Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Trade Options on Leveraged Exchange-Traded Notes and To Broaden the Definition of “Futures-Linked Securities”, 56628-56631 [2010-23107]

Download as PDF 56628 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others 1. Purpose No written comments were solicited or received with respect to the proposed rule change. On August 23, 2010, the Commission published an immediately effective rule filing to modify the transaction fees for 24 securities currently traded on CBSX (the following symbols: BAC, C, DXD, EMC, EWJ, F, FAX, FAZ, GE, INTC, MOT, MSFT, MU, NOK, Q, QID, S, SIRI, SKF, T, TWM, UNG, UWM, XLF).4 The Exchange now proposes to add 51 securities to that list of securities (the following symbols: AA, AMAT, AMD, BGZ, BP, BSX, CMCSA, COCO, CSCO, CX, DELL, DUK, EBAY, EEM, EWT, FAS, FLEX, HBAN, IYR, MDT, MGM, NLY, NVDA, NWSA, ORCL, PFE, QCOM, QQQQ, SBUX, SH, SLV, SMH, SSO, SYMC, TBT, TSM, TXN, UCO, USO, VALE, VWO, WFC, XHB, XLB, XLK, XLP, XLU, XLV, XLY, XRX, YHOO). For those securities already approved for the new transaction fees as well as those that would be added by this proposed rule change, assuming their prices do not drop below $1, the takers of liquidity will receive a $0.0014 per share rebate, and makers of liquidity will incur a $0.0018 charge. The new pricing strategy is designed to incent order routing behavior that selects CBSX as the first destination. The changes will take effect on September 1, 2010. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (‘‘Act’’),5 in general, and furthers the objectives of Section 6(b)(4) 6 of the Act in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members and other persons using its facilities. B. Self-Regulatory Organization’s Statement on Burden on Competition mstockstill on DSKH9S0YB1PROD with NOTICES CBOE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 4 See Securities Exchange Act Release No. 34– 62758 (August 23, 2010), 75 FR 52792 [sic] (August 27, 2010) (SR–CBOE–2010–075). 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(4). VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and paragraph (f) of Rule 19b–4 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 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 Number SR–CBOE– 2010–079 and should be submitted on or before October 7, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Elizabeth M. Murphy, Secretary. 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: [FR Doc. 2010–23105 Filed 9–15–10; 8:45 am] Electronic Comments [Release No. 34–62880; File No. SR–CBOE– 2010–080] • 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–2010–079 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–2010–079. 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 PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Trade Options on Leveraged Exchange-Traded Notes and To Broaden the Definition of ‘‘Futures-Linked Securities’’ September 9, 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 31, 2010, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) 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 Exchange. On September 9, 2010, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. 7 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\16SEN1.SGM 16SEN1 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to amend Interpretation and Policy .13 to Rule 5.3 to: (a) permit trading options on leveraged (multiple or inverse) exchange-traded notes, and (b) broaden the definition of ‘‘Futures-Linked Securities.’’ The text of the rule proposal is available on the Exchange’s Web site (https://www.cboe.org/legal), at the Exchange’s Office of the Secretary and at the Commission. 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. mstockstill on DSKH9S0YB1PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Amendment 1 replaces the original filing in its entirety. The purpose of Amendment 1 is to make technical corrections to rule references in Item 1 and Item 3. No changes to the proposed rule text that was submitted in the original filing are being proposed by this Amendment 1. The Exchange proposes to amend Interpretation and Policy .13 to Rule 5.3 to: (a) Permit trading options on leveraged (multiple or inverse) exchange-traded notes (‘‘ETNs’’), and (b) broaden the definition of ‘‘FuturesLinked Securities.’’ ETNs are also known as ‘‘Index-Linked Securities,’’ which are designed for investors who desire to participate in a specific market segment by providing exposure to one or more identifiable underlying securities, commodities, currencies, derivative instruments or market indexes of the foregoing. Index-Linked Securities are the non-convertible debt of an issuer that have a term of at least one (1) year but not greater than thirty (30) years. Despite the fact that IndexLinked Securities are linked to an underlying index, each trade as a single, exchange-listed security. Accordingly, rules pertaining to the listing and VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 trading of standard equity options apply to Index-Linked Securities. Leveraged ETN Options The Exchange proposes to amend Rule 5.3.13 to permit the listing of options on leveraged (multiple or inverse) ETNs. Multiple leveraged ETNs seek to provide investment results that correspond to a specified multiple of the percentage performance on a given day of a particular