Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to Trading Options on a Reduced Value of the DAX Index, Including Long-Term Options, 51134-51138 [2010-20406]

Download as PDF 51134 Federal Register / Vol. 75, No. 159 / Wednesday, August 18, 2010 / Notices of the Act 5 and subparagraph (f)(2) of Rule 19b–46 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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: sroberts on DSKD5P82C1PROD with NOTICES 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–CBOE–2010–073 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington DC 20549–1090. All submissions should refer to File Number SR–CBOE–2010–073. 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 Web site viewing and printing 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 such 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 No. SR–CBOE– 2010–073 and should be submitted on or before September 8, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–20407 Filed 8–17–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62703; File No. SR–ISE– 2010–81] 6 17 VerDate Mar<15>2010 18:40 Aug 17, 2010 Jkt 220001 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 these statements may be examined at the places specified in Item IV below. The self-regulatory organization 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 August 12, 2010. The Exchange proposes to amend its Rules 2001, 2004 and 2009 to provide for the listing and trading of options on the Mini DAX, which represents 1/10th of the full value of the DAX Index. In addition to options on the Mini DAX, the Exchange may list long-term options on the Mini DAX (the ‘‘Mini DAX LEAPS’’).3 Options on the Mini DAX will A.M. cash-settled and will have European-style exercise provisions. The DAX Index is an internationally recognized, capitalization-weighted index based on the prices of the 30 most highly capitalized German stocks admitted to the Prime Standard Segment ¨ of the FWB Frankfurter Wertpapierborse (Frankfurt Stock Exchange) and traded on the Xetra trading system operated by ¨ Deutsche Borse AG (‘‘DBAG’’). DBAG is regulated by the German Federal Financial Supervisory Authority (‘‘BaFin’’). DBAG’s Xetra trading system is a fully electronic order book trading service. Xetra is the central price formation and trading service for the securities comprising the DAX Index. DBAG and the SIX Swiss Exchange jointly operate a fully electronic derivatives exchange called Eurex. Eurex lists futures and options on, among other things, equities, equity indexes, interest rates, and commodities. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 3, 2010, the International Securities Exchange, Inc. (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change, replacing the original filing in its entirety, as described in Items I and II, which items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to amend its rules to trade options on a reduced value DAX Index (‘‘Mini DAX’’). The Mini DAX represents 1/10th of the full value of the DAX Index. The Exchange also proposes to list and trade long-term options on the Mini DAX. Options on the Mini DAX will be A.M. cash-settled and will have European-style exercise provisions. The text of the proposed rule change is available on the Exchange’s Web site at https:// www.ise.com, on the Commission’s Web site at https://www.sec.gov, at the PO 00000 Frm 00152 Fmt 4703 (a) Purpose 3 Under ISE Rule 2009(b), ‘‘Long-Term Index Options Series,’’ the Exchange may list long-term options that expire from 12 to 60 months from the date of issuance. CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to Trading Options on a Reduced Value of the DAX Index, Including Long-Term Options 7 17 5 15 Exchange, and at the Commission’s Public Reference Room. A copy of this filing is available on the Exchange’s Web site at https://www.ise.com, at the Exchange’s principal office and at the Commission’s Public Reference Room. Sfmt 4703 E:\FR\FM\18AUN1.SGM 18AUN1 Federal Register / Vol. 75, No. 159 / Wednesday, August 18, 2010 / Notices Currently, DBAG lists equity options and futures on the components of the DAX Index and equity index options and futures on the DAX Index itself. The Exchange notes that the Commission previously provided an exemption under the Investment Company Act of 1940 for the issuance of an exchange traded fund by Northern Trust Global Investments called the NETS DAX Index Fund (‘‘DAX Fund’’) that held as its portfolio the components of the DAX Index.4 Further, in 1994, the Chicago Board Options Exchange (‘‘CBOE’’) had filed a proposed rule change to list options, including long-term options, on a reduced-value of the DAX Index.5 Index Design and Composition sroberts on DSKD5P82C1PROD with NOTICES The DAX Index was launched on July 1, 1988 by the Frankfurt Stock Exchange, Arbeitsgemeinschaft der ¨ Deutschen Wertpapierborsen (Association of German Stock ¨ Exchanges) and Borsen-Zeitung (a German stock exchange newspaper). The DAX Index is administered and maintained by DBAG 6 on the basis of Xetra prices for the component stocks and calculated in real-time once per second. The DAX Index is a capitalization-weighted index where the weight of any individual component is proportional to its respective share in the total market capitalization of all the components. To qualify for inclusion in the DAX Index, a company must, at a minimum, satisfy the following conditions: (1) It must be admitted to the Prime Standard Segment of the Frankfurt Stock Exchange; (2) it must be traded continuously on Xetra; (3) it must have a free float of at least 10%; (4) it must be headquartered in Germany, or if headquartered elsewhere in the European Union then 33% of its aggregate volume for each of the past three months must have been executed on the Frankfurt Stock Exchange; and (5) it must be sufficiently liquid to be traded.7 4 See Investment Company Act Release No. 28166 (February 25, 2008), 73 FR 10828 (February 28, 2008). 5 See Securities Exchange Act Release No. 35130 (December 20, 1994), 59 FR 66985 (December 28, 1994) (SR–CBOE–94–47) (Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to the Listing of Options and Long-Term Options on a ReducedValue of the DAX). 6 All decisions regarding the composition of and possible modifications to the DAX Index are exclusively made by the Management Board of DBAG, and are published in a press release and on https://www.deutsche-boerse.com in the evening after the Committee has concluded its meeting. 