Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade Options on the iShares Emerging Markets Index Fund for a Six Month Pilot Program, 50426-50429 [E7-17355]
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Federal Register / Vol. 72, No. 169 / Friday, August 31, 2007 / Notices
appropriate for the maintenance of fair
and orderly markets because it will
provide members another mechanism to
report the types of trades described
above with the necessary regulatory
information.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
The proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 10 and Rule 19b–(f)(6)
thereunder,11 because the foregoing
proposed rule does not: (i) Significantly
affect the protection of investors or the
public interest; (ii) impose any
significant burden on competition; and
(iii) become operative for 30 days from
the date on which it was filed, or such
shorter time as the Commission may
designate if consistent with the
protection of investors and the public
interest. FINRA believes that the
proposed rule change is appropriately
designated as a ‘‘non-controversial’’ rule
change because the proposal is
substantially similar to the trade
reporting requirements for the other
TRFs.12
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.13
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). Rule 19b–4(f)(6) also
requires the self-regulatory organization to give the
Commission notice of its intent to file the proposed
rule change, along with a brief description and text
of the proposed rule change, at least five business
days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. FINRA has satisfied the five-day prefiling requirement.
12 See, e.g., NASD Rules 4632 and 6130 (relating
to the NASD/Nasdaq TRF), 4632D and 6130D
(relating to the NASD/BSE TRF) and 4632E and
613E (relating to the NASD/NYSE TRF).
13 See 15 U.S.C. 78s(b)(3)(C).
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11 17
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Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2007–003 on the
subject line.
Paper Comments
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
10 15
IV. Solicitation of 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
Number SR–FINRA–2007–003. 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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 am and 3 pm.
Copies of the filing also will be available
for inspection and copying at the
principal office of FINRA. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2007–003 and should be submitted on
or before September 21, 2007.
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For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.14
Nancy M. Morris,
Secretary.
[FR Doc. E7–17271 Filed 8–30–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56324; File No. SR–ISE–
2007–72]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change, as Modified by Amendment
No. 1 Thereto, To List and Trade
Options on the iShares Emerging
Markets Index Fund for a Six Month
Pilot Program
August 27, 2007.
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 August
24, 2007, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) 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 ISE.
On August 27, 2007, the Exchange filed
Amendment No. 1 to the proposed rule
change (‘‘Amendment No. 1’’). The
Exchange has filed the proposal
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade options on the iShares MSCI
Emerging Markets Index Fund for a six
month pilot period. ISE is not proposing
any changes to the rules of the
Exchange.
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, ISE
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. ISE 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
sroberts on PROD1PC70 with NOTICES
1. Purpose
The purpose of this rule change is to
obtain approval to list for trading on the
Exchange options on the iShares MSCI
Emerging Markets Index Fund (‘‘Fund’’)
for a six month pilot period. The
Exchange currently has in place initial
listing and maintenance standards set
forth in ISE Rules 502(h) and 503(h),
respectively (the ‘‘Listing Standards’’),
that are designed to allow the Exchange
to list funds structured as open-end
investment companies such as the Fund
without having to file for Commission
approval to list for trading options on
the fund.5 The Exchange submits that
the Fund meets substantially all of the
Listing Standard requirements, and for
the requirements that are not met,
sufficient mechanisms exist that would
provide the Exchange with adequate
surveillance and regulatory information
with respect to the Fund.
The Fund is an open-end investment
company designed to hold a portfolio of
securities that tracks the MSCI Emerging
Markets Index (‘‘Index’’).6 The Fund
5 ISE Rules 502(h) and 503(h) set forth the initial
listing and maintenance standards for registered
investment companies (or series thereof) organized
as open-end management investment companies,
unit investment trusts, or other similar entities that
are traded on a national securities exchange or
through the facilities of a national securities
exchange.
