Self-Regulatory Organization; Chicago Mercantile Exchange; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Listing Standards for Security Futures Products, 27881-27884 [E7-9501]
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Federal Register / Vol. 72, No. 95 / Thursday, May 17, 2007 / Notices
Shares pursuant to UTP. Under this
rule, if the listing market halts trading
when the IIV is not being calculated or
widely disseminated, CBOE also would
halt trading in the Shares. This rule is
substantially similar to those recently
adopted by other exchanges and found
by the Commission to be consistent with
the Act.15
The Commission notes that, if the
Shares should be delisted by the listing
market, the Exchange would no longer
have authority to trade the Shares
pursuant to this order.
In support of this proposal, the
Exchange has made the following
representations:
1. The Exchange’s surveillance
procedures are adequate to properly
monitor Exchange trading of the Shares
and to deter and detect violations of
Exchange rules.
2. Prior to the commencement of
trading, the Exchange would inform its
members and member organizations in
an Information Circular of the special
characteristics and risks associated with
trading the Shares.
3. The Information Circular would
include the requirement that members
and member firms deliver a prospectus
to investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction.
This approval order is conditioned on
the Exchange’s adherence to these
representations.
The Commission finds good cause for
approving this proposal before the
thirtieth day after the publication of
notice thereof in the Federal Register.
As noted previously, the Commission
previously found the listing and trading
of the Shares on Amex and NYSE to be
consistent with the Act. The
Commission presently is not aware of
any regulatory issue that should cause it
to revisit that finding or would preclude
the trading of the Shares on the
Exchange pursuant to UTP. Therefore,
accelerating approval of this proposal
should benefit investors by creating,
without undue delay, additional
competition in the market for the
Shares.
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V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,16 that the
proposed rule change (SR–CBOE–2007–
49) be and it hereby is, approved on an
accelerated basis.
15 See, e.g., NYSE Arca Equities Rule 7.34;
Securities Exchange Act Release No. 54997
(December 21, 2006), 71 FR 78501 (December 29,
2006).
16 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.17
J. Lynn Taylor,
Deputy Secretary.
[FR Doc. E7–9470 Filed 5–16–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55741; File No. SR–CME–
2007–01]
Self-Regulatory Organization; Chicago
Mercantile Exchange; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating to
Listing Standards for Security Futures
Products
May 10, 2007.
Pursuant to Section 19(b)(7) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–7 under the
Act,2 notice is hereby given that on
April 19, 2007, Chicago Mercantile
Exchange (‘‘CME’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change described in Items
I, II, and III below, which Items have
been substantially prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons. CME also has
certified the proposed rule change with
the Commodity Futures Trading
Commission (‘‘CFTC’’) under Section
5c(c) of the Commodity Exchange Act
(‘‘CEA’’) 3 on April 19, 2006.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to enact a
technical amendment with respect to
the identification of the subject of a
contract. Specifically, futures on
Nasdaq-100 Tracking Stock SM
(‘‘QQQQ’’) shall henceforth be known as
PowerShares QQQ TM (‘‘QQQQ’’). The
name change is occasioned by the fact
that PowerShares Capital Management
LLC assumed sponsorship of the
NASDAQ–100 Trust, which tracks the
NASDAQ–100 Index commencing
April 12, 2007. Note further that the
CUSIP number associated with the ETF
is amended to ‘‘73935A 104.’’
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(7).
2 17 CFR 240.19b–7.
3 7 U.S.C. 7a–2(c).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects or such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to enact a
technical amendment with respect to
the identification of the subject of a
contract. Specifically, futures on
Nasdaq-100 Tracking StockSM
(‘‘QQQQ’’) shall henceforth be known as
PowerShares QQQTM (‘‘QQQQ’’). The
name change is occasioned by the fact
that PowerShares Capital Management
LLC assumed sponsorship of the
NASDAQ–100 Trust, which tracks the
NASDAQ–100 Index commencing
April 12, 2007. Note further that the
CUSIP number associated with the ETF
is amended to ‘‘73935A 104.’’
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act 4 and, in particular,
furthers the objectives of Section
6(b)(5) 5 of the Act insofar as it is
designed to prevent fraudulent and
manipulative acts and to promote just
and equitable principles of trade. The
Exchange further believe that the
proposed rule change is consistent with
Section 6(h)(3)6 of the Act which
contains detailed requirements for
listing standards and conditions for
trading applicable to security futures
products. The information below is
offered in support of these statements.
Section 6(h)(3) of the Act 7 contains
detailed requirements for listing
standards and conditions for trading
applicable to security futures products.