7 See ‘‘Guide to the Equity Indices of Deutsche ¨ Borse,’’ at https://www.deutsche-boerse.com for complete eligibility criteria. VerDate Mar<15>2010 18:40 Aug 17, 2010 Jkt 220001 The DAX Index consists of the 30 most highly liquid and capitalized German stocks ranked by float-adjusted market capitalization.8 The Management Board of DBAG decides whether changes are to be made to the composition of the index on an annual basis in September but also performs quarterly reviews of the components’ free float. As set forth in Exhibit 3–1, as of February 16, 2010, following are the characteristics of the DAX Index: (i) The total capitalization of all of the components in the Index is Ö641.49 billion; (ii) regarding component capitalization, (a) the highest capitalization of a component is Ö58.78 billion (Salzgitter AG), (b) the lowest capitalization of a component is Ö3.91 billion (K+S AG), (c) the mean capitalization of the components is Ö21.38 billion, and (d) the median capitalization of the components is Ö14.31 billion; (iii) regarding component price per share, (a) the highest price per share of a component is Ö109.85 (Muenchener Rueckversicherungs AG), (b) the lowest price per share of a component is Ö4.09 (Infineon Technologies AG), (c) the mean price per share of a component is Ö43.50, and (d) the median price per share of a component is Ö42.29; (iv) regarding component weightings, (a) the highest weighting of a component is 10.65% (Siemens AG), (b) the lowest weighting of a component is 0.49% (Salzgitter AG), (c) the mean weighting of the components is 3.33%, (d) the median weighting of the components is 1.70%, and (e) the total weighting of the top five highest weighted components is 43.55% (Siemens AG, E.ON AG, Bayer A, BASF SE, Allianz SE); (v) regarding component available shares, (a) the most available shares of a component is 4.36 billion (Deutsche Telekom AG), (b) the least available shares of a component is 60.01 million (Salzgitter AG), (c) the mean available shares of the components is 680.74 million, and (d) the median available shares of the components is 455.92 million; (vi) regarding the six month average daily volumes of the components, (a) the highest six month average daily volume of a component is 293.27 million (Deutsche Bank AG), (b) the lowest six month average daily volume of a component is 20.84 million (Fresenius SE) (c) the mean six month average 8 Float-adjusted market capitalization (as opposed to an unadjusted methodology) refers to the number of free-float shares available multiplied by the share price. A ‘‘free-float’’ index methodology usually excludes shares held by strategic investors by way of cross ownership, government ownership, private ownership and restricted share ownership. PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 51135 daily volume of the components is 105.21 million, (d) the median six month average daily volume of the components is 78.44 million, (e) the average of six month average daily volumes of the five most heavily traded components is 1.18 billion (Deutsche Bank AG, Siemens AG, E.ON AG, Allianz SE, Daimler AG), and (f) 100% of the components had a six month average daily volume of at least 50,000. Index Calculation and Index Maintenance The base index value of the DAX Index was 1000, as of December 31, 1987. On February 16, 2010, the index value of the DAX Index was 5592.12. The Exchange believes that this level may be too high for successful options trading because the premium for options on the full value of the DAX Index are also likely to be high, which may deter retail investors. As a result, the Exchange proposes to base trading in options on a reduced value DAX Index. Specifically, the Exchange proposes to list options on the Mini DAX that are based on one-tenth of the value of the DAX. The Exchange believes that listing options on reduced values will attract a greater source of customer business. The Exchange further believes that listing options on a reduced value will provide an opportunity for investors to hedge, or speculate on, the market risk associated with the stocks comprising the DAX Index. Additionally, by reducing the value of the DAX Index, investors will be able to use this trading vehicle while extending a smaller outlay of capital. The Exchange believes that this should attract additional investors, and, in turn, create a more active and liquid trading environment.9 Index levels for options on the Mini DAX shall be calculated by DBAG or its agent, and shall be disseminated by ISE every 15 seconds during the Exchange’s regular trading hours to market information vendors via the Options Price Reporting Authority (‘‘OPRA’’).10 The methodology used to calculate the value of the DAX Index is similar to the methodology used to calculate the value of other well-known marketcapitalization weighted indexes. The 9 The concept of listing reduced value options on an index is not a novel one. For example, the Commission has previously approved the listing of reduced value options on the S&P 500 Index [See Exchange Act Release No. 34–32893 (September 14, 1993)], the Nasdaq 100 Index [See Exchange Act Release No. 34–43000 (July 10, 2000)], and the NYSE Composite Index [See Exchange Act Release No. 34–48681 (November 3, 2003)]. 10 The Exchange shall also disseminate these values to its members. The DAX Index will be published daily through major quotation vendors, such as ThomsonReuters. E:\FR\FM\18AUN1.SGM 18AUN1 51136 Federal Register / Vol. 75, No. 159 / Wednesday, August 18, 2010 / Notices sroberts on DSKD5P82C1PROD with NOTICES level of the DAX Index reflects the floatadjusted market value of the component stocks relative to a particular base period and is computed by dividing the total market value of the companies in each index by its respective index divisor.11 The DAX Index is currently updated on a real-time basis from 9 a.m. to 5:45 p.m. (Frankfurt time), which generally corresponds to 3 a.m. to 11:45 a.m. (New York time). The Exchange, or its agent, shall disseminate Mini DAX Index values via OPRA or major market data vendors between 3 a.m. and 11:45 a.m. (New York time). After 11:45 a.m. (New York time), the Exchange, or its agent, shall disseminate a static value of the Mini DAX until the close of trading each day. The DAX Index is calculated using the last traded price of the component securities. If a component security does not open for trading, the price of that security at the close or the index on the previous day is used in the calculation.12 The DAX Index will be monitored and maintained by DBAG. DBAG will be responsible for making all necessary adjustments to the indexes to reflect component deletions, share changes, stock splits, stock dividends (other than an ordinary cash dividend), and stock price adjustments due to restructuring, mergers, or spin-offs involving the underlying components. Some corporate actions, such as stock splits and stock dividends, require simple changes to the available shares outstanding and the stock prices of the underlying components. Other corporate actions, such as share issuances, change the market value and would require changing the index divisor to effect adjustments. The DAX Index is subject to a full review and, if necessary, ordinary adjustments are made once a year in September, where all components are screened for eligibility and ranked based on liquidity and market capitalization. Quarterly reviews are also performed in March, June, September and December, where components’ free float levels are reviewed and extraordinary adjustments may be made. Specifically, any 11 A divisor is an arbitrary number chosen at the starting date of an index to fix the index starting value. The divisor is adjusted periodically when capitalization amendments are made to the constituents of the index in order to allow the index value to remain comparable over time. Without a divisor the index value would change when corporate actions took place and would not reflect the true value of an underlying portfolio based upon the index. 