Reference Asset. Inverse leveraged ETNs seek to provide investment results that correspond to the inverse (opposite) of the percentage performance on a given day of a particular Reference Asset by a specified multiple. Multiple leveraged ETNs and inverse leveraged ETNs differ from traditional ETNs in that they do not merely correspond to the performance of a given Reference Asset, but rather attempt to match a multiple or inverse of a Reference Asset’s performance. The Barclays Long B Leveraged S&P 500 TR ETN (‘‘BXUB’’), the Barclays Long C Leveraged S&P 500 TR ETN (‘‘BXUC’’) and the UBS AG 2x Monthly Leveraged Long Exchange Traded Access Securities (‘‘E–TRACS’’) linked to the Alerian MLP Infrastructure Index due July 9, 2040 (‘‘MLPL’’) currently trade on the NYSE Arca Stock Exchange and are examples of multiple leveraged ETNs. In addition, the Barclays ETN + Inverse S&P 500 VIX Short-Term Futures ETN (‘‘XXV’’) currently trades on the NYSE Arca Stock Exchange and is an example of an inverse leveraged ETN. The NYSE Arca Stock Exchange also lists several other inverse leveraged ETNs for trading.3 Currently, Interpretation and Policy .13 to Rule 5.3 provides that securities deemed appropriate for options trading shall include shares or other securities (‘‘Equity Index-Linked Securities,’’ ‘‘Commodity-Linked Securities,’’ ‘‘Currency-Linked Securities,’’ ‘‘Fixed Income Index-Linked Securities,’’ ‘‘Futures-Linked Securities,’’ and ‘‘Multifactor Index-Linked Securities,’’ collectively known as ‘‘Index-Linked Securities’’) that are principally traded on a national securities exchange and an ‘‘NMS Stock’’ (as defined in Rule 600 of Regulation NMS under the Securities Exchange Act of 1934), and represent ownership of a security that provides for the payment at maturity, as described below: • Equity Index-Linked Securities are securities that provide for the payment at maturity of a cash amount based on 3 These ETNs include: the Barclays Short B Leveraged Inverse S&P 500 TR ETN (‘‘BXDB’’), the Barclays Short C Leveraged Inverse S&P 500 TR ETN (‘‘BXDC’’) and the Barclays Short D Leveraged Inverse S&P 500 TR ETN (‘‘BXDD’’). PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 56629 the performance of an underlying index or indexes of equity securities (‘‘Equity Reference Asset’’); • Commodity-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of one or more physical commodities or commodity futures, options on commodities, or other commodity derivatives or CommodityBased Trust Shares or a basket or index of any of the foregoing (‘‘Commodity Reference Asset’’); • Currency-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of one or more currencies, or options on currencies or currency futures or other currency derivatives or Currency Trust Shares (as defined in Interpretation and Policy .06 to this Rule 5.3), or a basket or index of any of the foregoing (‘‘Currency Reference Asset’’); • Fixed Income Index-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of one or more notes, bonds, debentures or evidence of indebtedness that include, but are not limited to, U.S. Department of Treasury securities (‘‘Treasury Securities’’), government-sponsored entity securities (‘‘GSE Securities’’), municipal securities, trust preferred securities, supranational debt and debt of a foreign country or a subdivision thereof or a basket or index of any of the foregoing (‘‘Fixed Income Reference Asset’’); • Futures-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of an index of (a) futures on Treasury Securities, GSE Securities, supranational debt and debt of a foreign country or a subdivision thereof, or options or other derivatives on any of the foregoing; or (b) interest rate futures or options or derivatives on the foregoing in this subparagraph (b); or (c) CBOE Volatility Index (VIX) futures (‘‘Futures Reference Asset’’); and • Multifactor Index-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of any combination of two or more Equity Reference Assets, Commodity Reference Assets, Currency Reference Assets, Fixed Income References Assets, or Futures Reference Assets (‘‘Multifactor Reference Asset’’). For purposes of Interpretation and Policy .13 to this Rule 5.3, Equity Reference Assets, Commodity Reference Asset, Currency Reference Assets, Fixed Income Reference Assets, Futures Reference Assets together with E:\FR\FM\16SEN1.SGM 16SEN1 mstockstill on DSKH9S0YB1PROD with NOTICES 56630 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices Multifactor Reference Assets, collectively are referred to as ‘‘Reference Assets.’’ In addition, Index-Linked Securities must meet the criteria and guidelines for underlying Securities set forth in Interpretation and Policy .01 to this Rule 5.3.; or the Index-Linked Securities must be redeemable at the option of the holder at least on a weekly basis through the issuer at a price related to the applicable underlying Reference Asset. In addition, the issuing company is obligated to issue or repurchase the securities in aggregation units for cash, or cash equivalents, satisfactory to the issuer of Index-Linked Securities which underlie the option as described in the Index-Linked Securities prospectus. The Exchange proposes to amend Interpretation and Policy .13 to Rule 5.3 to expand the type of Index-Linked Securities that may underlie options to include leveraged (multiple or inverse) ETNs. To