Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Adopt Rules To Permit the Trading of Rate-Modified Foreign Currency Options, 63536-63540 [E8-25373]

Download as PDF 63536 Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Notices B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 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 Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2008–108 and should be submitted on or before November 14, 2008. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt rules to permit the trading of Rate-Modified Foreign Currency Options (‘‘FCOs’’). The text of the proposed rule change is available at NYSE Arca, the Commission’s Public Reference Room, and www.nyse.com. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Acting Secretary. [FR Doc. E8–25372 Filed 10–23–08; 8:45 am] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58800; File No. SR– NYSEArca–2008–109] jlentini on PROD1PC65 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2008–108 on the subject line. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Adopt Rules To Permit the Trading of Rate-Modified Foreign Currency Options Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2008–108. 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 (http://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 October 10, 2008, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘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 prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. VerDate Aug<31>2005 16:48 Oct 23, 2008 Jkt 217001 October 16, 2008. 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 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 self-regulatory organization 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 those 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 parts of such statements. 1. Purpose The purpose of the proposed rule change is to adopt rules enabling the Exchange to list and trade FCOs. The Exchange proposes to adopt rules for the listing and trading of cash-settled FCOs on the following currencies: the euro, the British pound, the Australian dollar, the New Zealand dollar, the Japanese yen, the Canadian dollar, the Swiss franc, the Chinese renminbi, the Mexican peso, the Swedish krona, the Russian ruble, the South African rand, the Brazilian real, the Israeli shekel, the Norwegian krone, the Polish zloty, the Hungarian forint, the Czech koruna, and the Korean won (individually, a ‘‘currency’’ and collectively, the ‘‘Currencies’’).3 The Exchange notes that the Philadelphia Stock Exchange (‘‘PHLX’’) currently has rules that permit the listing and trading of both physicallysettled FCOs and U.S. Dollar-settled FCOs on a number of foreign currencies.4 FCOs listed and traded by the Exchange pursuant to this proposed rule change will not be fungible with 3 Except as noted herein, FCO’s would, in all other respects, be traded pursuant to the Exchange’s existing trading rules and procedures and be covered under the Exchange’s existing surveillance program. 4 See Securities Exchange Act release No. 54989 (December 21, 2006), 71 FR 78506 (December 29, 2006) (SR–PHLX–2006–34). See also PHLX rules 1000–1093. E:\FR\FM\24OCN1.SGM 24OCN1 Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Notices jlentini on PROD1PC65 with NOTICES those listed and traded by PHLX. The Exchange also notes that the International Securities Exchange has rules that permit the listing and trading of both physically-settled FCOs and U.S. Dollar-settled FCOs on a number of foreign currencies.5 The Exchange intends, however, to license the contract terms governing FCOs from the International Securities Exchange (‘‘ISE’’), and any FCOs listed and traded on the Exchange would be fungible with those listed and traded on ISE. The Exchange proposes to list and trade cash-settled FCOs using the Reuters Composite Currency Rate,6 an industry benchmark, and modify that rate to create an underlying value that represents the prevailing rate of a currency pair in an index-like format. NYSE Arca proposes to use modifiers of 1, 10, or 100 depending on the exchange rate level of the underlying foreign currency. For example, if one U.S. Dollar buys .84177 euros, a modifier of 100 would be used so that the modified exchange rate would become 84.18.7 Modified exchange rates are rounded to two decimal places (i.e., to the nearest one one-hundredth). Modified exchange rates are rounded up if they end in values greater than or equal to five onethousandths, and rounded down if less than five one-thousandths. In the 5 See Securities Exchange Act Release No, 34– 55575 (April 3, 2007), 72 FR 17963 (April 10, 2007) (SR–ISE–2006–59). See also ISE rules 2200–2213. 6 The Exchange notes that there are many major trading platforms for spot market currencies including single bank portals (Deutsche Bank, Citigroup, UBS, Barclays, etc.), multi-bank portals (FXall, Currenex, FXConnect, etc.) broker-neutral portals (Reuters Dealing and EBS), portal aggregators (Bloomberg. LavaFX, FlexTrade), as well as many online broker portals. Additionally, several major NYSE Arca members, including OptionsXpress and Interactive Brokers, provide access to Chicago Mercantile Exchange futures products. NYSE Arca therefore believes that sufficient market access is available to both institutionals as well as retail investors. Foreign exchange prices are also widely available via public Web sites, broker Web sites, as well as in print publications. Additionally, Web sites such as Bloomberg.com, Reuters.com, Yahoo! Finance, CNBC.com, OANDA.com, Nasdaq.com, and many others provide free currency data. Investors Business Daily, Wall Street Journal, and the New York Times also provide currency data as part of their daily coverage. Futhermore, the ISE presently disseminates real-time underlying data on OPRA for all the currency rates NYSE Arca intends to list options on. 7 Modifiers used for creating underlying values will be modeled on the modifiers developed by the ISE and will be posted on the Exchange’s web site no later than the first day on which FCOs begin trading on the Exchange. Once a modifier has been assigned to a currency pair by the ISE, it can only be changed upon a filing of a proposed rule change by the ISE with the Securities and Exchange Commission (‘‘Commission’’). If the Exchange determines that it will no longer adopt modifiers assigned by the ISE, the Exchange will be required to submit a proposed rule change to the Commission in order to amend a modifier. VerDate Aug<31>2005 16:48 Oct 23, 2008 Jkt 217001 63537 example above, if one U.S. Dollar buys .84174 euros, the modified exchange rate, using the same 100 modifier, would become 84.17. The Reuters data is based on an amalgamation of midpoint dealer quotes on its foreign exchange dealing system. Under the proposed rule change, FCOs listed by the Exchange will be cleared by The Options Clearing Corporation (‘‘OCC’’), and will enable holders of options contracts to receive U.S. Dollars representing the difference between the modified exchange rate 8 and the exercise price of the option. Specifically, upon exercise of an in-themoney cash-settled FCO call option, the holder will receive, from OCC, U.S. Dollars representing the difference between the exercise strike price and the closing settlement value of the cashsettled FCO contract multiplied by 100. Upon exercise of an in-the-money cashsettled FCO put option, the holder will receive, from OCC, U.S. Dollars representing the excess of the exercise price over the closing settlement value of