Set forth below is a summary of each
such requirement or condition, followed
by a brief explanation of how CME will
comply with it, whether by particular
17 17
4 15
1 15
5 15
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27881
U.S.C. 78f.
U.S.C. 78f(b)(5).
6 15 U.S.C. 78f(h)(3).
7 15 U.S.C. 78f(h)(3).
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provisions in the CME Listing Standards
or otherwise.
Clause (A) of Section 6(h)(3)8 requires
that any security underlying a security
future be registered pursuant to Section
12 of the Act.9 This requirement is
addressed by CME Rules 70001.2,
70002.1.a., 70003.2.b., and 70004.2.a.
Clause (B) of Section 6(h)(3) 10
requires that a market on which a
physically settled security futures
product is traded have arrangements in
place with a registered clearing agency
for the payment and delivery of the
securities underlying the security
futures product. CME has reached an
agreement with a member of DTC, a
registered clearing agency, to facilitate
the delivery-versus-payment
transactions which result from an
agreement to make or take delivery of
the underlying security by the market
participant. This DTC member will
provide CME with a dedicated DTC
account. This account will be a subaccount of the DTC member’s main
account and will be utilized solely for
CME activity with respect to the
delivery of, and payment for, securities
delivered against CME security futures
products. CME will act as a contra party
to each delivery transaction. CME’s
Clearing House will submit delivery
instructions to DTC through the DTC
member. Market participants will be
required to provide proof to CME
outlining their operational and legal
ability to make or take delivery of the
underlying. These agreements and
relevant procedures will be fully
operational prior to any possible
delivery event associated with such
security futures products.
Clause (C) of Section 6(h)(3) 11
provides that listing standards for
security futures products must be no
less restrictive than comparable listing
standards for options traded on a
national securities exchange or national
securities association registered
pursuant to Section 15A(a) of the Act.12
For the reasons discussed above,
notwithstanding specified differences
between the Sample Listing Standards
and the CME Listing Standards, CME
believes that the latter are no less
restrictive than comparable listing
standards for exchange-traded options.
Clause (D) of Section 6(h)(3) 13
requires that each security future be
based on common stock or such other
equity securities as the Commission and
the CFTC jointly determine are
appropriate. This requirement is
addressed by Rules 70001.1, 70002.1,
70003.2, and 70004.2.
Clause (E) of Section 6(h)(3) 14
requires that each security futures
product be cleared by a clearing agency
that has in place provisions for linked
and coordinated clearing with other
clearing agencies that clear security
futures products, which permits the
security futures product to be purchased
on one market and offset on another
market that trades such product. CME
intends to clear security futures
products traded through Exchange
facilities through the CME Clearing
House Division. The Clearing House
Division will have in place all
provisions for linked and coordinated
clearing as mandated by law and statute
as of the effective date of such laws and
statutes. CME will facilitate deliveries
with a registered clearing agency to
facilitate the payment and delivery of
securities underlying security futures
products, through the facilities of a third
party agent.
Clause (F) of Section 6(h)(3) 15
requires that only a broker or dealer
subject to suitability rules comparable to
those of a national securities association
registered pursuant to Section 15A(a) of
the Act 16 effect transactions in a
security futures product.
CME clearing members, and their
correspondents, are bound by the
applicable sales practice rules of the
National Futures Association (‘‘NFA’’),
which is a national securities
association. As such, the sales practice
rules of NFA are, perforce, comparable
to those of a national securities
association registered pursuant to
Section 15A(a) of the Act.17 The
application of NFA sales practice rules
is extended beyond the CME clearing
membership to the extent that NFA ByLaw 1101 provides that ‘‘[n]o member
may carry an account, accept an order
or handle a transaction in commodity
futures contracts for or on behalf of any
non-Member of NFA.’’
Clause (G) of Section 6(h)(3) 18
requires that each security futures
product be subject to the prohibition
against dual trading in Section 4j of the
CEA 19 and the rules and regulations
thereunder or the provisions of Section
11(a) of the Act 20 and the rules and
regulations thereunder. Exchange Rule
14 15
U.S.C. 78f(h)(3)(E).
U.S.C. 78f(h)(3)(F).
16 15 U.S.C. 78o–3(a).
17 15 U.S.C. 78o–3(a).
18 15 U.S.C. 78f(h)(3)(G).
19 7 U.S.C. 6j.
20 15 U.S.C. 78k(a).
8 15
U.S.C. 78f(h)(3)(A).
9 15 U.S.C. 78l.
10 15 U.S.C. 78f(h)(3)(B).