affect this change, the Exchange proposes to amend Rule 5.3.13 by adding the phrase, ‘‘or the leveraged (multiple or inverse) performance’’ to each of the subparagraphs ((A) through (F)) in that section which set forth the different eligible Reference Assets. The Exchange’s current continuing listing standards for ETN options will continue to apply. Specifically, under Interpretation and Policy .16 to Rule 5.4, ETN options shall not be deemed to meet the Exchange’s requirements for continued approval, and the Exchange shall not open for trading any additional series or option contracts of the class covering such Securities whenever the underlying Securities are delisted and trading in the Securities is suspended on a national securities exchange, or the Securities are no longer an ‘‘NMS Stock’’ (as defined in Rule 600 of Regulation NMS under the Securities Exchange Act of 1934). In addition, the Exchange shall consider the suspension of opening transactions in any series of options of the class covering Index-Linked Securities in any of the following circumstances: (1) The underlying Index-Linked Security fails to comply with the terms of Interpretation and Policy .13 to Rule 5.3; (2) in accordance with the terms of Interpretation and Policy .01 to Rule 5.4, in the case of options covering Index-Linked Securities when such options were approved pursuant to Interpretation and Policy .13 to Rule 5.3, except that, in the case of options covering Index-Linked Securities approved pursuant to Interpretation and Policy .13(3)(B) to Rule 5.3 that are redeemable at the option of the holder at least on a weekly basis, then option contracts of the class VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 covering such Securities may only continue to be open for trading as long as the Securities are listed on a national securities exchange and are ‘‘NMS’’ stock as defined in Rule 600 of Regulation NMS; (3) in the case of any Index-Linked Security trading pursuant to Interpretation and Policy .13 to Rule 5.3, the value of the Reference Asset is no longer calculated; or (4) such other event shall occur or condition exist that in the opinion of the Exchange make further dealing in such options on the Exchange inadvisable. Expanding the eligible types of ETNs for options trading under Interpretation and Policy .13 to Rule 5.3 will not have any effect on the rules pertaining to position and exercise limits 4 or margin.5 This proposal is necessary to enable the Exchange to list and trade options on shares of the BXUB, BXUC, XXV, BXDB, BXDC, BXDD and the MLPL. The Exchange believes the ability to trade options on leveraged (multiple or inverse) ETNs will provide investors with greater risk management tools. The proposed amendment to the Exchange’s listing criteria for options on ETNs is necessary to ensure that the Exchange will be able to list options on the above listed leveraged (multiple and inverse) ETNs as well as other leveraged (multiple and inverse) ETNs that may be introduced in the future. The Exchange represents that its existing surveillance procedures applicable to trading in options are adequate to properly monitor the trading in leveraged (multiple and inverse) ETN options. It is expected that The Options Clearing Corporation will seek to revise the Options Disclosure Document (‘‘ODD’’) to accommodate the listing and trading of leveraged (multiple and inverse) ETN options. Broaden the Definition of ‘‘FuturesLinked Securities’’ The second change being proposed by this filing is to amend the definition of ‘‘Future [sic]-Linked Securities’’ set forth in Rule 5.3.13(1)(E). Currently, the definition of ‘‘Futures-Linked Securities’’ is limited to securities that provide for the payment at maturity of a cash amount based on the performance of an index of (a) futures on Treasury Securities, GSE Securities, supranational debt and debt of a foreign country or a subdivision thereof, or options or other derivatives on any of the foregoing; or (b) interest rate futures or options or derivatives on the 4 See Rules 4.11, Position Limits, and 4.12, Exercise Limits. 5 See Rule 12.3, Margin Requirements. PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 foregoing in this subparagraph (b); or (c) CBOE Volatility Index (VIX) futures. Rule 5.3 sets forth generic listing criteria for securities that may serve as underlyings for listed options trading. The Exchange believes that the current definition of ‘‘Futures-Linked Securities’’ is unnecessarily restrictive and requires the Exchange to submit a filing to amend the definition each time a new ETN is issued that tracks the performance of an index of futures/ options on futures that is not enumerated in the existing rule. To address this issue, the Exchange is proposing to revise the definition of ‘‘Futures- Linked Securities’’ to provide that they are securities that for the payment at maturity of a cash amount based on the performance or the leveraged (multiple or inverse) performance of an index or indexes of futures contracts or options or derivatives on futures contracts (‘‘Futures Reference Asset’’). The Exchange notes that all ETNs eligible for options trading must [sic] principally traded on a national securities exchange and an ‘‘NMS Stock.’’ As a result, the Exchange believes that broadening the definition of ‘‘Futures-Linked Securities’’ by no longer specifically listing the types of futures and options on futures contracts that may be tracked by an ETN is appropriate. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) 6 of the Act, in general, and furthers the objectives of Section 6(b)(5),7 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to 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. The Exchange believes that the proposed rules applicable to trading pursuant to generic listing and trading criteria serve to foster investor protection. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 6 15 7 15 E:\FR\FM\16SEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 16SEN1 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange neither solicited nor received comments on the proposal. 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 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: mstockstill on DSKH9S0YB1PROD 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–2010–080 on the subject line. 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 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–CBOE– 2010–080 and should be submitted on or before October 7, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Elizabeth M. Murphy, Secretary. [FR Doc. 2010–23107 Filed 9–15–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62879; File No. SR–OCC– 2010–15] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Interpret By-Laws as to Dividend Adjustments September 9, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Paper Comments (‘‘Act’’),1 notice is hereby given that on • Send paper comments in triplicate August 31, 2010, The Options Clearing to Elizabeth M. Murphy, Secretary, Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission, Securities and Exchange Commission 100 F Street, NE., Washington, DC (‘‘Commission’’) the proposed rule 20549–1090. change described in Items I and II All submissions should refer to File below, which items have been prepared Number SR–CBOE–2010–080. This file primarily by OCC. The Commission is number should be included on the publishing this notice to solicit subject line if e-mail is used. To help the comments on the proposed rule change Commission process and review your from interested parties. comments more efficiently, please use only one method. The Commission will I. Self-Regulatory Organization’s post all comments on the Commission’s Statement of the Terms of Substance of the Proposed Rule Change Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the The purpose of the proposed rule submission, all subsequent change is to amend Interpretation and amendments, all written statements Policy .01 under Article VI, Section 11A with respect to the proposed rule of OCC’s By-Laws to allow the change that are filed with the Securities Committee under certain Commission, and all written conditions to cease adjusting for communications relating to the recurring cash dividends previously proposed rule change between the deemed to be non-ordinary dividends. Commission and any person, other than 8 17 CFR 200.30–3(a)(12). those that may be withheld from the 1 15 U.S.C. 78s(b)(1). public in accordance with the VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 56631 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.2 (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The principal purpose of this rule change is to amend Interpretation and Policy .01 under Article VI, Section 11A of OCC’s By-Laws. Under that Interpretation, cash dividends or distributions of an issuer which are deemed by the Securities Committee 3 to be non-ordinary will usually result in an adjustment to the terms of listed stock options.4 OCC is proposing to amend Interpretation .01 to allow the Securities Committee under certain conditions to cease adjusting for recurring cash dividends previously deemed to be nonordinary dividends. Interpretation .01 under Section 3 of Article XII of OCC’s By-Laws, which provides that nonordinary (as determined by OCC) cash dividends or distributions of an issuer will usually occasion an adjustment to the terms of listed stock futures, would similarly be amended. The discussion below addresses the proposed amendments to Interpretation .01 of Section 11A of Article VI, but the purpose behind those changes is equally applicable to the changes proposed to Interpretation .01 of Section 3 of Article XII.5 2 The Commission has modified the text of the summaries prepared by OCC. 3 The Securities Committee is comprised of one designated representative of each participant exchange and the Chairman of OCC or his designee. The OCC representative is not a voting member of the Committee except in cases of tie votes. Article VI, Section 11(c) of OCC’s By-Laws. 4 Generally speaking, a cash dividend or distribution would be deemed to be ‘‘ordinary’’ if it is declared pursuant to a policy or practice of paying such dividends on a quarterly or other regular basis. Dividends paid outside such practice would be considered ‘‘non-ordinary.’’ Non-ordinary cash dividends usually would trigger an adjustment to options contracts subject to the minimum size requirement. Article VI, Section 11A, Interpretation and Policy .01 of OCC’s By-Laws. See Securities Exchange Act Release No. 55258 (February 8, 2007). 5 Stock futures likewise are adjusted in response to non-ordinary cash dividends or distributions. See E:\FR\FM\16SEN1.SGM Continued 16SEN1