6 As provided on the Web site of Morgan Stanley
Capital International Inc. (‘‘MSCI’’)
(www.msci.com), which is the entity that created
and currently maintains the Index, the Index is a
capitalization-weighted index whose component
securities are adjusted for available float and must
meet objective criteria for inclusion in the Index.
The Index aims to capture 85% of the publicly
available total market capitalization in each
emerging market included in the Index. As of
August 17, 2007, the Index was comprised of 839
constituents with the top five constituents
representing the following weights: 3.63%, 2.52%,
2.01%, 1.96%, and 1.40%. The Index is rebalanced
quarterly, calculated in U.S. Dollars on a real time
basis, and disseminated every 60 seconds during
market trading hours.
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employs a ‘‘representative sampling’’
methodology to track the Index, which
means that the Fund invests in a
representative sample of securities in
the Index that have a similar investment
profile as the Index.7 Securities selected
by the Fund have aggregate investment
characteristics (based on market
capitalization and industry weightings),
fundamental characteristics (such as
return variability, earnings valuation,
and yield) and liquidity measures
similar to those of the Index. The Fund
generally invests at least 90% of its
assets in the securities of the Index or
in American Depositary Receipts
(‘‘ADRs’’) and Global Depositary
Receipts (‘‘GDRs’’) representing such
securities. In order to improve portfolio
liquidity, give the Fund additional
flexibility to comply with the
requirements of the U.S. Internal
Revenue Code and other regulatory
requirements, and to manage future
corporate actions and index changes in
smaller markets, the Fund also has the
authority to invest the remainder of its
assets in securities that are not included
in the Index or in ADRs and GDRs
representing such securities. The Fund
may invest up to 10% of its assets in
other MSCI index funds that seek to
track the performance of equity
securities of constituent countries of the
Index. The Fund is not permitted to
concentrate its investments (i.e., hold
25% or more of its total assets in the
stocks of a particular industry or group
of industries), except that, to the extent
practicable, the Fund will concentrate to
approximately the same extent that the
Index concentrates in the stocks of such
particular industry or group of
industries. The Exchange believes that
these requirements and policies prevent
the Fund from being excessively
weighted in any single security, or small
group of securities, and significantly
reduce concerns that trading in the
Fund could become a surrogate for
trading in unregistered securities.
Shares of the Fund (‘‘Fund Shares’’)
are issued in exchange for an ‘‘in kind’’
deposit of a specified portfolio of
securities, together with a cash
payment, in minimum aggregation size
of 150,000 shares (each, a ‘‘Creation
Unit’’), as set forth in the Fund’s
prospectus. The Fund issues and sells
Fund Shares in Creation Unit sizes
through a principal underwriter on a
continuous basis at the net asset value
per share next determined after an order
7 The Fund is comprised of 284 securities as of
July 31, 2007. POSCO ADR, a South Korean
security, has the greatest individual weight at
4.12%. The aggregate percentage weighting of the
top 5, 10, and 20 securities in the Fund are 16.54%,
25.56%, and 40.03%, respectively.
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50427
to purchase Fund Shares and the
appropriate securities are received.
Following issuance, Fund Shares are
traded on an exchange like other equity
securities, and equity trading rules
apply. Likewise, redemption of Fund
Shares is made in Creation Unit size and
‘‘in kind,’’ with a portfolio of securities
and cash exchanged for Fund Shares
that have been tendered for redemption.
The Exchange notes that the
maintenance listing standards set forth
in ISE Rule 503(h) for open-end
investment companies do not include
criteria based on either the number of
shares or other units outstanding, or on
their trading volume. The absence of
such criteria is justified on the ground
that since it should always be possible
to create additional shares or other
interests in open-end investment
companies at their net asset value by
making an in-kind deposit of the
securities that comprise the underlying
index or portfolio, there is no limit on
the available supply of such shares or
interests. This, in turn, should make it
highly unlikely that the market for
listed, open-end investment company
shares could be capable of
manipulation, since whenever the
market price for such shares departs
from net asset value, arbitrage will
occur. Similarly, since the Fund meets
all of the requirements of the Listing
Standards except as described below,
the Exchange believes that the same
analysis applies to the Fund.