11 15 U.S.C. 78f(h)(3)(C).
12 15 U.S.C. 78o–3(a).
13 15 U.S.C. 78f(h)(3)(D).
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123 requires Exchange members to
comply with all applicable ‘‘provisions
of the Commodity Exchange Act and
regulations duly issued pursuant thereto
by the CFTC.’’
Note that the prohibition of dual
trading in security futures products per
Regulation § 41.27 21 adopted pursuant
to Section 4j(a) of the CEA,22 generally,
applies to a contract market operating
an electronic trading system if such
market provides floor brokers executing
customer orders through open outcry a
contemporaneous placement of orders
on behalf of specified accounts on an
electronic trading platform and a time or
place advantage or the ability to
override a predetermined matching
algorithm. The Exchange offers security
futures products exclusively on its CME
Globex electronic trading platform.
Thus, the conditions cited above are
inapplicable in this context and the
CME Rulebook contains no specific rule
relating to dual trading in an electronic
forum.
Clause (H) of Section 6(h)(3) 23
provides that trading in a security
futures product must not be readily
susceptible to manipulation of the price
of such security futures product, nor to
causing or being used in the
manipulation of the price of any
underlying security, option on such
security, or option on a group or index
including such securities. CME Listing
Standards are designed to ensure that
CME products and the underlying
securities will not be readily susceptible
to price manipulation. Exchange Rule
432 defines activity ‘‘to manipulate
prices or to attempt to manipulate
prices’’ as a ‘‘major offense,’’
punishable, per Exchange Rule 430, by
‘‘expulsion, suspension, and/or a fine of
not more than $1,000,000 plus the
monetary value of any benefit received
as a result of the violative action.’’
Clause (I) of Section 6(h)(3) 24 requires
that procedures be in place for
coordinated surveillance amongst the
market on which a security futures
product is traded, any market on which
any security underlying the security
futures product is traded, and other
markets on which any related security is
traded to detect manipulation and
insider trading.
The Exchange has surveillance
procedures in place to detect
manipulation on a coordinated basis
with other markets. In particular, CME
is an affiliate member of the Intermarket
Surveillance Group (‘‘ISG’’) and is party
21 17
CFR 41.27.
U.S.C. 6j(a).
23 15 U.S.C. 78f(h)(3)(H).
24 15 U.S.C. 78f(h)(3)(I).
22 7
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to an affiliate agreement and an
agreement to share market surveillance
and regulatory information with the
other ISG members. Further, CME is
party to a supplemental agreement with
the other ISG members to address the
concerns expressed by the Commission
with respect to affiliate ISG
membership.25
Note that CME Rule 424, as shown in
the Appendix below, permits CME to
enter into agreements for the exchange
of information and other forms of
mutual assistance with domestic or
foreign self-regulatory organizations,
associations, boards of trade and their
respective regulators.
Clause (J) of Section 6(h)(3) 26 requires
that a market on which a security
futures product is traded have in place
audit trails necessary or appropriate to
facilitate the coordinated surveillance
referred to in the preceding paragraph.
The Exchange relies upon its Market
Regulation Department and its large,
highly trained staff to actively monitor
market participants and their trading
practices; and to enforce compliance
with Exchange Rules. Market Regulation
Department staff is organized into the
Compliance and the Market
Surveillance Groups. In performing its
functions the Market Regulation
Department routinely works closely
with the Audit Department, the Clearing
House, the Legal Department, the
Globex Control Center, and the
Information Technology Department.
The Compliance area is responsible
for enforcing the trading practice rules
of the Exchange through detection,
investigation, and prosecution of those
who may attempt to violate those rules.
Further, the area is responsible for
handling customer complaints, ensuring
the integrity of the Exchange’s audit
trail and administering an arbitration
program for the resolution of disputes.
The area employs investigators,
attorneys, trading floor investigators,
data analysts and a computer
programming and regulatory systems
design staff.
The Market Regulation Department
has created some of the most
sophisticated tools in the world to assist
with the detection of possible rule
violations and monitoring of the market.
Among the systems it uses are The
Regulatory Trade Browser (‘‘RTB’’), the
Virtual Detection System (‘‘VDS’’), The
Reportable Position System (‘‘RPS’’),
and the RegWeb Profile System
(‘‘RegWeb’’). These systems include
information on all Globex users, all
25 See Securities Exchange Act Release No. 45956
(May 17, 2002), 67 FR 36740 (May 24, 2002).
26 15 U.S.C. 78f(h)(3)(J).
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transactions, large positions, and
statistical information on trading
entities.