Agencies

[Federal Register Volume 75, Number 179 (Thursday, September 16, 2010)]
[Notices]
[Pages 56628-56631]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-23107]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62880; File No. SR-CBOE-2010-080]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change, as Modified by 
Amendment No. 1, To Trade Options on Leveraged Exchange-Traded Notes 
and To Broaden the Definition of ``Futures-Linked Securities''

September 9, 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 31, 2010, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') 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 Exchange. On September 9, 2010, the Exchange filed Amendment No. 1 
to the proposed rule change. The Commission is publishing this notice 
to solicit comments on the proposed rule change, as modified by 
Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

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

---------------------------------------------------------------------------

[[Page 56629]]

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

    CBOE proposes to amend Interpretation and Policy .13 to Rule 5.3 
to: (a) permit trading options on leveraged (multiple or inverse) 
exchange-traded notes, and (b) broaden the definition of ``Futures-
Linked Securities.'' The text of the rule proposal is available on the 
Exchange's Web site (https://www.cboe.org/legal), at the Exchange's 
Office of the Secretary and at the Commission.

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
    Amendment 1 replaces the original filing in its entirety. The 
purpose of Amendment 1 is to make technical corrections to rule 
references in Item 1 and Item 3. No changes to the proposed rule text 
that was submitted in the original filing are being proposed by this 
Amendment 1.
    The Exchange proposes to amend Interpretation and Policy .13 to 
Rule 5.3 to: (a) Permit trading options on leveraged (multiple or 
inverse) exchange-traded notes (``ETNs''), and (b) broaden the 
definition of ``Futures-Linked Securities.'' ETNs are also known as 
``Index-Linked Securities,'' which are designed for investors who 
desire to participate in a specific market segment by providing 
exposure to one or more identifiable underlying securities, 
commodities, currencies, derivative instruments or market indexes of 
the foregoing. Index-Linked Securities are the non-convertible debt of 
an issuer that have a term of at least one (1) year but not greater 
than thirty (30) years. Despite the fact that Index-Linked Securities 
are linked to an underlying index, each trade as a single, exchange-
listed security. Accordingly, rules pertaining to the listing and 
trading of standard equity options apply to Index-Linked Securities.
Leveraged ETN Options
    The Exchange proposes to amend Rule 5.3.13 to permit the listing of 
options on leveraged (multiple or inverse) ETNs. Multiple leveraged 
ETNs seek to provide investment results that correspond to a specified 
multiple of the percentage performance on a given day of a particular 
Reference Asset. Inverse leveraged ETNs seek to provide investment 
results that correspond to the inverse (opposite) of the percentage 
performance on a given day of a particular Reference Asset by a 
specified multiple. Multiple leveraged ETNs and inverse leveraged ETNs 
differ from traditional ETNs in that they do not merely correspond to 
the performance of a given Reference Asset, but rather attempt to match 
a multiple or inverse of a Reference Asset's performance.
    The Barclays Long B Leveraged S&P 500 TR ETN (``BXUB''), the 
Barclays Long C Leveraged S&P 500 TR ETN (``BXUC'') and the UBS AG 2x 
Monthly Leveraged Long Exchange Traded Access Securities (``E-TRACS'') 
linked to the Alerian MLP Infrastructure Index due July 9, 2040 
(``MLPL'') currently trade on the NYSE Arca Stock Exchange and are 
examples of multiple leveraged ETNs. In addition, the Barclays ETN + 
Inverse S&P 500 VIX Short-Term Futures ETN (``XXV'') currently trades 
on the NYSE Arca Stock Exchange and is an example of an inverse 
leveraged ETN. The NYSE Arca Stock Exchange also lists several other 
inverse leveraged ETNs for trading.\3\
---------------------------------------------------------------------------