The Exchange has reviewed the Fund
and determined that it satisfies the
Listing Standards except for the
requirement set forth in ISE Rule
502(h)(1), which requires the Fund to
meet the following condition: ‘‘Any
non-U.S. component stocks in the index
or portfolio on which the Fund Shares
are based that are not subject to
comprehensive surveillance agreements
do not in the aggregate represent more
than 50% of the weight of the index or
portfolio.’’ The Exchange currently has
in place surveillance agreements with
foreign exchanges that cover 45.97% of
the securities in the Fund. One of the
foreign exchanges on which component
securities of the Fund are traded and
with which the Exchange does not have
a surveillance agreement is the Bolsa
Mexicana de Valores (‘‘Bolsa’’). The
percentage of the weight of the Fund
represented by these securities is 6.53%.
The Exchange understands that the
Commission has been willing to allow
an exchange to rely on a memorandum
of understanding entered into between
regulators in the event that the
exchanges themselves cannot enter into
a surveillance agreement. The Exchange
further understands that the American
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Stock Exchange (‘‘Amex’’) has
previously attempted to enter into a
surveillance agreement with Bolsa as
part of seeking approval to list and trade
options on the Mexico Index.8 The
Chicago Board Options Exchange
(‘‘CBOE’’) has also previously attempted
to enter into a surveillance agreement
with Bolsa at or about the time when the
CBOE sought approval to list for trading
options on the CBOE Mexico 30 Index
in 1995, which was comprised of stocks
trading on Bolsa.9 Since, in both
instances, Bolsa was unable to provide
a surveillance agreement, the
Commission previously allowed both
Amex and CBOE to rely on the
memorandum of understanding
executed by the Commission and the
CNBV, dated as of October 18, 1990
(‘‘MOU’’). The Commission noted in the
respective Approval Orders that in cases
where it would be impossible to secure
an agreement, the Commission relied in
the past on surveillance sharing
agreements between the relevant
regulators. The Commission further
noted in the respective Approval Orders
that pursuant to the terms of the MOU,
it was the Commission’s understanding
that both the Commission and the CNBV
could acquire information from, and
provide information to, the other,
similar to that which would be required
in a surveillance sharing agreement
between exchanges; and therefore,
should Amex or CBOE need information
on Mexican trading in the component
securities of the Mexico Index or the
CBOE Mexico 30 Index, the Commission
could request such information from the
CNBV under the MOU.10
The Exchange has also recently
contacted Bolsa with a request to enter
into a surveillance agreement. Until
such time that the Exchange is able to
secure a surveillance agreement with
Bolsa, the Exchange proposed to rely on
the MOU entered into between the
Commission and the CNBV for purposes
of satisfying its surveillance and
regulatory responsibilities for the
component securities in the Fund that
trade on Bolsa. The Exchange believes
this proposal is reasonable in that the
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8 See
Securities Exchange Act Release No. 34500
(August 8, 1994), 59 FR 41534 (August 12, 1994).
9 See Securities Exchange Act Release No. 36415
(October 25, 1995), 60 FR 55620 (November 1,
1995).
10 The Commission has also previously noted if
securing an information sharing agreement is not
possible, an exchange should contact the
Commission prior to listing a new derivative
securities product. In such case, the Commission
may determine instead that it is appropriate to rely
on a memorandum of understanding between the
Commission and the foreign regulator. See
Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998).