the cash-settled FCO contract multiplied by 100. Additionally, cashsettled FCOs that are in-the-money by any amount on expiration date will be exercised automatically by OCC, while cash-settled FCOs that are out-of-themoney on expiration date will expire worthless. The Exchange hereby proposes to adopt new rules and amend certain existing rules in order to list and trade FCOs. The Exchange shall use the same contract specifications used by the ISE, as noted in Exhibit 3 to this filing.9 The Exchange’s proposed NYSE Arca Rule 5.71, Definitions, defines terms applicable to FCOs. Proposed NYSE Arca Rule 5.72, Criteria for Foreign Currency Options, states that the Currencies may be approved for trading on the Exchange and sets forth the cross rate FCOs that may be traded on the Exchange. Proposed NYSE Arca Rule 5.72 also states that if any of the sovereign governments or the European Economic Community’s European Monetary System issuing one of the Currencies replaces it with a new currency, that new currency, subject to filing a proposed rule change with the Commission, shall also be approved for listing and trading under these proposed rules. Proposed NYSE Arca Rule 5.73, Foreign Currency Options Contracts To Be Traded, states that the Exchange may open for trading put options and call options on the Currencies and that only options contracts of a series of options approved by the Exchange and currently open for trading may be traded on the Exchange. Proposed NYSE Arca Rule 5.74, Withdrawal of Approval of Foreign Currency Options, states that, in the interest of a fair and orderly market and for the protection of investors, the Exchange may withdraw approval of the trading of a foreign currency option. For example, in the case of the European Economic Community’s European Monetary System, the Exchange will withdraw approval of the trading of a foreign currency option if such currency is eligible to and does in fact merge with the euro. Proposed NYSE Arca Rule 5.75, Series of Foreign Currency Options Opened for Trading, states that after a class of options contracts on any of the Currencies has been approved for listing and trading, the Exchange may open for trading series of FCOs that expire in consecutive monthly intervals, in three or ‘‘cycle’’ month intervals, or that have up to 36 months to expiration.10 Under this proposed rule change, the Exchange may list cash-settled FCOs with expirations that are the same as the expirations permitted for index options pursuant to NYSE Arca Rules 5.10 and 5.19, except that cash-settled FCOs shall have expirations up to 36 months only. Though no long-term series will be listed initially, this proposal would allow the Exchange to list long-term series, i.e., up to 36 months. The expiration date for the consecutive and cycle month options will be 8:59 p.m. Pacific time on the Saturday immediately following the third Friday of the expiration month. Under Proposed NYSE Arca Rule 5.75, as the modified exchange rate moves, the Exchange may list additional series of FCOs in order to maintain sufficient numbers of in-the-money and out-ofthe-money series. Further, the strike price of each series of FCOs opened for trading by the Exchange shall be reasonably close to the modified exchange rate. Proposed NYSE Arca Rule 5.76, Terms of Foreign Currency Options Contracts, states that, among other things, all FCOs shall be quoted in U.S. Dollars, shall be European-style, and that the interval between strike prices of series of FCOs shall be no less than $0.10. Proposed NYSE Arca Rule 5.77, Position Limits for Foreign Currency Options, sets the position limit for FCOs, on the same side of the market, as follows: 1,200,000 contracts for the 8 A ‘‘modified exchange rate’’ is defined in proposed NYSE Arca Rule 5.71(6). 9 See note 5, supra. 10 The Exchange notes that consecutive month and cycle month expirations of a given series will never overlap. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\24OCN1.SGM 24OCN1 jlentini on PROD1PC65 with NOTICES 63538 Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Notices euro; 600,000 contracts for the Australian dollar, the New Zealand dollar, the British pound, the Canadian dollar, the Japanese yen, and the Swiss franc; 300,000 contracts for the Brazilian real, the Chinese renminbi, the Czech koruna, the Hungarian forint, the Israeli shekel, the Korean won, the Mexican peso, the Norwegian krone, the Swedish krona, the Polish zloty, the Russian ruble and the South African rand. For the purpose of determining which positions are on the same side of the market, under proposed NYSE Arca Rule 5.77, long call positions are to be aggregated with short put positions and short call positions are to be aggregated with long put positions. Position limits for each of the proposed cross-rate FCOs are specified in proposed NYSE Arca Rule 5.77. Proposed NYSE Arca Rule 5.78, Exercise Limits for Foreign Currency Options, generally states that exercise limits for FCOs and cross rate FCOs shall be equivalent to the position limits prescribed to that FCO. Thus, the exercise limit for FCOs over any five consecutive business days shall be as follows: 1,200,000 contracts for the euro; 600,000 contracts for the Australian dollar, the New Zealand dollar, the British pound, the Canadian dollar, the Japanese yen, and the Swiss franc; 300,000 contracts for the Brazilian real, the Chinese renminbi, the Czech koruna, the Swedish krona, the Hungarian forint, the Israeli shekel, the Korean won, the Mexican peso, the Norwegian krone, the Polish zloty, the Russian ruble and the South African rand. The exercise limits for cross rate FCOs are set forth in Rule 5.78. Under Proposed NYSE Arca Rule 5.78(a)(3), the Exchange may from time to time, subject to Commission approval, establish exercise limits that are different from the position limits established for FCOs on a Currency or across all Currencies. Position limits for each of the proposed cross-rate FCOs are specified in proposed NYSE Arca Rule 5.77. Proposed NYSE Arca Rule 5.79, Trading Sessions, provides that transactions in FCOs may be effected on the Exchange between the hours of 6:30 a.m. and 1:15 p.m. Pacific Time, except that on the last trading day of the week during which a FCO is set to expire, trading shall cease at 9 a.m. Pacific Time. Trading in cash-settled FCOs will follow the holiday schedule of the U.S. equity markets. If Friday is an Exchange holiday, the settlement value for cashsettled FCOs will be determined on the preceding trading day, which will also be the last trading day for the expiring option. The Exchange’s Proposed Rules VerDate Aug<31>2005 16:48 Oct 23, 2008 Jkt 217001 5.79(b) and (c) make certain adjustments to current processes because FCO openings, unlike openings of equity and index options, do not depend on the opening of trading of the underlying market, because the currency market does not have specified trading hours. Accordingly, the opening auction for FCOs shall be held at or as soon as practicable after the Exchange’s market opens, unless a Trading Official determines to delay the opening auction in the interest of maintaining a fair and orderly market. Proposed NYSE Arca Rule 5.79 lists some of the factors a Trading Official may consider in delaying the opening auction. Additionally, in the interest of a fair and orderly market, an Exchange official may, under certain circumstances, halt or suspend trading in a FCO until such time that the circumstances that led to the halt or suspension no longer exist. The proposed rule also provides that the