12 The DAX Index is published daily and is available real-time on ThomsonReuters, Bloomberg, and other market information systems which disseminate information on a real-time basis. VerDate Mar<15>2010 18:40 Aug 17, 2010 Jkt 220001 component with a weight greater than 10% will have its free float share count adjusted such that its weight will be reduced back down to 10%. Further, a component is generally replaced if its ranking among all eligible companies is lower than (worse than) 45. Similarly, an eligible candidate company is generally added if it’s ranking among all eligible stocks is higher than (better than) or equal to 25. If a component company is deleted from the DAX Index between reviews as a result of a merger, takeover or other corporate action, the highest ranking company will replace it in the index. Although the Exchange is not involved in the maintenance of the DAX Index, the Exchange represents that it will monitor the DAX Index on a quarterly basis, at which point the Exchange will notify the staff of the Division of Trading and Markets of the Commission by filing a proposed rule change pursuant to Rule 19b–4 and cease to list any additional series for trading, if, with respect to the DAX Index: (i) The number of securities in the DAX Index drops by 1/3rd or more; (ii) 10% or more of the weight of the DAX Index is represented by component securities having a market value of less than Ö50 million; (iii) 10% or more of the weight of the DAX Index is represented by component securities trading less than 20,000 shares per day; or (iv) the largest component security accounts for more than 15% of the weight of the DAX Index or the largest five components in the aggregate account for more than 50% of the weight of the DAX Index. The Exchange will also notify the staff of the Division of Trading and Markets of the Commission immediately in the event DBAG ceases to maintain and calculate the DAX Index, or in the event values of the DAX Index are not disseminated every 15 seconds by a widely available source. In the event the DAX Index ceases to be maintained or calculated, or its values are not disseminated every 15 seconds by a widely available source, the Exchange will not list any additional series for trading and will limit all transactions in such options to closing transactions only for the purpose of maintaining a fair and orderly market and protecting investors. Exercise and Settlement Value Options on the Mini DAX will expire on the Saturday following the third Friday of the expiration month. Trading in options on the Mini DAX will normally cease at 4:15 p.m. (New York time) on the Thursday preceding an expiration Saturday. The index value for PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 exercise of the Mini DAX options will be calculated by DBAG based on the Xetra intra-day auction prices for each of the component companies. That value is also used as the basis for settlement of DAX Index futures and options contracts traded on Eurex. The intra-day auction occurs between 1:00 p.m. and 1:05 p.m. (German time) on the third Friday of the expiration month, which generally corresponds to 7 a.m. to 7:05 a.m. (New York time). Therefore, because trading in the expiring contract months will normally cease on a Thursday at 4:15 p.m. (New York time), the index value for exercise will be determined the day after trading has ceased, i.e., during the Friday afternoon Xetra trading session, or generally by 7:05 a.m. (New York time). If no price is established for a component company during the Xetra intraday auction, then the next available price is used. If no price is available by the end of the Xetra trading session then the last price available is used for calculation. When the auction is finished, the index values are disseminated as the settlement values. The settlement values are widely disseminated through major market data vendors including ThomsonReuters and Bloomberg. If the Frankfurt Stock Exchange is closed on the Friday before expiration, but the ISE remains open, then the last trading day for expiring Mini DAX options will be moved earlier to Wednesday as if the ISE had had a Friday holiday. The settlement index value used for exercise will be calculated during Xetra’s intra-day auction on Thursday morning. Contract Specifications The contract specifications for options on the Mini DAX are set forth in Exhibits 3–2. The Mini DAX is a broadbased index, as defined in Exchange Rule 2001(j). Options on the Mini DAX are European-style and A.M. cashsettled. The Exchange’s standard trading hours for broad-based index options (9:30 a.m. to 4:15 p.m., New York time), as set forth in Rule 2008(a), will apply to the trading of options on the Mini DAX. Exchange rules that are applicable to the trading of options on broad-based indexes will also apply to the trading of Mini DAX options.13 Specifically, the trading of Mini DAX options will be subject to, among others, Exchange rules governing margin requirements and trading halt procedures for index options. Further, Mini DAX options shall be quoted and traded in U.S. dollars. 13 See E:\FR\FM\18AUN1.SGM ISE Rules 2000 through 2012. 18AUN1 Federal Register / Vol. 75, No. 159 / Wednesday, August 18, 2010 / Notices sroberts on DSKD5P82C1PROD with NOTICES For options on the Mini DAX, the Exchange proposes to establish aggregate position limits at 250,000 contracts on the same side of the market, provided no more than 150,000 of such contracts are in the nearest expiration month series. These limits are identical to the limits that were approved for options on the FTSE Indexes previously approved by the Commission.14 Additionally, under ISE Rule 2006, an index option hedge exemption for public customers may be available which may expand the position limit up to an additional 750,000 contracts.15 Furthermore, proprietary accounts of members may receive an exemption of up to 500,000 contracts for the purpose of facilitating public customer orders.16 The Exchange proposes to apply broad-based index margin requirements for the purchase and sale of options on the Mini DAX. Accordingly, purchases of put or call options with 9 months or less until expiration must be paid for in full. Writers of uncovered put or call options must deposit/maintain 100% of the option proceeds, plus 15% of the aggregate contract value (current index level x $100), less any out-of-the-money amount, subject to a minimum of the option proceeds plus 10% of the aggregate contract value for call options and a minimum of the option proceeds plus 10% of the aggregate exercise price amount for put options. The Exchange proposes to set minimum strike price intervals for Mini DAX options at 1 point intervals. The minimum tick size for series trading below $3 shall be $0.05, and for series trading at or above $3 shall be $0.10. The Exchange proposes to list options on the Mini DAX in the three consecutive near-term expiration months plus up to three successive expiration months in the March cycle. For example, consecutive expirations of January, February, March, plus June, September, and December expirations would be listed.17 The trading of options on the Mini DAX shall be subject to the same rules that presently govern the trading of Exchange index options, including sales practice rules, margin requirements, trading rules, and position and exercise limits. In addition, 14 See Securities Exchange Act Release No. 53484 (March 14, 2006), 71 FR 14268 (March 21, 2006) (Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change and Amendment No. 1 Thereto Relating to Trading Options on Full and Reduced Values of the FTSE 100 Index and the FTSE 250 Index, Including LongTerm Options). 