The Market Surveillance area is
dedicated to the detection and
prevention of market manipulation and
other similar forms of market
disruption. As part of these
responsibilities, the group enforces the
Exchange’s position limit rules,
administers the hedge approval process
and maintains the Exchange’s RPS
system.
The foundation of the Exchange’s
Market Surveillance program is the deep
knowledge of its staff about the major
users, brokers, and clearing firms, along
with its relationship with other
regulators. Day-to-day monitoring of
market positions is handled by a
dedicated group of surveillance analysts
assigned to specific market(s). Each
analyst develops in-depth expertise of
the factors that influence the market in
question. The Exchange estimates that
perhaps 90% of the market users at any
single time are known to the Exchange.
Daily surveillance staff activities
include:
• Monitoring positions for size based
on percentage of open interest and
historic user participation in each
contract.
• Aggregation of positions across
clearing members, with the use of CME
trade reporting systems, to account for
all positions held by any single
participant. This daily review permits
the surveillance analyst promptly to
identify unusual market activity.
• As a contract approaches maturity,
large positions are scrutinized to
determine whether such activity is
consistent with prior experience,
allowing prompt regulatory intervention
if necessary.
• Analysts closely monitor market
news through on-line and print media.
• Staff conducts on-site visits to large
market participants periodically.
Market Regulation staff investigates
possible misconduct and, when
appropriate, initiates disciplinary
action. Exchange Rule 430 empowers
the Exchange’s disciplinary committees
to discipline, limit, suspend, or
terminate a member’s activities for
cause, amongst other sanctions. Note
further that the Exchange requires, per
Rule 123, that members shall be
responsible for ‘‘the filing of reports,
maintenance of books and records, and
permitting inspection and visitation’’ in
order to facilitate such investigations by
Exchange staff.
CME Rule 536 requires that certain
information be recorded with respect to
each order which includes: time
entered, terms of the order, order type,
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27883
instrument and contract month, price,
quantity, account type, account
designation, user code, and clearing
firm. This information may be recorded
manually on timestamped order tickets,
electronically in a clearing firms system,
or by entering the orders with the
required information into Globex
immediately upon receipt. A complete
Globex electronic audit trail is archived
and maintained by CME for at least a
five year period. Clearing firms must
also maintain any written or electronic
order records for a period of five years.
Clause (K) of Section 6(h)(3) 27
requires that a market on which a
security futures product is traded have
in place procedures to coordinate
trading halts between such market and
any market on which any security
underlying the security futures product
is traded and other markets on which
any related security is traded.
The Exchange filed with the
Commission, pursuant to Rule 19b–7
under the Act,28 rules establishing a
generalized framework for the trade of
security futures products.29 Specifically,
these rules establish a framework for the
trade of Physically Delivered Single
Security Futures.
In particular, Rule 71001.F. provides,
in accordance with Regulation
§ 41.25(a)(2) of CEA,30 that ‘‘[t]rading of
Physically Delivered Single Security
Futures shall be halted at all times that
a regulatory halt, as defined per SEC
Rule 6h–1(a)(3) and CFTC Regulation
§ 41.1(l), has been instituted for the
underlying security.’’
Clause (L) of Section 6(h)(3) 31
requires that the margin requirements
for a security futures product comply
with the regulations prescribed
pursuant to Section 7(c)(2)(B) of the
Act.32 CME submitted margin
requirement rules 33 to the Commission
per Rule 19b–4 under the Act.34 Thus,
CME believes that its rules regarding
customer margin are consistent with the
requirements of the Act.
For the reasons described above, CME
believes that the rules submitted
herewith, satisfy the requirements set
forth in Section 6(h)(3) of the Act.35
27 15
U.S.C. 78f(h)(3)(K).
CFR 240.19b–7.
29 See Securities Exchange Act Release No. 51957
(June 30, 2005), 70 FR 39820 (July 11, 2005) (SR–
CME–2005–03).
30 17 CFR 41.25(a)(2).
31 15 U.S.C. 78f(h)(3)(L).
32 15 U.S.C. 78g(c)(2)(B).
33 See Securities Exchange Act Release No. 46637
(October 10, 2002), 67 FR 64672 (October 21, 2002)
(SR–CME–2002–01).
34 17 CFR 240.19b–4.
35 15 U.S.C. 78f(h)(3).
28 17
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
CME does not believe that this
amendment will have an impact on
competition, because it represents a
technical change in reference to the
security underlying the futures contract.