Exchange shall delay opening or halt trading if the ISE is unable to disseminate the current modified exchange rate information at least every 15 seconds to OPRA. Proposed NYSE Arca Rule 5.80, Reporting of Foreign Currency Options Position, requires each OTP Holder of the Exchange to file a report with respect to all accounts that have an aggregate position of 12,500 or more FCO contracts on the same side of the market in any underlying foreign currency. Under this proposed rule, OTP Holders shall be required to file all such reports within one business day following the day that the reportable transactions occur. Proposed NYSE Arca Rule 5.81, Foreign Currency Options Closing Settlement Value, states that the closing settlement value, which shall be posted by the Exchange on its Web site, shall be the Noon Buying Rate, as determined by the Federal Reserve Bank of New York, on the last trading day during expiration week.11 If the Noon Buying Rate is not announced by 2 p.m. Pacific Time, the closing settlement value will be the most recently announced Noon Buying Rate, unless the Exchange determines to apply an alternative closing settlement value as a result of extraordinary circumstances.12 11 The closing settlement value, whether based on the Noon Buying Rate or the WM/Reuters Closing Spot rate, will also be modified using the applicable modifier, i.e., 1, 10 or 100, that is used in calculating the respective modified exchange rate. Please note, the Federal Reserve Bank of New York is discontinuing the publication of the Noon Buying Rate on December 31, 2008. 12 The Exchange may use the WM/Reuters Closing Spot rate if the Noon Buying Rate is not available. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 In the event the Noon Buying Rate is not published for an underlying currency, the Exchange proposes to apply the WM/Reuters Closing Spot rate to determine the closing settlement value of any underlying currency.13 The WM/Reuters Closing Spot rate is determined at 16 UK time, also known as the ‘‘fix’’ time (10 a.m. Pacific Time). WM/Reuters typically publishes its closing rates 15 minutes after the fix time. The Reuters System is the primary source of spot foreign exchange rates used in the calculation of the WM/ Reuters Closing Spot rate. WM/Reuters, however, may use alternative sources such as a country’s Central Bank or rates from EBS, which is another major FX venue and market data service provider for 156 currencies, including all of the currencies underlying the products proposed by NYSE Arca under this filing. WM/Reuters has two main methods for calculating its Closing Spot rate. The methodology used depends on whether a currency is determined by WM/ Reuters to be a ‘‘trade currency’’ or a ‘‘non-trade currency.’’ 14 WM/Reuters applies a unique methodology for each category. Closing Spot rates for ‘‘nontrade currencies’’ are determined primarily by using data from Reuters. This methodology involves taking snapshots of quoted bids and offers for each currency at 15-second intervals over a two-minute period. The median is then calculated independently for each currency’s bid and offer. The midpoint of that median bid and offer becomes the final value. Closing Spot rates for ‘‘trade currencies’’ are determined primarily by using data from both Reuters and EBS. The Exchange notes that the Commission has recently approved listing standards for securities issued by a trust that represent investors’ discrete identifiable and undivided beneficial ownership interests in non-U.S. currency deposited into a trust that utilizes the Noon Buying Rate for the calculation of the Net Asset Value of the trust. See Securities Exchange Act Release No. 52843 (November 28, 2005), 70 FR 72486 (December 5, 2005) (order granting accelerated approval of SR– NYSE–2005–65). 13 The Federal Reserve Bank of New York currently does not publish a Noon Buying Rate for the Czech koruna, the Hungarian forint, the Israeli shekel, the Korean won, the Polish zloty and the Russian ruble. As a result, the Exchange proposes to use the WM/Reuters Closing Spot rate for these 6 currencies to determine their closing settlement value. 14 The Australian dollar, British pound, Canadian dollar, Czech koruna, Danish krone, euro, Japanese yen, New Zealand dollar, Norwegian krone, Singapore dollar, South African rand, Swedish krona, and Swiss franc are all considered by WM/ Reuters to be ‘‘trade currencies,’’ while all others are considered ‘‘non-trade currencies.’’ The instant filing proposes to trade FCOs on all the ‘‘trade currencies’’ except the Danish krone and the Singapore dollar. E:\FR\FM\24OCN1.SGM 24OCN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Notices This methodology involves taking snapshots of actual traded rates every second for a period of 30 seconds before the fix to 30 seconds after the fix. Trades are identified as a bid or offer and a spread is applied to calculate the opposite bid or offer. The spread applied is determined by the spread between buy and sell orders captured at the same time. The median is then independently calculated for each currency’s bid and offer, resulting in a midpoint trade rate. The midpoint of that median bid and offer becomes the final value. Proposed NYSE Arca Rule 5.81 additionally disclaims the Exchange’s (and that of any agent of the Exchange’s) liability and that of the Reporting Authority due to force majeure. The Exchange is also proposing to amend its Rule 4.16 regarding margin requirements by adopting a rule for FCOs that is substantially similar to the ISE’s margin rules for foreign currency options. Accordingly, under proposed NYSE ARCA Rule 4.16(d), cash-settled FCOs will have the same customer margin requirements as are provided in ISE Rule 1202(d), ‘‘Margin Requirements’’. In addition, the Exchange proposes to modify Rule 6.72 to permit FCOs to quote and trade in one cent increments. Chapter 9 of the Exchange’s rules is designed to protect public customer trading and shall apply to trading in FCOs. Specifically, NYSE Arca Rules 9.18(a) and (b) prohibit OTP Firms and OTP Holders from accepting a customer order to purchase or write an option, including on a cash-settled FCO, unless such customer’s account has been approved in writing by a designated Registered Options Principal. Additionally, NYSE Arca’s Rule 9.18(c) regarding suitability is designed to ensure that options, including cashsettled FCOs, are only sold to customers capable of evaluating and bearing the risks associated with trading in this instrument. Further, NYSE Arca Rule 9.18(e) permits OTP Firms or OTP Holders to exercise discretionary power with respect to trading options, including trading cash-settled FCOs, in a customer’s account only if the OTP Firm or OTP Holder has received prior written authorization from the customer and the account had been accepted in writing by a designated Registered Options Principal. NYSE Arca Rule 9.18(e) also requires designated Registered Options Principals or Representatives of an OTP Firm or OTP Holder to approve and initial each discretionary order, including discretionary orders for cash-settled FCOs, on the day the discretionary order VerDate Aug<31>2005 16:48 Oct 23, 2008 Jkt 217001 is entered. Finally, NYSE Arca Rule 9.18(d), Supervision of Accounts, Rule 9.18(f), Confirmation, and Rule 9.18(g), Delivery of Current Options Disclosure Documents and Prospectus, will also apply to trading in FCOs. As previously noted, the Exchange represents that it has an adequate surveillance program in place for FCOs, and intends to apply the same program procedures that it applies to the Exchange’s index options. The Exchange is also a member of the Intermarket Surveillance Group (‘‘ISG’’), and may obtain trading information via the ISG from other exchanges who are members or affiliates of the ISG. The members of the ISG include all of the U.S. registered stock and options markets. The ISG members work together to coordinate surveillance and investigative information sharing in the stock and options markets. In addition, the major futures exchanges are affiliated members of the ISG, which allows for the sharing of surveillance information for potential intermarket trading abuses. Specifically, NYSE Arca can obtain such information from the Chicago Mercantile Exchange (‘‘CME’’) in connection with futures trading on that exchange.15 Finally, the Exchange represents that it has the necessary systems capacity to support new options series that will result from the introduction of cashsettled FCOs. 2. Statutory Basis The proposed rule change is consistent with and furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 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. 