15 The same limits that apply to position limits shall apply to exercise limits for these products. 16 See ISE Rule 413(c). 17 See Rule 2009(a)(3). VerDate Mar<15>2010 18:40 Aug 17, 2010 Jkt 220001 long-term option series having up to sixty months to expiration may be traded.18 The trading of long-term Mini DAX options shall also be subject to the same rules that govern the trading of all the Exchange’s index options, including sales practice rules, margin requirements, and trading rules. Chapter 6 of the Exchange’s rules is designed to protect public customer trading and shall apply to the trading of options on the Mini DAX. Specifically, ISE Rules 608(a) and (b) prohibit Members from accepting a customer order to purchase or write an option unless such customer’s account has been approved in writing by a designated Options Principal of the Member.19 Additionally, ISE’s Rule 610 regarding suitability is designed to ensure that options are only sold to customers capable of evaluating and bearing the risks associated with trading in this instrument. Further, ISE Rule 611 permits members to exercise discretionary power with respect to trading options in a customer’s account only if the Member has received prior written authorization from the customer and the account had been accepted in writing by a designated Options Principal. ISE Rule 611 also requires designated Options Principals or Representatives of a Member to approve and initial each discretionary order on the day the discretionary order is entered. Finally, ISE Rule 609, Supervision of Accounts, Rule 612, Confirmation to Customers, and Rule 616, Delivery of Current Options Disclosure Documents and Prospectus, will also apply to trading in of options on the Mini DAX. Surveillance and Capacity The Exchange represents that it has an adequate surveillance program in place for options traded on the Mini DAX. The ISE Market Surveillance Department conducts routine surveillance in approximately 30 discrete areas. Index products and their respective symbols are integrated into the Exchange’s existing surveillance system architecture and are thus subject to the relevant surveillance processes. This is true for both surveillance system processing and manual processes that support the ISE’s surveillance program. Further, both ISE and the Frankfurt Stock Exchange, operated by DBAG, are members of the Intermarket Surveillance Group (‘‘ISG’’), created 18 See Rule 2009(b)(1). The Exchange is not listing reduced value LEAPS on the Mini DAX pursuant to Rule 2009(b)(2). 19 Pursuant to ISE Rule 602, Representatives of a Member may solicit or accept customer orders for FCOs. PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 51137 under the Intermarket Surveillance Group Agreement, dated June 20, 1994. Through its membership in the ISG, ISE 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. Finally, the Exchange has the necessary systems capacity to support new options series that will result from the introduction of options on the Mini DAX, including LEAPS. (b) Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’) in general, and furthers the objectives of Section 6(b)(5) in particular in that it will permit options trading in the Mini DAX pursuant to rules designed to prevent fraudulent and manipulative acts and practices and promote just and equitable principles of trade. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the 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, E:\FR\FM\18AUN1.SGM 18AUN1 51138 Federal Register / Vol. 75, No. 159 / Wednesday, August 18, 2010 / Notices 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 No. SR–ISE–2010–81 on the subject line. Paper Comments sroberts on DSKD5P82C1PROD with NOTICES Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–ISE–2010–81. 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 Web site viewing and printing 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 such 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 No. SR–ISE–2010–81 and should be submitted on or before September 8, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–20406 Filed 8–17–10; 8:45 am] BILLING CODE 8010–01–P 20 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 18:40 Aug 17, 2010 Jkt 220001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62688; File Nos. SR–BATS– 2010–018; SR–BX–2010–044; SR–CBOE– 2010–065; SR–CHX–2010–14; SR–EDGA– 2010–05; SR–EDGX–2010–05; SR–FINRA– 2010–033; SR–ISE–2010–66; SR–NYSE– 2010–49; SR–NYSEAmex-2010–63; SR– NYSEArca-2010–61; SR–NASDAQ–2010– 079; SR–NSX–2010–08] or institute proceedings to determine whether the proposed rule change should be disapproved. The 35th day for these filings is August 11, 2010. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider these proposed rule changes, which relate to the addition of additional securities to the single-stock circuit breaker pilot program, and the comment letters that have been submitted in connection with these filings. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates August 25, 2010, as the date by which the Commission should either approve or institute proceedings to determine whether to disapprove the proposed rule changes. Self-Regulatory Organizations; BATS Exchange, Inc.; Chicago Board Options Exchange, Incorporated; Chicago Stock Exchange, Inc.; EDGA Exchange, Inc.; EDGX Exchange, Inc.; Financial Industry Regulatory Authority, Inc.; International Securities Exchange LLC; NASDAQ OMX BX, Inc.; The NASDAQ Stock Market LLC; National Stock Exchange, Inc.; New York Stock Exchange LLC; NYSE Amex LLC; NYSE Arca, Inc.; Notice of Designation of Longer Period for Commission Action on Proposed Rule Changes Relating to Trading Pauses Due to Extraordinary Market Volatility For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Florence E. Harmon, Deputy Secretary. August 11, 2010. [FR Doc. 2010–20366 Filed 8–17–10; 8:45 am] On June 30, 2010, each of BATS Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, The NASDAQ Stock Market LLC, NASDAQ OMX BX, Inc., National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc. filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’),2 and Rule 19b–4 thereunder,3 proposed rule changes to amend certain of their respective rules to add additional securities to the single-stock circuit breaker pilot program.4 Section 19(b)(2) of the Act 5 provides that, within thirty-five days of the publication of notice of the filing of a proposed rule change, or within such longer period as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, the Commission shall either approve the proposed rule change BILLING CODE 8010–01–P 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 4 The single-stock circuit breaker pilot program was initially approved on June 10, 2010. See Securities Exchange Act Release Nos. 62251 (June 10, 2010), 75 FR 34183 (June 16, 2010); 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010). 5 15 U.S.C. 78s(b)(2). 2 15 PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62695; File No. SR–EDGX– 2010–11] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rule 3.13 August 11, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on August 3, 2010, EDGX Exchange, Inc. (‘‘EDGX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend EDGX Rule 3.13 to conform it with FINRA Rule 5230 in order (i) for FINRA 6 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(31). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 7 17 E:\FR\FM\18AUN1.SGM 18AUN1