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Commission has already acknowledged
that the MOU permits both the
Commission and the CNBV to acquire
information from and provide
information to the other, similar to that
which would be required in a
surveillance sharing agreement between
exchanges. This proposal would
otherwise render the Fund compliant
with all of the Listing Standards.11
The Exchange proposes to list options
on the Fund for a six month pilot
program until February 27, 2008 and
rely on the MOU entered into between
the Commission and the CNBV for
purposes of satisfying its surveillance
and regulatory responsibilities until the
Exchange is able to secure a surveillance
agreement with Bolsa. During this
period, the Exchange agrees to use its
best efforts to obtain a comprehensive
surveillance agreement with Bolsa,
which shall reflect the following: (i)
Express language addressing market
trading activity, clearing activity, and
customer identity; (ii) Bolsa’s reasonable
ability to obtain access to and produce
requested information; and (iii) based
on the comprehensive surveillance
agreement and other information
provided by Bolsa, the absence of
existing rules, laws, or practices that
would impede the Exchange from
foreign information relating to market
activity, clearing activity, or customer
identity, or, in the event such rules,
laws, or practices exist, they would not
materially impede the production of
customer or other information. The
Exchange also represents that it will
regularly update the Commission on the
status of its negotiations with Bolsa.12
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
6(b) of the Act 13 in general, and furthers
the objectives of Section 6(b)(5) of the
Act, 14 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
11 The Exchange notes that the component
securities of the Fund change periodically.
Therefore, the Exchange may in fact have in place
surveillance agreements that would otherwise cover
the percent weighting requirements set forth in the
Listing Standards for securities not trading on
Bolsa. In this event, the Fund would satisfy all of
the Listing Standards and reliance on an approval
order for the Fund would be unnecessary.
12 The Exchange further represents that it is
currently engaged in discussions to enter into
information sharing agreements with certain other
exchanges, and that upon signing such agreements,
ISE will no longer need to rely on the Commission’s
MOU with the CNBV. See Amendment No. 1.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
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regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, 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. Further, this proposed
rule change is similar to proposals
previously submitted by Amex and
CBOE.15
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change
does not: (1) Significantly affect the
protection of investors or the public
interest; (2) impose any significant
burden on competition; and (3) become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act16 and Rule 19b–
4(f)(6) thereunder.17
A proposed rule change filed under
19b–4(f)(6) normally may not become
operative prior to 30 days after the date
of filing.18 However, Rule 19b–
4(f)(6)(iii) 19 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
15 See Securities Exchange Act Release Nos.
53824 (May 17, 2006), 71 FR 30003 (May 24, 2006)
(Approving SR–AMEX–2006–43); 56321 (April 10,
2006), 71 FR 19568 (April 14, 2006) (Approving
SR–CBOE–2006–32).
16 15 U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f)(6).
18 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6)(iii) requires that a self-regulatory
organization submit to the Commission written
notice of its intent to file the proposed rule change,
along with a brief description and text of the
proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has requested the
Commission to waive this five-day pre-filing notice
requirement. The Commission hereby grants this
request.
19 Id.
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delay, to permit the Exchange to list
options on the Fund immediately. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest. The proposal is
substantially similar to proposals
previously submitted by Amex and
CBOE. Also, the Exchange has agreed to
use its best efforts to obtain a
comprehensive surveillance agreement
with Bolsa during a six month pilot
period in which the Exchange will rely
on the MOU for purposes of satisfying
its surveillance and regulatory
responsibilities with respect to the Fund
components trading on Bolsa. The
Exchange represents that it will
regularly update the Commission on the
status of its negotiations with Bolsa. The
Exchange further represents that it is
currently engaged in discussions to
enter into information sharing
agreements with certain other
exchanges, and that upon signing such
agreements, ISE will no longer need to
rely on the Commission’s MOU with the
CNBV. The Commission notes that ISE
currently has in place surveillance
agreements with foreign exchanges that
cover 45.97% of the securities in the
Fund, and that the Index upon which
the Fund is based appears to be a broad
based-index. For these reasons, the
Commission designates the proposed
rule change to be operative upon filing
with the Commission for a six month
pilot period until February 27, 2008.20
At any time within 60 days of the
filing of such proposed rule change the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors
or otherwise in furtherance of the
purposes of the Act.
sroberts on PROD1PC70 with NOTICES
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:
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
Number SR–ISE–2007–72. 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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 am and 3 pm.