15 CME PO 00000 is an affiliate member of ISG. Frm 00115 Fmt 4703 Sfmt 4703 63539 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 16 and Rule 19b–4(f)(6) thereunder.17 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act normally does not become operative for 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 delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes that it has approved substantially similar rules for the listing and trading of FCOs on the ISE and NYSE Arca’s proposal raises no new regulatory issues.20 Accordingly, the Commission designates that the proposed rule change become operative immediately.21 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 16 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) under the Act requires that a selfregulatory 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 satisfied this notice requirement. 18 17 CFR 240.19b–4(f)(6)(iii). 19 Id. 20 See supra note 5. 21 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). 17 17 E:\FR\FM\24OCN1.SGM 24OCN1 63540 Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Notices 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 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Florence E. Harmon, Acting Secretary. [FR Doc. E8–25373 Filed 10–23–08; 8:45 am] DEPARTMENT OF STATE SUPPLEMENTARY INFORMATION: [Public Notice 6415] Federal Aviation Administration (FAA) Rescission of Determination Regarding North Korea Title: Part 65, Certification: Airmen other than flight Crewmembers, Subpart C, Aircraft Dispatchers and App. A Aircraft Dispatcher Courses. Type of Request: Extension without change of an approved collection. OMB Control Number: 2120–0648. Form(s): There are no FAA forms associated with this collection. Affected Public: A total of 36 Respondents. Frequency: The information is collected on occasion. Estimated Average Burden Per Response: Approximately 57 hours per response. Estimated Annual Burden Hours: An estimated 4,679 hours annually. Abstract: The respondents to this information collection are FAR Part 135 and Part 121 operators. The FAA will use the information to ensure compliance and adherence to the regulations. Send comments to the FAA at the following address: Ms. Carla Mauney, Room 712, Federal Aviation Administration, IT Enterprises Business Services Division, AES–200, 800 Independence Ave., SW., Washington, DC 20591. Comments are invited on: Whether the proposed collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; the accuracy of the Department’s estimates of the burden of the proposed information collection; ways to enhance the quality, utility and clarity of the information to be collected; and ways to minimize the burden of the collection of information on respondents, including the use of automated collection techniques or other forms of information technology. In accordance with section 6(j) of the Export Administration Act of 1979 (50 U.S.C. App. 2405(j)), and as continued • Send paper comments in triplicate in effect by Executive Order 13222 of to Secretary, Securities and Exchange August 17, 2001, I hereby rescind the Commission, 100 F Street, NE., Determination of January 20, 1988, Washington, DC 20549–1090. regarding North Korea. This action is All submissions should refer to File based upon the considerations Number SR SR–NYSEArca–2008–109. contained in the memorandum This file number should be included on accompanying the Presidential Report of the subject line if e-mail is used. To help June 26, 2008, regarding North Korea. the Commission process and review This rescission shall also satisfy the your comments more efficiently, please provisions of section 620A(c) of the use only one method. The Commission Foreign Assistance Act of 1961, Public will post all comments on the Law 87–195, as amended (22 U.S.C. 2371(c)), and section 40(f) of the Arms Commission’s Internet Web site (http:// www.sec.gov/rules/sro.shtml). Copies of Export Control Act, Public Law 90–629, as amended (22 U.S.C. 2780(f)). the submission, all subsequent amendments, all written statements Dated: October 11, 2008. with respect to the proposed rule Condoleezza Rice, change that are filed with the Secretary of State, Department of State. Commission, and all written [FR Doc. E8–25412 Filed 10–23–08; 8:45 am] communications relating to the BILLING CODE 4710–30–P proposed rule change between the Commission and any person, other than those that may be withheld from the DEPARTMENT OF TRANSPORTATION public in accordance with the provisions of 5 U.S.C. 552, will be Federal Aviation Administration available for inspection and copying in Notice of Intent To Request Revision the Commission’s Public Reference From the Office of Management and Room, 100 F Street, NE., Washington, Budget of a Currently Approved DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Information Collection Activity, Copies of the filing also will be available Request for Comments; Part 65, Certification: Airmen Other Than Flight for inspection and copying at the Crewmembers, Subpart C, Aircraft principal office of the self-regulatory Dispatchers and App. A Aircraft organization. All comments received Dispatcher Courses will be posted without change; the jlentini on PROD1PC65 with NOTICES Paper Comments 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– NYSEArca–2008–109 and should be submitted on or before November 14, 2008. Federal Aviation Administration (FAA), DOT. ACTION: Notice and request for comments. AGENCY: SUMMARY: The FAA invites public comments about our intention to request the Office of Management and Budget (OMB) to approve a current information collection. The respondents to this information collection are FAR Part 135 and Part 121 operators. The FAA will 22 17 VerDate Aug<31>2005 16:48 Oct 23, 2008 Jkt 217001 Please submit comments by December 23, 2008. DATES: FOR FURTHER INFORMATION CONTACT: Carla Mauney on (202) 267–9895, or by e-mail at: Carla.Mauney@faa.gov. BILLING CODE 8011–01–P • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2008–109 on the subject line. use the information to ensure compliance and adherence to the regulations. PO 00000 CFR 200.30–3(a)(12). Frm 00116 Fmt 4703 Sfmt 4703 Issued in Washington, DC, on October 10, 2008. Carla Mauney, FAA Information Collection Clearance Officer, IT Enterprises Business Services Division, AES–200. [FR Doc. E8–25043 Filed 10–23–08; 8:45 am] BILLING CODE 4910–13–M E:\FR\FM\24OCN1.SGM 24OCN1