Agencies

[Federal Register Volume 75, Number 159 (Wednesday, August 18, 2010)]
[Notices]
[Pages 51134-51138]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-20406]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62703; File No. SR-ISE-2010-81]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to Trading 
Options on a Reduced Value of the DAX Index, Including Long-Term 
Options

August 12, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 3, 2010, the International Securities Exchange, Inc. 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change, 
replacing the original filing in its entirety, as described in Items I 
and II, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to amend its rules to trade options on a 
reduced value DAX Index (``Mini DAX''). The Mini DAX represents 1/10th 
of the full value of the DAX Index. The Exchange also proposes to list 
and trade long-term options on the Mini DAX. Options on the Mini DAX 
will be A.M. cash-settled and will have European-style exercise 
provisions. The text of the proposed rule change is available on the 
Exchange's Web site at https://www.ise.com, on the Commission's Web site 
at https://www.sec.gov, at the Exchange, and at the Commission's Public 
Reference Room. A copy of this filing is available on the Exchange's 
Web site at https://www.ise.com, at the Exchange's principal office and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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

(a) Purpose
    The Exchange proposes to amend its Rules 2001, 2004 and 2009 to 
provide for the listing and trading of options on the Mini DAX, which 
represents 1/10th of the full value of the DAX Index. In addition to 
options on the Mini DAX, the Exchange may list long-term options on the 
Mini DAX (the ``Mini DAX LEAPS'').\3\ Options on the Mini DAX will A.M. 
cash-settled and will have European-style exercise provisions.
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    \3\ Under ISE Rule 2009(b), ``Long-Term Index Options Series,'' 
the Exchange may list long-term options that expire from 12 to 60 
months from the date of issuance.
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    The DAX Index is an internationally recognized, capitalization-
weighted index based on the prices of the 30 most highly capitalized 
German stocks admitted to the Prime Standard Segment of the FWB 
Frankfurter Wertpapierb[ouml]rse (Frankfurt Stock Exchange) and traded 
on the Xetra trading system operated by Deutsche B[ouml]rse AG 
(``DBAG''). DBAG is regulated by the German Federal Financial 
Supervisory Authority (``BaFin''). DBAG's Xetra trading system is a 
fully electronic order book trading service. Xetra is the central price 
formation and trading service for the securities comprising the DAX 
Index. DBAG and the SIX Swiss Exchange jointly operate a fully 
electronic derivatives exchange called Eurex. Eurex lists futures and 
options on, among other things, equities, equity indexes, interest 
rates, and commodities.

[[Page 51135]]

