBIs would be established by the
Exchange in conformance with CFTC Regulation 41.25 as required in
OneChicago Rule 414(a). See 17 CFR 41.25.
\6\ See Chicago Board Options Exchange (``CBOE'') Rules 24.2(d)
and (e).
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The proposed rule change would add share-weighted and modified
equal-dollar weighted to the list of permissible indexes. New
provisions would also be added to define modified equal-dollar weighted
and share-weighted indexes. These provisions are consistent with
options listing standards previously approved by the Commission.\7\ A
modified equal-dollar weighted index is designed to be a fair
measurement of a particular industry or sector but without assigning an
excessive weight to one or more index component(s) that have a large
market capitalization relative to other index components. In a modified
equal-dollar weighted index, each underlying component security
represents a pre-determined weighting percentage of the entire index.
Each security in the index is assigned a weight that takes into account
the relative market capitalization of the securities comprising the
index.
---------------------------------------------------------------------------
\7\ Securities Exchange Act Release No. 49932 (June 28, 2004),
69 FR 40994 (July 7, 2004) (SRCBOE-2002-24).
---------------------------------------------------------------------------
A share-weighted index is calculated by multiplying the price of
the component security by an adjustment factor. Adjustment factors are
chosen to reflect the investment objective deemed appropriate by the
designer of the index and would be published by the Exchange as part of
the contract specifications. The value of the index is calculated by
adding the weight of each component security and dividing the total by
an index divisor, calculated to yield a benchmark index level as of a
particular date. A share-weighted index is not adjusted to reflect
changes in the number of outstanding shares of its components.
New provisions would also be added regarding rebalancing of these
indexes. Under the proposed rule change, a modified equal-dollar
weighted index must be rebalanced quarterly and a share-weighted index
would not be rebalanced. The proposed rule change would also amend the
rebalancing language pertaining to approximately equal dollar-weighted
index. Under the proposed rule change, an approximately equal dollar-
weighted index would be required to be rebalanced annually on December
31 of each year if the notional value of the largest component is at
least twice the notional value of the smallest component for 50 percent
or more of the trading days in the three months prior to December 31 of
each year. The
[[Page 45472]]
Exchange would retain the right to rebalance quarterly at its
discretion. This rebalancing requirement was adopted by the Exchange
for MicroSector futures.\8\
---------------------------------------------------------------------------
\8\ See Section V.A.ii.m of the Listing Standards for
MicroSectors Cash Settled Narrow-Based Index Futures. In addition to
rebalancing, the NBIs may be adjusted due to corporate events.
Attached as Exhibit A is the Corporate Action Summary A for
Approximately Equal Dollar-Weighted Indexes and Exhibit B is the
Corporate Action Summary B for Share-Weighted Indexes. Depending on
the index design, the Corporate Action Summary A or B may be
modified. The Exchange would notify the public of the Corporate
Actions that would be taken in regards to an index before the index
begins trading.
---------------------------------------------------------------------------
The proposed rule change would also permit the Exchange to
rebalance an index on an interim basis if there are extraordinary
changes in the relative values of the component securities. To the
extent investors with open position must rely upon the continuity of
the security futures contract on the index, the proposed rule change
would leave outstanding contracts unaffected by the rebalancing.
Consistent with OneChicago Rule 1002(i), the proposed rule change
adds a provision that requires AM settlement for cash settled security
futures on NBIs.
Under the proposed rule change, OneChicago Rule 1002(i)(2)(B),
which relates to the final settlement price of a Stock Index Future,
would be amended by permitting the Exchange to make a determination
when an opening price for one or more securities underlying a Stock
Index Future is not readily available. Under the current OneChicago
Rule, only the Chief Executive Officer of the Exchange or his designee,
referred to as the Designated Officer, may make the determination
whether the security or securities are likely to open within a
reasonable time. The Exchange believes that it is more appropriate and
provides more flexibility to state that the Exchange would make this
determination.
CFMA Listing Standard Requirements for Security Futures. Section
6(h) of the Act \9\ requires that certain standards be met in order for
an exchange to trade SFPs. OneChicago previously established that it
met those standards in the proposed rule change submitted to the
Commission.\10\ OneChicago also established that it met those standards
in the proposed rule change it submitted to the Commission regarding
listing standards for MicroSectors.\11\ The Exchange believes that the
proposed rule change OneChicago submits at this time merely amends the
current OneChicago Listing Standards and does not alter its ability to
meet the standards required under section 6(h) of the Act.\12\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(h).
\10\ Securities Exchange Act Release No. 47114 (December 31,
2002), 68 FR 837 (January 7, 2003) (SR-OC-2002-24).
\11\ Securities Exchange Act Release No. 48191 (July 17, 2003),
68 FR 43555 (July 23, 2003) (SR-OC-2003-06).
\12\ 15 U.S.C. 78f(h).
---------------------------------------------------------------------------
Section 6(h)(3)(A) of the Act \13\ requires that each security
underlying an SFP must be registered pursuant to section 12 of the
Act.\14\ OneChicago believes that the Listing Standards continue to
meet this requirement.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(h)(3)(A).
\14\ 15 U.S.C. 781.
---------------------------------------------------------------------------
Section 6(h)(3)(B) of the Act \15\ requires the 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 SFP. The proposed rule change would not make
amendments related to this requirement. OneChicago has entered into
arrangements with both The Options Clearing Corporation (``OCC'') and
the clearinghouse of the Chicago Mercantile Exchange Inc. (``CME''),
both of which are registered clearing agencies, relating to the
clearing of SFPs. By virtue of the CME clearinghouse being an
associated clearinghouse of OCC, and OCC having in place arrangements
with the National Securities Clearing Corporation for the delivery of
securities underlying physically settled SFPs, One Chicago believes
that it meets the requirements of section 6(h)(3)(B) of the Act.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(h)(3)(B).
\16\ Id.
The Exchange clarified its belief that the proposed rule change
meets the requirement of Section 6(h)(3)(B) of the Act. Telephone
conversation between Madge Piro, Counsel for OneChicago, and
Jennifer Dodd, Special Counsel, Division, Commiss