Agencies

[Federal Register Volume 73, Number 207 (Friday, October 24, 2008)]
[Notices]
[Pages 63536-63540]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-25373]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58800; File No. SR-NYSEArca-2008-109]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Adopt Rules 
To Permit the Trading of Rate-Modified Foreign Currency Options

October 16, 2008.
    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 October 10, 2008, NYSE Arca, Inc. (``NYSE Arca'' or the 
``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 prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt rules to permit the trading of Rate-
Modified Foreign Currency Options (``FCOs''). The text of the proposed 
rule change is available at NYSE Arca, the Commission's Public 
Reference Room, and www.nyse.com.

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 self-regulatory organization 
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 those 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 parts 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 the proposed rule change is to adopt rules enabling 
the Exchange to list and trade FCOs. The Exchange proposes to adopt 
rules for the listing and trading of cash-settled FCOs on the following 
currencies: the euro, the British pound, the Australian dollar, the New 
Zealand dollar, the Japanese yen, the Canadian dollar, the Swiss franc, 
the Chinese renminbi, the Mexican peso, the Swedish krona, the Russian 
ruble, the South African rand, the Brazilian real, the Israeli shekel, 
the Norwegian krone, the Polish zloty, the Hungarian forint, the Czech 
koruna, and the Korean won (individually, a ``currency'' and 
collectively, the ``Currencies'').\3\
---------------------------------------------------------------------------

    \3\ Except as noted herein, FCO's would, in all other respects, 
be traded pursuant to the Exchange's existing trading rules and 
procedures and be covered under the Exchange's existing surveillance 
program.
---------------------------------------------------------------------------

    The Exchange notes that the Philadelphia Stock Exchange (``PHLX'') 
currently has rules that permit the listing and trading of both 
physically-settled FCOs and U.S. Dollar-settled FCOs on a number of 
foreign currencies.\4\ FCOs listed and traded by the Exchange pursuant 
to this proposed rule change will not be fungible with

[[Page 63537]]

those listed and traded by PHLX. The Exchange also notes that the 
International Securities Exchange has rules that permit the listing and 
trading of both physically-settled FCOs and U.S. Dollar-settled FCOs on 
a number of foreign currencies.\5\ The Exchange intends, however, to 
license the contract terms governing FCOs from the International 
Securities Exchange (``ISE''), and any FCOs listed and traded on the 
Exchange would be fungible with those listed and traded on ISE.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act release No. 54989 (December 21, 
2006), 71 FR 78506 (December 29, 2006) (SR-PHLX-2006-34). See also 
PHLX rules 1000-1093.
    \5\ See Securities Exchange Act Release No, 34-55575 (April 3, 
2007), 72 FR 17963 (April 10, 2007) (SR-ISE-2006-59). See also ISE 
rules 2200-2213.
---------------------------------------------------------------------------

    The Exchange proposes to list and trade cash-settled FCOs using the 
Reuters Composite Currency Rate,\6\ an industry benchmark, and modify 
that rate to create an underlying value that represents the prevailing 
rate of a currency pair in an index-like format. NYSE Arca proposes to 
use modifiers of 1, 10, or 100 depending on the exchange rate level of 
the underlying foreign currency. For example, if one U.S. Dollar buys 
.84177 euros, a modifier of 100 would be used so that the modified 
exchange rate would become 84.18.\7\ Modified exchange rates are 
rounded to two decimal places (i.e., to the nearest one one-hundredth). 
Modified exchange rates are rounded up if they end in values greater 
than or equal to five one-thousandths, and rounded down if less than 
five one-thousandths. In the example above, if one U.S. Dollar buys 
.84174 euros, the modified exchange rate, using the same 100 modifier, 
would become 84.17. The Reuters data is based on an amalgamation of 
midpoint dealer quotes on its foreign exchange dealing system.
---------------------------------------------------------------------------