    Currently, DBAG lists equity options and futures on the components 
of the DAX Index and equity index options and futures on the DAX Index 
itself. The Exchange notes that the Commission previously provided an 
exemption under the Investment Company Act of 1940 for the issuance of 
an exchange traded fund by Northern Trust Global Investments called the 
NETS DAX Index Fund (``DAX Fund'') that held as its portfolio the 
components of the DAX Index.\4\ Further, in 1994, the Chicago Board 
Options Exchange (``CBOE'') had filed a proposed rule change to list 
options, including long-term options, on a reduced-value of the DAX 
Index.\5\
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    \4\ See Investment Company Act Release No. 28166 (February 25, 
2008), 73 FR 10828 (February 28, 2008).
    \5\ See Securities Exchange Act Release No. 35130 (December 20, 
1994), 59 FR 66985 (December 28, 1994) (SR-CBOE-94-47) (Notice of 
Filing of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to the Listing of Options and Long-Term 
Options on a Reduced-Value of the DAX).
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Index Design and Composition
    The DAX Index was launched on July 1, 1988 by the Frankfurt Stock 
Exchange, Arbeitsgemeinschaft der Deutschen Wertpapierb[ouml]rsen 
(Association of German Stock Exchanges) and B[ouml]rsen-Zeitung (a 
German stock exchange newspaper). The DAX Index is administered and 
maintained by DBAG \6\ on the basis of Xetra prices for the component 
stocks and calculated in real-time once per second. The DAX Index is a 
capitalization-weighted index where the weight of any individual 
component is proportional to its respective share in the total market 
capitalization of all the components. To qualify for inclusion in the 
DAX Index, a company must, at a minimum, satisfy the following 
conditions: (1) It must be admitted to the Prime Standard Segment of 
the Frankfurt Stock Exchange; (2) it must be traded continuously on 
Xetra; (3) it must have a free float of at least 10%; (4) it must be 
headquartered in Germany, or if headquartered elsewhere in the European 
Union then 33% of its aggregate volume for each of the past three 
months must have been executed on the Frankfurt Stock Exchange; and (5) 
it must be sufficiently liquid to be traded.\7\
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    \6\ All decisions regarding the composition of and possible 
modifications to the DAX Index are exclusively made by the 
Management Board of DBAG, and are published in a press release and 
on https://www.deutsche-boerse.com in the evening after the Committee 
has concluded its meeting.
    \7\ See ``Guide to the Equity Indices of Deutsche B[ouml]rse,'' 
at https://www.deutsche-boerse.com for complete eligibility criteria.
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    The DAX Index consists of the 30 most highly liquid and capitalized 
German stocks ranked by float-adjusted market capitalization.\8\ The 
Management Board of DBAG decides whether changes are to be made to the 
composition of the index on an annual basis in September but also 
performs quarterly reviews of the components' free float.
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    \8\ Float-adjusted market capitalization (as opposed to an 
unadjusted methodology) refers to the number of free-float shares 
available multiplied by the share price. A ``free-float'' index 
methodology usually excludes shares held by strategic investors by 
way of cross ownership, government ownership, private ownership and 
restricted share ownership.
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    As set forth in Exhibit 3-1, as of February 16, 2010, following are 
the characteristics of the DAX Index: (i) The total capitalization of 
all of the components in the Index is [euro]641.49 billion; (ii) 
regarding component capitalization, (a) the highest capitalization of a 
component is [euro]58.78 billion (Salzgitter AG), (b) the lowest 
capitalization of a component is [euro]3.91 billion (K+S AG), (c) the 
mean capitalization of the components is [euro]21.38 billion, and (d) 
the median capitalization of the components is [euro]14.31 billion; 
(iii) regarding component price per share, (a) the highest price per 
share of a component is [euro]109.85 (Muenchener Rueckversicherungs 
AG), (b) the lowest price per share of a component is [euro]4.09 
(Infineon Technologies AG), (c) the mean price per share of a component 
is [euro]43.50, and (d) the median price per share of a component is 
[euro]42.29; (iv) regarding component weightings, (a) the highest 
weighting of a component is 10.65% (Siemens AG), (b) the lowest 
weighting of a component is 0.49% (Salzgitter AG), (c) the mean 
weighting of the components is 3.33%, (d) the median weighting of the 
components is 1.70%, and (e) the total weighting of the top five 
highest weighted components is 43.55% (Siemens AG, E.ON AG, Bayer A, 
BASF SE, Allianz SE); (v) regarding component available shares, (a) the 
most available shares of a component is 4.36 billion (Deutsche Telekom 
AG), (b) the least available shares of a component is 60.01 million 
(Salzgitter AG), (c) the mean available shares of the components is 
680.74 million, and (d) the median available shares of the components 
is 455.92 million; (vi) regarding the six month average daily volumes 
of the components, (a) the highest six month average daily volume of a 
component is 293.27 million (Deutsche Bank AG), (b) the lowest six 
month average daily volume of a component is 20.84 million (Fresenius 
SE) (c) the mean six month average daily volume of the components is 
105.21 million, (d) the median six month average daily volume of the 
components is 78.44 million, (e) the average of six month average daily 
volumes of the five most heavily traded components is 1.18 billion 
(Deutsche Bank AG, Siemens AG, E.ON AG, Allianz SE, Daimler AG), and 
(f) 100% of the components had a six month average daily volume of at 
least 50,000.
Index Calculation and Index Maintenance
    The base index value of the DAX Index was 1000, as of December 31, 
1987. On February 16, 2010, the index value of the DAX Index was 
5592.12. The Exchange believes that this level may be too high for 
successful options trading because the premium for options on the full 
value of the DAX Index are also likely to be high, which may deter 
retail investors. As a result, the Exchange proposes to base trading in 
options on a reduced value DAX Index. Specifically, the Exchange 
proposes to list options on the Mini DAX that are based on one-tenth of 
the value of the DAX. The Exchange believes that listing options on 
reduced values will attract a greater source of customer business. The 
Exchange further believes that listing options on a reduced value will 
provide an opportunity for investors to hedge, or speculate on, the 
market risk associated with the stocks comprising the DAX Index. 
Additionally, by reducing the value of the DAX Index, investors will be 
able to use this trading vehicle while extending a smaller outlay of 
capital. The Exchange believes that this should attract additional 
investors, and, in turn, create a more active and liquid trading 
environment.\9\
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    \9\ The concept of listing reduced value options on an index is 
not a novel one. For example, the Commission has previously approved 
the listing of reduced value options on the S&P 500 Index [See 
Exchange Act Release No. 34-32893 (September 14, 1993)], the Nasdaq 
100 Index [See Exchange Act Release No. 34-43000 (July 10, 2000)], 
and the NYSE Composite Index [See Exchange Act Release No. 34-48681 
(November 3, 2003)].
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    Index levels for options on the Mini DAX shall be calculated by 
DBAG or its agent, and shall be disseminated by ISE every 15 seconds 
during the Exchange's regular trading hours to market information 
vendors via the Options Price Reporting Authority (``OPRA'').\10\ The 
methodology used to calculate the value of the DAX Index is similar to 
the methodology used to calculate the value of other well-known market-
capitalization weighted indexes. The

[[Page 51136]]

level of the DAX Index reflects the float-adjusted market value of the 
component stocks relative to a particular base period and is computed 
by dividing the total market value of the companies in each index by 
its respective index divisor.\11\
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    \10\ The Exchange shall also disseminate these values to its 
members. The DAX Index will be published daily through major 
quotation vendors, such as ThomsonReuters.
    \11\ A divisor is an arbitrary number chosen at the starting 
date of an index to fix the index starting value. The divisor is 
adjusted periodically when capitalization amendments are made to the 
constituents of the index in order to allow the index value to 
remain comparable over time. Without a divisor the index value would 
change when corporate actions took place and would not reflect the 
true value of an underlying portfolio based upon the index.
---------------------------------------------------------------------------