    \3\ These ETNs include: the Barclays Short B Leveraged Inverse 
S&P 500 TR ETN (``BXDB''), the Barclays Short C Leveraged Inverse 
S&P 500 TR ETN (``BXDC'') and the Barclays Short D Leveraged Inverse 
S&P 500 TR ETN (``BXDD'').
---------------------------------------------------------------------------

    Currently, Interpretation and Policy .13 to Rule 5.3 provides that 
securities deemed appropriate for options trading shall include shares 
or other securities (``Equity Index-Linked Securities,'' ``Commodity-
Linked Securities,'' ``Currency-Linked Securities,'' ``Fixed Income 
Index-Linked Securities,'' ``Futures-Linked Securities,'' and 
``Multifactor Index-Linked Securities,'' collectively known as ``Index-
Linked Securities'') that are principally traded on a national 
securities exchange and an ``NMS Stock'' (as defined in Rule 600 of 
Regulation NMS under the Securities Exchange Act of 1934), and 
represent ownership of a security that provides for the payment at 
maturity, as described below:
     Equity Index-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of an underlying index or indexes of equity securities (``Equity 
Reference Asset'');
     Commodity-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of one or more physical commodities or commodity futures, options on 
commodities, or other commodity derivatives or Commodity-Based Trust 
Shares or a basket or index of any of the foregoing (``Commodity 
Reference Asset'');
     Currency-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more currencies, or options on currencies or currency futures or 
other currency derivatives or Currency Trust Shares (as defined in 
Interpretation and Policy .06 to this Rule 5.3), or a basket or index 
of any of the foregoing (``Currency Reference Asset'');
     Fixed Income Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more notes, bonds, debentures or evidence of 
indebtedness that include, but are not limited to, U.S. Department of 
Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof or a basket or index of any of the foregoing 
(``Fixed Income Reference Asset'');
     Futures-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of an 
index of (a) futures on Treasury Securities, GSE Securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof, or options or other derivatives on any of the foregoing; or 
(b) interest rate futures or options or derivatives on the foregoing in 
this subparagraph (b); or (c) CBOE Volatility Index (VIX) futures 
(``Futures Reference Asset''); and
     Multifactor Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of any combination of two or more Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
References Assets, or Futures Reference Assets (``Multifactor Reference 
Asset'').
    For purposes of Interpretation and Policy .13 to this Rule 5.3, 
Equity Reference Assets, Commodity Reference Asset, Currency Reference 
Assets, Fixed Income Reference Assets, Futures Reference Assets 
together with

[[Page 56630]]

Multifactor Reference Assets, collectively are referred to as 
``Reference Assets.''
    In addition, Index-Linked Securities must meet the criteria and 
guidelines for underlying Securities set forth in Interpretation and 
Policy .01 to this Rule 5.3.; or the Index-Linked Securities must be 
redeemable at the option of the holder at least on a weekly basis 
through the issuer at a price related to the applicable underlying 
Reference Asset. In addition, the issuing company is obligated to issue 
or repurchase the securities in aggregation units for cash, or cash 
equivalents, satisfactory to the issuer of Index-Linked Securities 
which underlie the option as described in the Index-Linked Securities 
prospectus.
    The Exchange proposes to amend Interpretation and Policy .13 to 
Rule 5.3 to expand the type of Index-Linked Securities that may 
underlie options to include leveraged (multiple or inverse) ETNs. To 
affect this change, the Exchange proposes to amend Rule 5.3.13 by 
adding the phrase, ``or the leveraged (multiple or inverse) 
performance'' to each of the subparagraphs ((A) through (F)) in that 
section which set forth the different eligible Reference Assets.
    The Exchange's current continuing listing standards for ETN options 
will continue to apply. Specifically, under Interpretation and Policy 
.16 to Rule 5.4, ETN options shall not be deemed to meet the Exchange's 
requirements for continued approval, and the Exchange shall not open 
for trading any additional series or option contracts of the class 
covering such Securities whenever the underlying Securities are 
delisted and trading in the Securities is suspended on a national 
securities exchange, or the Securities are no longer an ``NMS Stock'' 
(as defined in Rule 600 of Regulation NMS under the Securities Exchange 
Act of 1934). In addition, the Exchange shall consider the suspension 
of opening transactions in any series of options of the class covering 
Index-Linked Securities in any of the following circumstances: (1) The 
underlying Index-Linked Security fails to comply with the terms of 
Interpretation and Policy .13 to Rule 5.3; (2) in accordance with the 
terms of Interpretation and Policy .01 to Rule 5.4, in the case of 
options covering Index-Linked Securities when such options were 
approved pursuant to Interpretation and Policy .13 to Rule 5.3, except 
that, in the case of options covering Index-Linked Securities approved 
pursuant to Interpretation and Policy .13(3)(B) to Rule 5.3 that are 
redeemable at the option of the holder at least on a weekly basis, then 
option contracts of the class covering such Securities may only 
continue to be open for trading as long as the Securities are listed on 
a national securities exchange and are ``NMS'' stock as defined in Rule 
600 of Regulation NMS; (3) in the case of any Index-Linked Security 
trading pursuant to Interpretation and Policy .13 to Rule 5.3, the 
value of the Reference Asset is no longer calculated; or (4) such other 
event shall occur or condition exist that in the opinion of the 
Exchange make further dealing in such options on the Exchange 
inadvisable. Expanding the eligible types of ETNs for options trading 
under Interpretation and Policy .13 to Rule 5.3 will not have any 
effect on the rules pertaining to position and exercise limits \4\ or 
margin.\5\
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    \4\ See Rules 4.11, Position Limits, and 4.12, Exercise Limits.
    \5\ See Rule 12.3, Margin Requirements.
---------------------------------------------------------------------------