Copies of the filing also will be available
for inspection and copying at the
principal office of ISE. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–ISE–
2007–72 and should be submitted on or
before September 21, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.21
Nancy M. Morris,
Secretary.
[FR Doc. E7–17355 Filed 8–30–07; 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
Number SR–ISE–2007–72 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56305; File No. SR–NSX–
2007–09]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Relating to
the Amendment of Its Rules in Light of
Amendments to SEC Rule 10a–1 and
Regulation SHO
August 22, 2007.
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 July 3,
2007 and July 6, 2007, National Stock
Exchange, Inc. (‘‘NSX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’)
the proposed rule change and their
corresponding amendments, as
described in Items I and II below, which
Items have been substantially prepared
by the Exchange. NSX has designated
the proposed rule change as constituting
a ‘‘non-controversial’’ rule change under
paragraph (f)(6) of Rule 19b–4 under the
Act,3 which renders the proposal
effective upon receipt of this filing by
the Commission. The Commission is
publishing this notice to solicit
comment on the proposed rule change
from interested parties.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to amend
NSX Rules 11.21and 14.2(b)(7) in light
of the Commission’s short sale
regulation, Regulation SHO under the
Securities Exchange Act of 1934. Certain
provisions of Regulation SHO adopted
in the Commission’s 2007 release
regarding the price test 4 supercede the
above NSX Rules related to short sales.
As a result, the Exchange is filing this
rule change to bring those rules in line
with Regulation SHO, as now in effect.
The text of the proposed rule change is
below. Additions are italicized and
deletions are bracketed.
RULES OF NATIONAL STOCK
EXCHANGE, INC.
*
*
*
1 15
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21 17
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*
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
4 Securities Exchange Act Release No. 55970
(June 28, 2007), 72 FR 36348 (July 3, 2007) (‘‘Price
Test Adopting Release’’).
2 17
20 For the purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
*
E:\FR\FM\31AUN1.SGM
31AUN1
]]>Agencies
[Federal Register Volume 72, Number 169 (Friday, August 31, 2007)]
[Notices]
[Pages 50426-50429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-17355]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56324; File No. SR-ISE-2007-72]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change, as Modified by Amendment No. 1 Thereto, To List and Trade
Options on the iShares Emerging Markets Index Fund for a Six Month
Pilot Program
August 27, 2007.
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 August 24, 2007, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') 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
ISE. On August 27, 2007, the Exchange filed Amendment No. 1 to the
proposed rule change (``Amendment No. 1''). The Exchange has filed the
proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposal effective upon filing
with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade options on the iShares MSCI
Emerging Markets Index Fund for a six month pilot period. ISE is not
proposing any changes to the rules of the Exchange.
[[Page 50427]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, ISE 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. ISE 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 purpose of this rule change is to obtain approval to list for
trading on the Exchange options on the iShares MSCI Emerging Markets
Index Fund (``Fund'') for a six month pilot period. The Exchange
currently has in place initial listing and maintenance standards set
forth in ISE Rules 502(h) and 503(h), respectively (the ``Listing
Standards''), that are designed to allow the Exchange to list funds
structured as open-end investment companies such as the Fund without
having to file for Commission approval to list for trading options on
the fund.\5\ The Exchange submits that the Fund meets substantially all
of the Listing Standard requirements, and for the requirements that are
not met, sufficient mechanisms exist that would provide the Exchange
with adequate surveillance and regulatory information with respect to
the Fund.
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\5\ ISE Rules 502(h) and 503(h) set forth the initial listing
and maintenance standards for registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts, or other similar entities that
are traded on a national securities exchange or through the
facilities of a national securities exchange.