    The DAX Index is currently updated on a real-time basis from 9 a.m. 
to 5:45 p.m. (Frankfurt time), which generally corresponds to 3 a.m. to 
11:45 a.m. (New York time). The Exchange, or its agent, shall 
disseminate Mini DAX Index values via OPRA or major market data vendors 
between 3 a.m. and 11:45 a.m. (New York time). After 11:45 a.m. (New 
York time), the Exchange, or its agent, shall disseminate a static 
value of the Mini DAX until the close of trading each day. The DAX 
Index is calculated using the last traded price of the component 
securities. If a component security does not open for trading, the 
price of that security at the close or the index on the previous day is 
used in the calculation.\12\
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    \12\ The DAX Index is published daily and is available real-time 
on ThomsonReuters, Bloomberg, and other market information systems 
which disseminate information on a real-time basis.
---------------------------------------------------------------------------

    The DAX Index will be monitored and maintained by DBAG. DBAG will 
be responsible for making all necessary adjustments to the indexes to 
reflect component deletions, share changes, stock splits, stock 
dividends (other than an ordinary cash dividend), and stock price 
adjustments due to restructuring, mergers, or spin-offs involving the 
underlying components. Some corporate actions, such as stock splits and 
stock dividends, require simple changes to the available shares 
outstanding and the stock prices of the underlying components. Other 
corporate actions, such as share issuances, change the market value and 
would require changing the index divisor to effect adjustments.
    The DAX Index is subject to a full review and, if necessary, 
ordinary adjustments are made once a year in September, where all 
components are screened for eligibility and ranked based on liquidity 
and market capitalization. Quarterly reviews are also performed in 
March, June, September and December, where components' free float 
levels are reviewed and extraordinary adjustments may be made. 
Specifically, any component with a weight greater than 10% will have 
its free float share count adjusted such that its weight will be 
reduced back down to 10%. Further, a component is generally replaced if 
its ranking among all eligible companies is lower than (worse than) 45. 
Similarly, an eligible candidate company is generally added if it's 
ranking among all eligible stocks is higher than (better than) or equal 
to 25. If a component company is deleted from the DAX Index between 
reviews as a result of a merger, takeover or other corporate action, 
the highest ranking company will replace it in the index.
    Although the Exchange is not involved in the maintenance of the DAX 
Index, the Exchange represents that it will monitor the DAX Index on a 
quarterly basis, at which point the Exchange will notify the staff of 
the Division of Trading and Markets of the Commission by filing a 
proposed rule change pursuant to Rule 19b-4 and cease to list any 
additional series for trading, if, with respect to the DAX Index: (i) 
The number of securities in the DAX Index drops by 1/3rd or more; (ii) 
10% or more of the weight of the DAX Index is represented by component 
securities having a market value of less than [euro]50 million; (iii) 
10% or more of the weight of the DAX Index is represented by component 
securities trading less than 20,000 shares per day; or (iv) the largest 
component security accounts for more than 15% of the weight of the DAX 
Index or the largest five components in the aggregate account for more 
than 50% of the weight of the DAX Index.
    The Exchange will also notify the staff of the Division of Trading 
and Markets of the Commission immediately in the event DBAG ceases to 
maintain and calculate the DAX Index, or in the event values of the DAX 
Index are not disseminated every 15 seconds by a widely available 
source. In the event the DAX Index ceases to be maintained or 
calculated, or its values are not disseminated every 15 seconds by a 
widely available source, the Exchange will not list any additional 
series for trading and will limit all transactions in such options to 
closing transactions only for the purpose of maintaining a fair and 
orderly market and protecting investors.
Exercise and Settlement Value
    Options on the Mini DAX will expire on the Saturday following the 
third Friday of the expiration month. Trading in options on the Mini 
DAX will normally cease at 4:15 p.m. (New York time) on the Thursday 
preceding an expiration Saturday. The index value for exercise of the 
Mini DAX options will be calculated by DBAG based on the Xetra intra-
day auction prices for each of the component companies. That value is 
also used as the basis for settlement of DAX Index futures and options 
contracts traded on Eurex. The intra-day auction occurs between 1:00 
p.m. and 1:05 p.m. (German time) on the third Friday of the expiration 
month, which generally corresponds to 7 a.m. to 7:05 a.m. (New York 
time). Therefore, because trading in the expiring contract months will 
normally cease on a Thursday at 4:15 p.m. (New York time), the index 
value for exercise will be determined the day after trading has ceased, 
i.e., during the Friday afternoon Xetra trading session, or generally 
by 7:05 a.m. (New York time). If no price is established for a 
component company during the Xetra intraday auction, then the next 
available price is used. If no price is available by the end of the 
Xetra trading session then the last price available is used for 
calculation. When the auction is finished, the index values are 
disseminated as the settlement values. The settlement values are widely 
disseminated through major market data vendors including ThomsonReuters 
and Bloomberg.
    If the Frankfurt Stock Exchange is closed on the Friday before 
expiration, but the ISE remains open, then the last trading day for 
expiring Mini DAX options will be moved earlier to Wednesday as if the 
ISE had had a Friday holiday. The settlement index value used for 
exercise will be calculated during Xetra's intra-day auction on 
Thursday morning.
Contract Specifications
    The contract specifications for options on the Mini DAX are set 
forth in Exhibits 3-2. The Mini DAX is a broad-based index, as defined 
in Exchange Rule 2001(j). Options on the Mini DAX are European-style 
and A.M. cash-settled. The Exchange's standard trading hours for broad-
based index options (9:30 a.m. to 4:15 p.m., New York time), as set 
forth in Rule 2008(a), will apply to the trading of options on the Mini 
DAX. Exchange rules that are applicable to the trading of options on 
broad-based indexes will also apply to the trading of Mini DAX 
options.\13\ Specifically, the trading of Mini DAX options will be 
subject to, among others, Exchange rules governing margin requirements 
and trading halt procedures for index options. Further, Mini DAX 
options shall be quoted and traded in U.S. dollars.
---------------------------------------------------------------------------

    \13\ See ISE Rules 2000 through 2012.