    This proposal is necessary to enable the Exchange to list and trade 
options on shares of the BXUB, BXUC, XXV, BXDB, BXDC, BXDD and the 
MLPL. The Exchange believes the ability to trade options on leveraged 
(multiple or inverse) ETNs will provide investors with greater risk 
management tools. The proposed amendment to the Exchange's listing 
criteria for options on ETNs is necessary to ensure that the Exchange 
will be able to list options on the above listed leveraged (multiple 
and inverse) ETNs as well as other leveraged (multiple and inverse) 
ETNs that may be introduced in the future.
    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in leveraged (multiple and inverse) ETN options.
    It is expected that The Options Clearing Corporation will seek to 
revise the Options Disclosure Document (``ODD'') to accommodate the 
listing and trading of leveraged (multiple and inverse) ETN options.
Broaden the Definition of ``Futures-Linked Securities''
    The second change being proposed by this filing is to amend the 
definition of ``Future [sic]-Linked Securities'' set forth in Rule 
5.3.13(1)(E). Currently, the definition of ``Futures-Linked 
Securities'' is limited to securities that provide for the payment at 
maturity of a cash amount based on the performance of an index of (a) 
futures on Treasury Securities, GSE Securities, supranational debt and 
debt of a foreign country or a subdivision thereof, or options or other 
derivatives on any of the foregoing; or (b) interest rate futures or 
options or derivatives on the foregoing in this subparagraph (b); or 
(c) CBOE Volatility Index (VIX) futures.
    Rule 5.3 sets forth generic listing criteria for securities that 
may serve as underlyings for listed options trading. The Exchange 
believes that the current definition of ``Futures-Linked Securities'' 
is unnecessarily restrictive and requires the Exchange to submit a 
filing to amend the definition each time a new ETN is issued that 
tracks the performance of an index of futures/options on futures that 
is not enumerated in the existing rule. To address this issue, the 
Exchange is proposing to revise the definition of ``Futures- Linked 
Securities'' to provide that they are securities that for the payment 
at maturity of a cash amount based on the performance or the leveraged 
(multiple or inverse) performance of an index or indexes of futures 
contracts or options or derivatives on futures contracts (``Futures 
Reference Asset''). The Exchange notes that all ETNs eligible for 
options trading must [sic] principally traded on a national securities 
exchange and an ``NMS Stock.'' As a result, the Exchange believes that 
broadening the definition of ``Futures-Linked Securities'' by no longer 
specifically listing the types of futures and options on futures 
contracts that may be tracked by an ETN is appropriate.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \6\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\7\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to 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. The Exchange believes 
that the proposed rules applicable to trading pursuant to generic 
listing and trading criteria serve to foster investor protection.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

[[Page 56631]]

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

    The Exchange neither solicited nor received comments on the 
proposal.

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 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:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2010-080 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-2010-080. 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 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-
CBOE-2010-080 and should be submitted on or before October 7, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Elizabeth M. Murphy,
Secretary.
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    \8\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-23107 Filed 9-15-10; 8:45 am]
BILLING CODE 8010-01-P
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