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The Fund is an open-end investment company designed to hold a
portfolio of securities that tracks the MSCI Emerging Markets Index
(``Index'').\6\ The Fund employs a ``representative sampling''
methodology to track the Index, which means that the Fund invests in a
representative sample of securities in the Index that have a similar
investment profile as the Index.\7\ Securities selected by the Fund
have aggregate investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics
(such as return variability, earnings valuation, and yield) and
liquidity measures similar to those of the Index. The Fund generally
invests at least 90% of its assets in the securities of the Index or in
American Depositary Receipts (``ADRs'') and Global Depositary Receipts
(``GDRs'') representing such securities. In order to improve portfolio
liquidity, give the Fund additional flexibility to comply with the
requirements of the U.S. Internal Revenue Code and other regulatory
requirements, and to manage future corporate actions and index changes
in smaller markets, the Fund also has the authority to invest the
remainder of its assets in securities that are not included in the
Index or in ADRs and GDRs representing such securities. The Fund may
invest up to 10% of its assets in other MSCI index funds that seek to
track the performance of equity securities of constituent countries of
the Index. The Fund is not permitted to concentrate its investments
(i.e., hold 25% or more of its total assets in the stocks of a
particular industry or group of industries), except that, to the extent
practicable, the Fund will concentrate to approximately the same extent
that the Index concentrates in the stocks of such particular industry
or group of industries. The Exchange believes that these requirements
and policies prevent the Fund from being excessively weighted in any
single security, or small group of securities, and significantly reduce
concerns that trading in the Fund could become a surrogate for trading
in unregistered securities.
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\6\ As provided on the Web site of Morgan Stanley Capital
International Inc. (``MSCI'') (www.msci.com), which is the entity
that created and currently maintains the Index, the Index is a
capitalization-weighted index whose component securities are
adjusted for available float and must meet objective criteria for
inclusion in the Index. The Index aims to capture 85% of the
publicly available total market capitalization in each emerging
market included in the Index. As of August 17, 2007, the Index was
comprised of 839 constituents with the top five constituents
representing the following weights: 3.63%, 2.52%, 2.01%, 1.96%, and
1.40%. The Index is rebalanced quarterly, calculated in U.S. Dollars
on a real time basis, and disseminated every 60 seconds during
market trading hours.
\7\ The Fund is comprised of 284 securities as of July 31, 2007.
POSCO ADR, a South Korean security, has the greatest individual
weight at 4.12%. The aggregate percentage weighting of the top 5,
10, and 20 securities in the Fund are 16.54%, 25.56%, and 40.03%,
respectively.
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Shares of the Fund (``Fund Shares'') are issued in exchange for an
``in kind'' deposit of a specified portfolio of securities, together
with a cash payment, in minimum aggregation size of 150,000 shares
(each, a ``Creation Unit''), as set forth in the Fund's prospectus. The
Fund issues and sells Fund Shares in Creation Unit sizes through a
principal underwriter on a continuous basis at the net asset value per
share next determined after an order to purchase Fund Shares and the
appropriate securities are received. Following issuance, Fund Shares
are traded on an exchange like other equity securities, and equity
trading rules apply. Likewise, redemption of Fund Shares is made in
Creation Unit size and ``in kind,'' with a portfolio of securities and
cash exchanged for Fund Shares that have been tendered for redemption.
The Exchange notes that the maintenance listing standards set forth
in ISE Rule 503(h) for open-end investment companies do not include
criteria based on either the number of shares or other units
outstanding, or on their trading volume. The absence of such criteria
is justified on the ground that since it should always be possible to
create additional shares or other interests in open-end investment
companies at their net asset value by making an in-kind deposit of the
securities that comprise the underlying index or portfolio, there is no
limit on the available supply of such shares or interests. This, in
turn, should make it highly unlikely that the market for listed, open-
end investment company shares could be capable of manipulation, since
whenever the market price for such shares departs from net asset value,
arbitrage will occur. Similarly, since the Fund meets all of the
requirements of the Listing Standards except as described below, the
Exchange believes that the same analysis applies to the Fund.