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[[Page 51137]]

    For options on the Mini DAX, the Exchange proposes to establish 
aggregate position limits at 250,000 contracts on the same side of the 
market, provided no more than 150,000 of such contracts are in the 
nearest expiration month series. These limits are identical to the 
limits that were approved for options on the FTSE Indexes previously 
approved by the Commission.\14\ Additionally, under ISE Rule 2006, an 
index option hedge exemption for public customers may be available 
which may expand the position limit up to an additional 750,000 
contracts.\15\ Furthermore, proprietary accounts of members may receive 
an exemption of up to 500,000 contracts for the purpose of facilitating 
public customer orders.\16\
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    \14\ See Securities Exchange Act Release No. 53484 (March 14, 
2006), 71 FR 14268 (March 21, 2006) (Notice of Filing and Order 
Granting Accelerated Approval to a Proposed Rule Change and 
Amendment No. 1 Thereto Relating to Trading Options on Full and 
Reduced Values of the FTSE 100 Index and the FTSE 250 Index, 
Including Long-Term Options).
    \15\ The same limits that apply to position limits shall apply 
to exercise limits for these products.
    \16\ See ISE Rule 413(c).
---------------------------------------------------------------------------

    The Exchange proposes to apply broad-based index margin 
requirements for the purchase and sale of options on the Mini DAX. 
Accordingly, purchases of put or call options with 9 months or less 
until expiration must be paid for in full. Writers of uncovered put or 
call options must deposit/maintain 100% of the option proceeds, plus 
15% of the aggregate contract value (current index level x $100), less 
any out-of-the-money amount, subject to a minimum of the option 
proceeds plus 10% of the aggregate contract value for call options and 
a minimum of the option proceeds plus 10% of the aggregate exercise 
price amount for put options.
    The Exchange proposes to set minimum strike price intervals for 
Mini DAX options at 1 point intervals. The minimum tick size for series 
trading below $3 shall be $0.05, and for series trading at or above $3 
shall be $0.10.
    The Exchange proposes to list options on the Mini DAX in the three 
consecutive near-term expiration months plus up to three successive 
expiration months in the March cycle. For example, consecutive 
expirations of January, February, March, plus June, September, and 
December expirations would be listed.\17\ The trading of options on the 
Mini DAX shall be subject to the same rules that presently govern the 
trading of Exchange index options, including sales practice rules, 
margin requirements, trading rules, and position and exercise limits. 
In addition, long-term option series having up to sixty months to 
expiration may be traded.\18\ The trading of long-term Mini DAX options 
shall also be subject to the same rules that govern the trading of all 
the Exchange's index options, including sales practice rules, margin 
requirements, and trading rules.
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    \17\ See Rule 2009(a)(3).
    \18\ See Rule 2009(b)(1). The Exchange is not listing reduced 
value LEAPS on the Mini DAX pursuant to Rule 2009(b)(2).
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    Chapter 6 of the Exchange's rules is designed to protect public 
customer trading and shall apply to the trading of options on the Mini 
DAX. Specifically, ISE Rules 608(a) and (b) prohibit Members from 
accepting a customer order to purchase or write an option unless such 
customer's account has been approved in writing by a designated Options 
Principal of the Member.\19\ Additionally, ISE's Rule 610 regarding 
suitability is designed to ensure that options are only sold to 
customers capable of evaluating and bearing the risks associated with 
trading in this instrument. Further, ISE Rule 611 permits members to 
exercise discretionary power with respect to trading options in a 
customer's account only if the Member has received prior written 
authorization from the customer and the account had been accepted in 
writing by a designated Options Principal. ISE Rule 611 also requires 
designated Options Principals or Representatives of a Member to approve 
and initial each discretionary order on the day the discretionary order 
is entered. Finally, ISE Rule 609, Supervision of Accounts, Rule 612, 
Confirmation to Customers, and Rule 616, Delivery of Current Options 
Disclosure Documents and Prospectus, will also apply to trading in of 
options on the Mini DAX.
---------------------------------------------------------------------------

    \19\ Pursuant to ISE Rule 602, Representatives of a Member may 
solicit or accept customer orders for FCOs.
---------------------------------------------------------------------------

Surveillance and Capacity
    The Exchange represents that it has an adequate surveillance 
program in place for options traded on the Mini DAX. The ISE Market 
Surveillance Department conducts routine surveillance in approximately 
30 discrete areas. Index products and their respective symbols are 
integrated into the Exchange's existing surveillance system 
architecture and are thus subject to the relevant surveillance 
processes. This is true for both surveillance system processing and 
manual processes that support the ISE's surveillance program. Further, 
both ISE and the Frankfurt Stock Exchange, operated by DBAG, are 
members of the Intermarket Surveillance Group (``ISG''), created under 
the Intermarket Surveillance Group Agreement, dated June 20, 1994. 
Through its membership in the ISG, ISE 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.
    Finally, the Exchange has the necessary systems capacity to support 
new options series that will result from the introduction of options on 
the Mini DAX, including LEAPS.
(b) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
in general, and furthers the objectives of Section 6(b)(5) in 
particular in that it will permit options trading in the Mini DAX 
pursuant to rules designed to prevent fraudulent and manipulative acts 
and practices and promote just and equitable principles of trade.

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

    The proposed rule change does not impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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,

[[Page 51138]]

including whether the proposed rule change is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

    Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
    Send an e-mail to rule-comments@sec.gov. Please include File No. 
SR-ISE-2010-81 on the subject line.

Paper Comments

    Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File No. SR-ISE-2010-81. 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 Web site viewing and 
printing 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 such 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 No. SR-ISE-2010-81 and should be 
submitted on or before September 8, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20406 Filed 8-17-10; 8:45 am]
BILLING CODE 8010-01-P
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