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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
has become effective pursuant to
Section 19(b)(7) of the Act.36 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.37
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of CME. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–CME–2007–01 and should be
submitted on or before June 7, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.38
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E7–9501 Filed 5–16–07; 8:45 am]
BILLING CODE 8010–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–CME–2007–01 on the subject
line.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Conforming Certain Rules
With Comparable NASD Rules
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–CME–2007–01. This file number
should be included on the subject line
if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 1,
2007, the International Securities
Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’),
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been substantially prepared by the ISE.
On May 8, 2007, the Exchange filed
Amendment No. 1 to the proposed rule
change. The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55751; File No. SR–ISE–
2007–29]
May 11, 2007.
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
36 15
U.S.C. 78s(b)(7).
37 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
certain ISE rules to conform them to the
rules of the National Association of
Securities Dealers, Inc. (‘‘NASD’’) for
purposes of the Plan for the Allocation
of Regulatory Responsibilities Pursuant
to Rule 17d–23 under the Act entered
into between the parties (‘‘17d–2
Agreement’’).4 The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.iseoptions.com), at the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
certain ISE rules to conform them to the
rules of the NASD for purposes of the
17d–2 Agreement between the parties
and the related certification by the
Exchange which states that the
requirements contained in certain ISE
rules are identical to, or substantially
similar to, certain NASD rules that have
been identified as comparable.5
Specifically, the Exchange proposes to
amend Rules 604, 624, 626, and 1407.
The Exchange proposes to amend ISE
Rule 604, ‘‘Continuing Education for
Registered Persons,’’ to remove the
provision that exempts certain
registered persons from the continuing
education requirements if they have
been continuously registered for ten (10)
years as of July 1, 1998 and have not
been the subject of a disciplinary action
3 17
CFR 240.17d–2.
Securities Exchange Act Release No. 55367
(February 27, 2007), 72 FR 9983 (March 6, 2007)
(approving and declaring effective the 17d–2
Agreement between ISE and NASD) (‘‘17d–2
Order’’).
5 See 17d–2 Order, supra note 4.
4 See
E:\FR\FM\17MYN1.SGM
17MYN1
]]>Agencies
[Federal Register Volume 72, Number 95 (Thursday, May 17, 2007)]
[Notices]
[Pages 27881-27884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-9501]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55741; File No. SR-CME-2007-01]
Self-Regulatory Organization; Chicago Mercantile Exchange; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Listing Standards for Security Futures Products
May 10, 2007.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-7 under the Act,\2\ notice is hereby given
that on April 19, 2007, Chicago Mercantile Exchange (``CME'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change described in Items I, II, and
III below, which Items have been substantially prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons. CME also has
certified the proposed rule change with the Commodity Futures Trading
Commission (``CFTC'') under Section 5c(c) of the Commodity Exchange Act
(``CEA'') \3\ on April 19, 2006.
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\1\ 15 U.S.C. 78s(b)(7).
\2\ 17 CFR 240.19b-7.
\3\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to enact a technical amendment with respect
to the identification of the subject of a contract. Specifically,
futures on Nasdaq-100 Tracking Stock SM (``QQQQ'') shall
henceforth be known as PowerShares QQQ TM (``QQQQ''). The
name change is occasioned by the fact that PowerShares Capital
Management LLC assumed sponsorship of the NASDAQ-100 Trust, which
tracks the NASDAQ-100 Index[supreg] commencing April 12, 2007. Note
further that the CUSIP number associated with the ETF is amended to
``73935A 104.''
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects or such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to enact a technical amendment with respect
to the identification of the subject of a contract. Specifically,
futures on Nasdaq-100 Tracking StockSM (``QQQQ'') shall
henceforth be known as PowerShares QQQTM (``QQQQ''). The
name change is occasioned by the fact that PowerShares Capital
Management LLC assumed sponsorship of the NASDAQ-100 Trust, which
tracks the NASDAQ-100 Index[supreg] commencing April 12, 2007. Note
further that the CUSIP number associated with the ETF is amended to
``73935A 104.''
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act \4\ and, in particular, furthers the
objectives of Section 6(b)(5) \5\ of the Act insofar as it is designed
to prevent fraudulent and manipulative acts and to promote just and
equitable principles of trade. The Exchange further believe that the
proposed rule change is consistent with Section 6(h)(3)\6\ of the Act
which contains detailed requirements for listing standards and
conditions for trading applicable to security futures products. The
information below is offered in support of these statements.
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(5).
\6\ 15 U.S.C. 78f(h)(3).
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Section 6(h)(3) of the Act \7\ contains detailed requirements for
listing standards and conditions for trading applicable to security
futures products. Set forth below is a summary of each such requirement
or condition, followed by a brief explanation of how CME will comply
with it, whether by particular
[[Page 27882]]
provisions in the CME Listing Standards or otherwise.