    \6\ The Exchange notes that there are many major trading 
platforms for spot market currencies including single bank portals 
(Deutsche Bank, Citigroup, UBS, Barclays, etc.), multi-bank portals 
(FXall, Currenex, FXConnect, etc.) broker-neutral portals (Reuters 
Dealing and EBS), portal aggregators (Bloomberg. LavaFX, FlexTrade), 
as well as many online broker portals. Additionally, several major 
NYSE Arca members, including OptionsXpress and Interactive Brokers, 
provide access to Chicago Mercantile Exchange futures products. NYSE 
Arca therefore believes that sufficient market access is available 
to both institutionals as well as retail investors. Foreign exchange 
prices are also widely available via public Web sites, broker Web 
sites, as well as in print publications. Additionally, Web sites 
such as Bloomberg.com, Reuters.com, Yahoo! Finance, CNBC.com, 
OANDA.com, Nasdaq.com, and many others provide free currency data. 
Investors Business Daily, Wall Street Journal, and the New York 
Times also provide currency data as part of their daily coverage. 
Futhermore, the ISE presently disseminates real-time underlying data 
on OPRA for all the currency rates NYSE Arca intends to list options 
on.
    \7\ Modifiers used for creating underlying values will be 
modeled on the modifiers developed by the ISE and will be posted on 
the Exchange's web site no later than the first day on which FCOs 
begin trading on the Exchange. Once a modifier has been assigned to 
a currency pair by the ISE, it can only be changed upon a filing of 
a proposed rule change by the ISE with the Securities and Exchange 
Commission (``Commission''). If the Exchange determines that it will 
no longer adopt modifiers assigned by the ISE, the Exchange will be 
required to submit a proposed rule change to the Commission in order 
to amend a modifier.
---------------------------------------------------------------------------

    Under the proposed rule change, FCOs listed by the Exchange will be 
cleared by The Options Clearing Corporation (``OCC''), and will enable 
holders of options contracts to receive U.S. Dollars representing the 
difference between the modified exchange rate \8\ and the exercise 
price of the option. Specifically, upon exercise of an in-the-money 
cash-settled FCO call option, the holder will receive, from OCC, U.S. 
Dollars representing the difference between the exercise strike price 
and the closing settlement value of the cash-settled FCO contract 
multiplied by 100. Upon exercise of an in-the-money cash-settled FCO 
put option, the holder will receive, from OCC, U.S. Dollars 
representing the excess of the exercise price over the closing 
settlement value of the cash-settled FCO contract multiplied by 100. 
Additionally, cash-settled FCOs that are in-the-money by any amount on 
expiration date will be exercised automatically by OCC, while cash-
settled FCOs that are out-of-the-money on expiration date will expire 
worthless.
---------------------------------------------------------------------------

    \8\ A ``modified exchange rate'' is defined in proposed NYSE 
Arca Rule 5.71(6).
---------------------------------------------------------------------------

    The Exchange hereby proposes to adopt new rules and amend certain 
existing rules in order to list and trade FCOs. The Exchange shall use 
the same contract specifications used by the ISE, as noted in Exhibit 3 
to this filing.\9\ The Exchange's proposed NYSE Arca Rule 5.71, 
Definitions, defines terms applicable to FCOs. Proposed NYSE Arca Rule 
5.72, Criteria for Foreign Currency Options, states that the Currencies 
may be approved for trading on the Exchange and sets forth the cross 
rate FCOs that may be traded on the Exchange. Proposed NYSE Arca Rule 
5.72 also states that if any of the sovereign governments or the 
European Economic Community's European Monetary System issuing one of 
the Currencies replaces it with a new currency, that new currency, 
subject to filing a proposed rule change with the Commission, shall 
also be approved for listing and trading under these proposed rules. 
Proposed NYSE Arca Rule 5.73, Foreign Currency Options Contracts To Be 
Traded, states that the Exchange may open for trading put options and 
call options on the Currencies and that only options contracts of a 
series of options approved by the Exchange and currently open for 
trading may be traded on the Exchange. Proposed NYSE Arca Rule 5.74, 
Withdrawal of Approval of Foreign Currency Options, states that, in the 
interest of a fair and orderly market and for the protection of 
investors, the Exchange may withdraw approval of the trading of a 
foreign currency option. For example, in the case of the European 
Economic Community's European Monetary System, the Exchange will 
withdraw approval of the trading of a foreign currency option if such 
currency is eligible to and does in fact merge with the euro.
---------------------------------------------------------------------------

    \9\ See note 5, supra.
---------------------------------------------------------------------------

    Proposed NYSE Arca Rule 5.75, Series of Foreign Currency Options 
Opened for Trading, states that after a class of options contracts on 
any of the Currencies has been approved for listing and trading, the 
Exchange may open for trading series of FCOs that expire in consecutive 
monthly intervals, in three or ``cycle'' month intervals, or that have 
up to 36 months to expiration.\10\ Under this proposed rule change, the 
Exchange may list cash-settled FCOs with expirations that are the same 
as the expirations permitted for index options pursuant to NYSE Arca 
Rules 5.10 and 5.19, except that cash-settled FCOs shall have 
expirations up to 36 months only. Though no long-term series will be 
listed initially, this proposal would allow the Exchange to list long-
term series, i.e., up to 36 months. The expiration date for the 
consecutive and cycle month options will be 8:59 p.m. Pacific time on 
the Saturday immediately following the third Friday of the expiration 
month. Under Proposed NYSE Arca Rule 5.75, as the modified exchange 
rate moves, the Exchange may list additional series of FCOs in order to 
maintain sufficient numbers of in-the-money and out-of-the-money 
series. Further, the strike price of each series of FCOs opened for 
trading by the Exchange shall be reasonably close to the modified 
exchange rate.
---------------------------------------------------------------------------

    \10\ The Exchange notes that consecutive month and cycle month 
expirations of a given series will never overlap.
---------------------------------------------------------------------------

    Proposed NYSE Arca Rule 5.76, Terms of Foreign Currency Options 
Contracts, states that, among other things, all FCOs shall be quoted in 
U.S. Dollars, shall be European-style, and that the interval between 
strike prices of series of FCOs shall be no less than $0.10.
    Proposed NYSE Arca Rule 5.77, Position Limits for Foreign Currency 
Options, sets the position limit for FCOs, on the same side of the 
market, as follows: 1,200,000 contracts for the