The Exchange has reviewed the Fund and determined that it satisfies
the Listing Standards except for the requirement set forth in ISE Rule
502(h)(1), which requires the Fund to meet the following condition:
``Any non-U.S. component stocks in the index or portfolio on which the
Fund Shares are based that are not subject to comprehensive
surveillance agreements do not in the aggregate represent more than 50%
of the weight of the index or portfolio.'' The Exchange currently has
in place surveillance agreements with foreign exchanges that cover
45.97% of the securities in the Fund. One of the foreign exchanges on
which component securities of the Fund are traded and with which the
Exchange does not have a surveillance agreement is the Bolsa Mexicana
de Valores (``Bolsa''). The percentage of the weight of the Fund
represented by these securities is 6.53%.
The Exchange understands that the Commission has been willing to
allow an exchange to rely on a memorandum of understanding entered into
between regulators in the event that the exchanges themselves cannot
enter into a surveillance agreement. The Exchange further understands
that the American
[[Page 50428]]
Stock Exchange (``Amex'') has previously attempted to enter into a
surveillance agreement with Bolsa as part of seeking approval to list
and trade options on the Mexico Index.\8\ The Chicago Board Options
Exchange (``CBOE'') has also previously attempted to enter into a
surveillance agreement with Bolsa at or about the time when the CBOE
sought approval to list for trading options on the CBOE Mexico 30 Index
in 1995, which was comprised of stocks trading on Bolsa.\9\ Since, in
both instances, Bolsa was unable to provide a surveillance agreement,
the Commission previously allowed both Amex and CBOE to rely on the
memorandum of understanding executed by the Commission and the CNBV,
dated as of October 18, 1990 (``MOU''). The Commission noted in the
respective Approval Orders that in cases where it would be impossible
to secure an agreement, the Commission relied in the past on
surveillance sharing agreements between the relevant regulators. The
Commission further noted in the respective Approval Orders that
pursuant to the terms of the MOU, it was the Commission's understanding
that both the Commission and the CNBV could acquire information from,
and provide information to, the other, similar to that which would be
required in a surveillance sharing agreement between exchanges; and
therefore, should Amex or CBOE need information on Mexican trading in
the component securities of the Mexico Index or the CBOE Mexico 30
Index, the Commission could request such information from the CNBV
under the MOU.\10\
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\8\ See Securities Exchange Act Release No. 34500 (August 8,
1994), 59 FR 41534 (August 12, 1994).
\9\ See Securities Exchange Act Release No. 36415 (October 25,
1995), 60 FR 55620 (November 1, 1995).
\10\ The Commission has also previously noted if securing an
information sharing agreement is not possible, an exchange should
contact the Commission prior to listing a new derivative securities
product. In such case, the Commission may determine instead that it
is appropriate to rely on a memorandum of understanding between the
Commission and the foreign regulator. See Securities Exchange Act
Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22,
1998).
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The Exchange has also recently contacted Bolsa with a request to
enter into a surveillance agreement. Until such time that the Exchange
is able to secure a surveillance agreement with Bolsa, the Exchange
proposed to rely on the MOU entered into between the Commission and the
CNBV for purposes of satisfying its surveillance and regulatory
responsibilities for the component securities in the Fund that trade on
Bolsa. The Exchange believes this proposal is reasonable in that the
Commission has already acknowledged that the MOU permits both the
Commission and the CNBV to acquire information from and provide
information to the other, similar to that which would be required in a
surveillance sharing agreement between exchanges. This proposal would
otherwise render the Fund compliant with all of the Listing
Standards.\11\
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\11\ The Exchange notes that the component securities of the
Fund change periodically. Therefore, the Exchange may in fact have
in place surveillance agreements that would otherwise cover the
percent weighting requirements set forth in the Listing Standards
for securities not trading on Bolsa. In this event, the Fund would
satisfy all of the Listing Standards and reliance on an approval
order for the Fund would be unnecessary.