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\7\ 15 U.S.C. 78f(h)(3).
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Clause (A) of Section 6(h)(3)\8\ requires that any security
underlying a security future be registered pursuant to Section 12 of
the Act.\9\ This requirement is addressed by CME Rules 70001.2,
70002.1.a., 70003.2.b., and 70004.2.a.
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\8\ 15 U.S.C. 78f(h)(3)(A).
\9\ 15 U.S.C. 78l.
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Clause (B) of Section 6(h)(3) \10\ requires that a market on which
a physically settled security futures product is traded have
arrangements in place with a registered clearing agency for the payment
and delivery of the securities underlying the security futures product.
CME has reached an agreement with a member of DTC, a registered
clearing agency, to facilitate the delivery-versus-payment transactions
which result from an agreement to make or take delivery of the
underlying security by the market participant. This DTC member will
provide CME with a dedicated DTC account. This account will be a sub-
account of the DTC member's main account and will be utilized solely
for CME activity with respect to the delivery of, and payment for,
securities delivered against CME security futures products. CME will
act as a contra party to each delivery transaction. CME's Clearing
House will submit delivery instructions to DTC through the DTC member.
Market participants will be required to provide proof to CME outlining
their operational and legal ability to make or take delivery of the
underlying. These agreements and relevant procedures will be fully
operational prior to any possible delivery event associated with such
security futures products.
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\10\ 15 U.S.C. 78f(h)(3)(B).
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Clause (C) of Section 6(h)(3) \11\ provides that listing standards
for security futures products must be no less restrictive than
comparable listing standards for options traded on a national
securities exchange or national securities association registered
pursuant to Section 15A(a) of the Act.\12\ For the reasons discussed
above, notwithstanding specified differences between the Sample Listing
Standards and the CME Listing Standards, CME believes that the latter
are no less restrictive than comparable listing standards for exchange-
traded options.
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\11\ 15 U.S.C. 78f(h)(3)(C).
\12\ 15 U.S.C. 78o-3(a).
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Clause (D) of Section 6(h)(3) \13\ requires that each security
future be based on common stock or such other equity securities as the
Commission and the CFTC jointly determine are appropriate. This
requirement is addressed by Rules 70001.1, 70002.1, 70003.2, and
70004.2.
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\13\ 15 U.S.C. 78f(h)(3)(D).
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Clause (E) of Section 6(h)(3) \14\ requires that each security
futures product be cleared by a clearing agency that has in place
provisions for linked and coordinated clearing with other clearing
agencies that clear security futures products, which permits the
security futures product to be purchased on one market and offset on
another market that trades such product. CME intends to clear security
futures products traded through Exchange facilities through the CME
Clearing House Division. The Clearing House Division will have in place
all provisions for linked and coordinated clearing as mandated by law
and statute as of the effective date of such laws and statutes. CME
will facilitate deliveries with a registered clearing agency to
facilitate the payment and delivery of securities underlying security
futures products, through the facilities of a third party agent.
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\14\ 15 U.S.C. 78f(h)(3)(E).
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Clause (F) of Section 6(h)(3) \15\ requires that only a broker or
dealer subject to suitability rules comparable to those of a national
securities association registered pursuant to Section 15A(a) of the Act
\16\ effect transactions in a security futures product.
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\15\ 15 U.S.C. 78f(h)(3)(F).
\16\ 15 U.S.C. 78o-3(a).
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CME clearing members, and their correspondents, are bound by the
applicable sales practice rules of the National Futures Association
(``NFA''), which is a national securities association. As such, the
sales practice rules of NFA are, perforce, comparable to those of a
national securities association registered pursuant to Section 15A(a)
of the Act.\17\ The application of NFA sales practice rules is extended
beyond the CME clearing membership to the extent that NFA By-Law 1101
provides that ``[n]o member may carry an account, accept an order or
handle a transaction in commodity futures contracts for or on behalf of
any non-Member of NFA.''
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\17\ 15 U.S.C. 78o-3(a).
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Clause (G) of Section 6(h)(3) \18\ requires that each security
futures product be subject to the prohibition against dual trading in
Section 4j of the CEA \19\ and the rules and regulations thereunder or
the provisions of Section 11(a) of the Act \20\ and the rules and
regulations thereunder. Exchange Rule 123 requires Exchange members to
comply with all applicable ``provisions of the Commodity Exchange Act
and regulations duly issued pursuant thereto by the CFTC.''
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\18\ 15 U.S.C. 78f(h)(3)(G).