[[Page 63538]]

euro; 600,000 contracts for the Australian dollar, the New Zealand 
dollar, the British pound, the Canadian dollar, the Japanese yen, and 
the Swiss franc; 300,000 contracts for the Brazilian real, the Chinese 
renminbi, the Czech koruna, the Hungarian forint, the Israeli shekel, 
the Korean won, the Mexican peso, the Norwegian krone, the Swedish 
krona, the Polish zloty, the Russian ruble and the South African rand. 
For the purpose of determining which positions are on the same side of 
the market, under proposed NYSE Arca Rule 5.77, long call positions are 
to be aggregated with short put positions and short call positions are 
to be aggregated with long put positions. Position limits for each of 
the proposed cross-rate FCOs are specified in proposed NYSE Arca Rule 
5.77.
    Proposed NYSE Arca Rule 5.78, Exercise Limits for Foreign Currency 
Options, generally states that exercise limits for FCOs and cross rate 
FCOs shall be equivalent to the position limits prescribed to that FCO. 
Thus, the exercise limit for FCOs over any five consecutive business 
days shall be as follows: 1,200,000 contracts for the euro; 600,000 
contracts for the Australian dollar, the New Zealand dollar, the 
British pound, the Canadian dollar, the Japanese yen, and the Swiss 
franc; 300,000 contracts for the Brazilian real, the Chinese renminbi, 
the Czech koruna, the Swedish krona, the Hungarian forint, the Israeli 
shekel, the Korean won, the Mexican peso, the Norwegian krone, the 
Polish zloty, the Russian ruble and the South African rand. The 
exercise limits for cross rate FCOs are set forth in Rule 5.78. Under 
Proposed NYSE Arca Rule 5.78(a)(3), the Exchange may from time to time, 
subject to Commission approval, establish exercise limits that are 
different from the position limits established for FCOs on a Currency 
or across all Currencies. Position limits for each of the proposed 
cross-rate FCOs are specified in proposed NYSE Arca Rule 5.77.
    Proposed NYSE Arca Rule 5.79, Trading Sessions, provides that 
transactions in FCOs may be effected on the Exchange between the hours 
of 6:30 a.m. and 1:15 p.m. Pacific Time, except that on the last 
trading day of the week during which a FCO is set to expire, trading 
shall cease at 9 a.m. Pacific Time. Trading in cash-settled FCOs will 
follow the holiday schedule of the U.S. equity markets. If Friday is an 
Exchange holiday, the settlement value for cash-settled FCOs will be 
determined on the preceding trading day, which will also be the last 
trading day for the expiring option. The Exchange's Proposed Rules 
5.79(b) and (c) make certain adjustments to current processes because 
FCO openings, unlike openings of equity and index options, do not 
depend on the opening of trading of the underlying market, because the 
currency market does not have specified trading hours. Accordingly, the 
opening auction for FCOs shall be held at or as soon as practicable 
after the Exchange's market opens, unless a Trading Official determines 
to delay the opening auction in the interest of maintaining a fair and 
orderly market.
    Proposed NYSE Arca Rule 5.79 lists some of the factors a Trading 
Official may consider in delaying the opening auction. Additionally, in 
the interest of a fair and orderly market, an Exchange official may, 
under certain circumstances, halt or suspend trading in a FCO until 
such time that the circumstances that led to the halt or suspension no 
longer exist. The proposed rule also provides that the Exchange shall 
delay opening or halt trading if the ISE is unable to disseminate the 
current modified exchange rate information at least every 15 seconds to 
OPRA.
    Proposed NYSE Arca Rule 5.80, Reporting of Foreign Currency Options 
Position, requires each OTP Holder of the Exchange to file a report 
with respect to all accounts that have an aggregate position of 12,500 
or more FCO contracts on the same side of the market in any underlying 
foreign currency. Under this proposed rule, OTP Holders shall be 
required to file all such reports within one business day following the 
day that the reportable transactions occur.
    Proposed NYSE Arca Rule 5.81, Foreign Currency Options Closing 
Settlement Value, states that the closing settlement value, which shall 
be posted by the Exchange on its Web site, shall be the Noon Buying 
Rate, as determined by the Federal Reserve Bank of New York, on the 
last trading day during expiration week.\11\ If the Noon Buying Rate is 
not announced by 2 p.m. Pacific Time, the closing settlement value will 
be the most recently announced Noon Buying Rate, unless the Exchange 
determines to apply an alternative closing settlement value as a result 
of extraordinary circumstances.\12\
---------------------------------------------------------------------------

    \11\ The closing settlement value, whether based on the Noon 
Buying Rate or the WM/Reuters Closing Spot rate, will also be 
modified using the applicable modifier, i.e., 1, 10 or 100, that is 
used in calculating the respective modified exchange rate. Please 
note, the Federal Reserve Bank of New York is discontinuing the 
publication of the Noon Buying Rate on December 31, 2008.
    \12\ The Exchange may use the WM/Reuters Closing Spot rate if 
the Noon Buying Rate is not available. The Exchange notes that the 
Commission has recently approved listing standards for securities 
issued by a trust that represent investors' discrete identifiable 
and undivided beneficial ownership interests in non-U.S. currency 
deposited into a trust that utilizes the Noon Buying Rate for the 
calculation of the Net Asset Value of the trust. See Securities 
Exchange Act Release No. 52843 (November 28, 2005), 70 FR 72486 
(December 5, 2005) (order granting accelerated approval of SR-NYSE-
2005-65).
---------------------------------------------------------------------------

    In the event the Noon Buying Rate is not published for an 
underlying currency, the Exchange proposes to apply the WM/Reuters 
Closing Spot rate to determine the closing settlement value of any 
underlying currency.\13\ The WM/Reuters Closing Spot rate is determined 
at 16 UK time, also known as the ``fix'' time (10 a.m. Pacific Time). 
WM/Reuters typically publishes its closing rates 15 minutes after the 
fix time. The Reuters System is the primary source of spot foreign 
exchange rates used in the calculation of the WM/Reuters Closing Spot 
rate. WM/Reuters, however, may use alternative sources such as a 
country's Central Bank or rates from EBS, which is another major FX 
venue and market data service provider for 156 currencies, including 
all of the currencies underlying the products proposed by NYSE Arca 
under this filing.
---------------------------------------------------------------------------