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The Exchange proposes to list options on the Fund for a six month
pilot program until February 27, 2008 and rely on the MOU entered into
between the Commission and the CNBV for purposes of satisfying its
surveillance and regulatory responsibilities until the Exchange is able
to secure a surveillance agreement with Bolsa. During this period, the
Exchange agrees to use its best efforts to obtain a comprehensive
surveillance agreement with Bolsa, which shall reflect the following:
(i) Express language addressing market trading activity, clearing
activity, and customer identity; (ii) Bolsa's reasonable ability to
obtain access to and produce requested information; and (iii) based on
the comprehensive surveillance agreement and other information provided
by Bolsa, the absence of existing rules, laws, or practices that would
impede the Exchange from foreign information relating to market
activity, clearing activity, or customer identity, or, in the event
such rules, laws, or practices exist, they would not materially impede
the production of customer or other information. The Exchange also
represents that it will regularly update the Commission on the status
of its negotiations with Bolsa.\12\
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\12\ The Exchange further represents that it is currently
engaged in discussions to enter into information sharing agreements
with certain other exchanges, and that upon signing such agreements,
ISE will no longer need to rely on the Commission's MOU with the
CNBV. See Amendment No. 1.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \13\ in general, and furthers the objectives of
Section 6(b)(5) of the Act, \14\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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. Further, this proposed rule
change is similar to proposals previously submitted by Amex and
CBOE.\15\
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ See Securities Exchange Act Release Nos. 53824 (May 17,
2006), 71 FR 30003 (May 24, 2006) (Approving SR-AMEX-2006-43); 56321
(April 10, 2006), 71 FR 19568 (April 14, 2006) (Approving SR-CBOE-
2006-32).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change does not: (1) Significantly
affect the protection of investors or the public interest; (2) impose
any significant burden on competition; and (3) become operative for 30
days after the date of this filing, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act\16\ and Rule 19b-4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\18\
However, Rule 19b-4(f)(6)(iii) \19\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative
[[Page 50429]]
delay, to permit the Exchange to list options on the Fund immediately.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The proposal is substantially similar to proposals previously submitted
by Amex and CBOE. Also, the Exchange has agreed to use its best efforts
to obtain a comprehensive surveillance agreement with Bolsa during a
six month pilot period in which the Exchange will rely on the MOU for
purposes of satisfying its surveillance and regulatory responsibilities
with respect to the Fund components trading on Bolsa. The Exchange
represents that it will regularly update the Commission on the status
of its negotiations with Bolsa. The Exchange further represents that it
is currently engaged in discussions to enter into information sharing
agreements with certain other exchanges, and that upon signing such
agreements, ISE will no longer need to rely on the Commission's MOU
with the CNBV. The Commission notes that ISE currently has in place
surveillance agreements with foreign exchanges that cover 45.97% of the
securities in the Fund, and that the Index upon which the Fund is based
appears to be a broad based-index. For these reasons, the Commission
designates the proposed rule change to be operative upon filing with
the Commission for a six month pilot period until February 27,
2008.\20\
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\18\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Exchange has requested the Commission to waive
this five-day pre-filing notice requirement. The Commission hereby
grants this request.
\19 \ Id.
\20\ For the purposes only of waiving the 30-day operative
delay, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors or otherwise in
furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-ISE-2007-72 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 Number SR-ISE-2007-72. 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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
am and 3 pm. Copies of the filing also will be available for inspection
and copying at the principal office of ISE. All comments received will
be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2007-72 and should be submitted on
or before September 21, 2007.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\21\
Nancy M. Morris,
Secretary.
[FR Doc. E7-17355 Filed 8-30-07; 8:45 am]
BILLING CODE 8010-01-P