\19\ 7 U.S.C. 6j.
\20\ 15 U.S.C. 78k(a).
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Note that the prohibition of dual trading in security futures
products per Regulation Sec. 41.27 \21\ adopted pursuant to Section
4j(a) of the CEA,\22\ generally, applies to a contract market operating
an electronic trading system if such market provides floor brokers
executing customer orders through open outcry a contemporaneous
placement of orders on behalf of specified accounts on an electronic
trading platform and a time or place advantage or the ability to
override a predetermined matching algorithm. The Exchange offers
security futures products exclusively on its CME Globex electronic
trading platform. Thus, the conditions cited above are inapplicable in
this context and the CME Rulebook contains no specific rule relating to
dual trading in an electronic forum.
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\21\ 17 CFR 41.27.
\22\ 7 U.S.C. 6j(a).
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Clause (H) of Section 6(h)(3) \23\ provides that trading in a
security futures product must not be readily susceptible to
manipulation of the price of such security futures product, nor to
causing or being used in the manipulation of the price of any
underlying security, option on such security, or option on a group or
index including such securities. CME Listing Standards are designed to
ensure that CME products and the underlying securities will not be
readily susceptible to price manipulation. Exchange Rule 432 defines
activity ``to manipulate prices or to attempt to manipulate prices'' as
a ``major offense,'' punishable, per Exchange Rule 430, by ``expulsion,
suspension, and/or a fine of not more than $1,000,000 plus the monetary
value of any benefit received as a result of the violative action.''
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\23\ 15 U.S.C. 78f(h)(3)(H).
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Clause (I) of Section 6(h)(3) \24\ requires that procedures be in
place for coordinated surveillance amongst the market on which a
security futures product is traded, any market on which any security
underlying the security futures product is traded, and other markets on
which any related security is traded to detect manipulation and insider
trading.
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\24\ 15 U.S.C. 78f(h)(3)(I).
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The Exchange has surveillance procedures in place to detect
manipulation on a coordinated basis with other markets. In particular,
CME is an affiliate member of the Intermarket Surveillance Group
(``ISG'') and is party
[[Page 27883]]
to an affiliate agreement and an agreement to share market surveillance
and regulatory information with the other ISG members. Further, CME is
party to a supplemental agreement with the other ISG members to address
the concerns expressed by the Commission with respect to affiliate ISG
membership.\25\
Note that CME Rule 424, as shown in the Appendix below, permits CME
to enter into agreements for the exchange of information and other
forms of mutual assistance with domestic or foreign self-regulatory
organizations, associations, boards of trade and their respective
regulators.
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\25\ See Securities Exchange Act Release No. 45956 (May 17,
2002), 67 FR 36740 (May 24, 2002).
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Clause (J) of Section 6(h)(3) \26\ requires that a market on which
a security futures product is traded have in place audit trails
necessary or appropriate to facilitate the coordinated surveillance
referred to in the preceding paragraph.
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\26\ 15 U.S.C. 78f(h)(3)(J).
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The Exchange relies upon its Market Regulation Department and its
large, highly trained staff to actively monitor market participants and
their trading practices; and to enforce compliance with Exchange Rules.
Market Regulation Department staff is organized into the Compliance and
the Market Surveillance Groups. In performing its functions the Market
Regulation Department routinely works closely with the Audit
Department, the Clearing House, the Legal Department, the Globex
Control Center, and the Information Technology Department.
The Compliance area is responsible for enforcing the trading
practice rules of the Exchange through detection, investigation, and
prosecution of those who may attempt to violate those rules. Further,
the area is responsible for handling customer complaints, ensuring the
integrity of the Exchange's audit trail and administering an
arbitration program for the resolution of disputes. The area employs
investigators, attorneys, trading floor investigators, data analysts
and a computer programming and regulatory systems design staff.
The Market Regulation Department has created some of the most
sophisticated tools in the world to assist with the detection of
possible rule violations and monitoring of the market. Among the
systems it uses are The Regulatory Trade Browser (``RTB''), the Virtual
Detection System (``VDS''), The Reportable Position System (``RPS''),
and the RegWeb Profile System (``RegWeb''). These systems include
information on all Globex users, all transactions, large positions, and
statistical information on trading entities.
The Market Surveillance area is dedicated to the detection and
prevention of market manipulation and other similar forms of market
disruption. As part of these responsibilities, the group enforces the
Exchange's position limit rules, administers the hedge approval process
and maintains the Exchange's RPS system.