    \13\ The Federal Reserve Bank of New York currently does not 
publish a Noon Buying Rate for the Czech koruna, the Hungarian 
forint, the Israeli shekel, the Korean won, the Polish zloty and the 
Russian ruble. As a result, the Exchange proposes to use the WM/
Reuters Closing Spot rate for these 6 currencies to determine their 
closing settlement value.
---------------------------------------------------------------------------

    WM/Reuters has two main methods for calculating its Closing Spot 
rate. The methodology used depends on whether a currency is determined 
by WM/Reuters to be a ``trade currency'' or a ``non-trade currency.'' 
\14\ WM/Reuters applies a unique methodology for each category. Closing 
Spot rates for ``non-trade currencies'' are determined primarily by 
using data from Reuters. This methodology involves taking snapshots of 
quoted bids and offers for each currency at 15-second intervals over a 
two-minute period. The median is then calculated independently for each 
currency's bid and offer. The midpoint of that median bid and offer 
becomes the final value.
---------------------------------------------------------------------------

    \14\ The Australian dollar, British pound, Canadian dollar, 
Czech koruna, Danish krone, euro, Japanese yen, New Zealand dollar, 
Norwegian krone, Singapore dollar, South African rand, Swedish 
krona, and Swiss franc are all considered by WM/Reuters to be 
``trade currencies,'' while all others are considered ``non-trade 
currencies.'' The instant filing proposes to trade FCOs on all the 
``trade currencies'' except the Danish krone and the Singapore 
dollar.
---------------------------------------------------------------------------

    Closing Spot rates for ``trade currencies'' are determined 
primarily by using data from both Reuters and EBS.

[[Page 63539]]

This methodology involves taking snapshots of actual traded rates every 
second for a period of 30 seconds before the fix to 30 seconds after 
the fix. Trades are identified as a bid or offer and a spread is 
applied to calculate the opposite bid or offer. The spread applied is 
determined by the spread between buy and sell orders captured at the 
same time. The median is then independently calculated for each 
currency's bid and offer, resulting in a midpoint trade rate. The 
midpoint of that median bid and offer becomes the final value. Proposed 
NYSE Arca Rule 5.81 additionally disclaims the Exchange's (and that of 
any agent of the Exchange's) liability and that of the Reporting 
Authority due to force majeure.
    The Exchange is also proposing to amend its Rule 4.16 regarding 
margin requirements by adopting a rule for FCOs that is substantially 
similar to the ISE's margin rules for foreign currency options. 
Accordingly, under proposed NYSE ARCA Rule 4.16(d), cash-settled FCOs 
will have the same customer margin requirements as are provided in ISE 
Rule 1202(d), ``Margin Requirements''.
    In addition, the Exchange proposes to modify Rule 6.72 to permit 
FCOs to quote and trade in one cent increments.
    Chapter 9 of the Exchange's rules is designed to protect public 
customer trading and shall apply to trading in FCOs. Specifically, NYSE 
Arca Rules 9.18(a) and (b) prohibit OTP Firms and OTP Holders from 
accepting a customer order to purchase or write an option, including on 
a cash-settled FCO, unless such customer's account has been approved in 
writing by a designated Registered Options Principal. Additionally, 
NYSE Arca's Rule 9.18(c) regarding suitability is designed to ensure 
that options, including cash-settled FCOs, are only sold to customers 
capable of evaluating and bearing the risks associated with trading in 
this instrument. Further, NYSE Arca Rule 9.18(e) permits OTP Firms or 
OTP Holders to exercise discretionary power with respect to trading 
options, including trading cash-settled FCOs, in a customer's account 
only if the OTP Firm or OTP Holder has received prior written 
authorization from the customer and the account had been accepted in 
writing by a designated Registered Options Principal. NYSE Arca Rule 
9.18(e) also requires designated Registered Options Principals or 
Representatives of an OTP Firm or OTP Holder to approve and initial 
each discretionary order, including discretionary orders for cash-
settled FCOs, on the day the discretionary order is entered. Finally, 
NYSE Arca Rule 9.18(d), Supervision of Accounts, Rule 9.18(f), 
Confirmation, and Rule 9.18(g), Delivery of Current Options Disclosure 
Documents and Prospectus, will also apply to trading in FCOs.
    As previously noted, the Exchange represents that it has an 
adequate surveillance program in place for FCOs, and intends to apply 
the same program procedures that it applies to the Exchange's index 
options. The Exchange is also a member of the Intermarket Surveillance 
Group (``ISG''), and may obtain trading information via the ISG from 
other exchanges who are members or affiliates of the ISG. The members 
of the ISG include all of the U.S. registered stock and options 
markets. The ISG members work together to coordinate surveillance and 
investigative information sharing in the stock and options markets. In 
addition, the major futures exchanges are affiliated members of the 
ISG, which allows for the sharing of surveillance information for 
potential intermarket trading abuses. Specifically, NYSE Arca can 
obtain such information from the Chicago Mercantile Exchange (``CME'') 
in connection with futures trading on that exchange.\15\
---------------------------------------------------------------------------

    \15\ CME is an affiliate member of ISG.
---------------------------------------------------------------------------

    Finally, the Exchange represents that it has the necessary systems 
capacity to support new options series that will result from the 
introduction of cash-settled FCOs.
2. Statutory Basis
    The proposed rule change is consistent with and furthers the 
objectives of Section 6(b)(5) of the Act, in that it is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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: (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 after the date of this filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
under the Act 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 satisfied this notice requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 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 delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission notes that it has approved substantially similar rules 
for the listing and trading of FCOs on the ISE and NYSE Arca's proposal 
raises no new regulatory issues.\20\ Accordingly, the Commission 
designates that the proposed rule change become operative 
immediately.\21\
---------------------------------------------------------------------------

    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ Id.
    \20\ See supra note 5.
    \21\ 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).
---------------------------------------------------------------------------

    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

[[Page 63540]]

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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2008-109 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR SR-NYSEArca-2008-109. 
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 (http://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 a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-
NYSEArca-2008-109 and should be submitted on or before November 14, 
2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-25373 Filed 10-23-08; 8:45 am]
BILLING CODE 8011-01-P