The foundation of the Exchange's Market Surveillance program is the
deep knowledge of its staff about the major users, brokers, and
clearing firms, along with its relationship with other regulators. Day-
to-day monitoring of market positions is handled by a dedicated group
of surveillance analysts assigned to specific market(s). Each analyst
develops in-depth expertise of the factors that influence the market in
question. The Exchange estimates that perhaps 90% of the market users
at any single time are known to the Exchange. Daily surveillance staff
activities include:
Monitoring positions for size based on percentage of open
interest and historic user participation in each contract.
Aggregation of positions across clearing members, with the
use of CME trade reporting systems, to account for all positions held
by any single participant. This daily review permits the surveillance
analyst promptly to identify unusual market activity.
As a contract approaches maturity, large positions are
scrutinized to determine whether such activity is consistent with prior
experience, allowing prompt regulatory intervention if necessary.
Analysts closely monitor market news through on-line and
print media.
Staff conducts on-site visits to large market participants
periodically.
Market Regulation staff investigates possible misconduct and, when
appropriate, initiates disciplinary action. Exchange Rule 430 empowers
the Exchange's disciplinary committees to discipline, limit, suspend,
or terminate a member's activities for cause, amongst other sanctions.
Note further that the Exchange requires, per Rule 123, that members
shall be responsible for ``the filing of reports, maintenance of books
and records, and permitting inspection and visitation'' in order to
facilitate such investigations by Exchange staff.
CME Rule 536 requires that certain information be recorded with
respect to each order which includes: time entered, terms of the order,
order type, instrument and contract month, price, quantity, account
type, account designation, user code, and clearing firm. This
information may be recorded manually on timestamped order tickets,
electronically in a clearing firms system, or by entering the orders
with the required information into Globex immediately upon receipt. A
complete Globex electronic audit trail is archived and maintained by
CME for at least a five year period. Clearing firms must also maintain
any written or electronic order records for a period of five years.
Clause (K) of Section 6(h)(3) \27\ requires that a market on which
a security futures product is traded have in place procedures to
coordinate trading halts between such market and any market on which
any security underlying the security futures product is traded and
other markets on which any related security is traded.
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\27\ 15 U.S.C. 78f(h)(3)(K).
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The Exchange filed with the Commission, pursuant to Rule 19b-7
under the Act,\28\ rules establishing a generalized framework for the
trade of security futures products.\29\ Specifically, these rules
establish a framework for the trade of Physically Delivered Single
Security Futures.
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\28\ 17 CFR 240.19b-7.
\29\ See Securities Exchange Act Release No. 51957 (June 30,
2005), 70 FR 39820 (July 11, 2005) (SR-CME-2005-03).
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In particular, Rule 71001.F. provides, in accordance with
Regulation Sec. 41.25(a)(2) of CEA,\30\ that ``[t]rading of Physically
Delivered Single Security Futures shall be halted at all times that a
regulatory halt, as defined per SEC Rule 6h-1(a)(3) and CFTC Regulation
Sec. 41.1(l), has been instituted for the underlying security.''
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\30\ 17 CFR 41.25(a)(2).
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Clause (L) of Section 6(h)(3) \31\ requires that the margin
requirements for a security futures product comply with the regulations
prescribed pursuant to Section 7(c)(2)(B) of the Act.\32\ CME submitted
margin requirement rules \33\ to the Commission per Rule 19b-4 under
the Act.\34\ Thus, CME believes that its rules regarding customer
margin are consistent with the requirements of the Act.
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\31\ 15 U.S.C. 78f(h)(3)(L).
\32\ 15 U.S.C. 78g(c)(2)(B).
\33\ See Securities Exchange Act Release No. 46637 (October 10,
2002), 67 FR 64672 (October 21, 2002) (SR-CME-2002-01).
\34\ 17 CFR 240.19b-4.
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For the reasons described above, CME believes that the rules
submitted herewith, satisfy the requirements set forth in Section
6(h)(3) of the Act.\35\
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\35\ 15 U.S.C. 78f(h)(3).
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[[Page 27884]]
B. Self-Regulatory Organization's Statement on Burden on Competition
CME does not believe that this amendment will have an impact on
competition, because it represents a technical change in reference to
the security underlying the futures contract.
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has become effective pursuant to
Section 19(b)(7) of the Act.\36\ 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.\37\
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\36\ 15 U.S.C. 78s(b)(7).
\37\ 15 U.S.C. 78s(b)(1).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-CME-2007-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-CME-2007-01. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of CME. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File No. SR-
CME-2007-01 and should be submitted on or before June 7, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E7-9501 Filed 5-16-07; 8:45 am]
BILLING CODE 8010-01-P
