Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a 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”, 67794-67796 [2010-27768]

Download as PDF 67794 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 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)(ii) of the Act.9 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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: jlentini on DSKJ8SOYB1PROD 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–NASDAQ–2010–136 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2010–136. 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 website 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 publicly available. All submissions should refer to File Number SR– NASDAQ–2010–136 and should be submitted on or before November 24, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–27688 Filed 11–2–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63202; File No. SR–CBOE– 2010–080] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Trade Options on Leveraged Exchange-Traded Notes and To Broaden the Definition of ‘‘FuturesLinked Securities’’ October 28, 2010. I. Introduction On August 31, 2010, the Chicago Board Options Exchange (‘‘CBOE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’), and Rule 19b–4 thereunder,2 a proposed rule change to: (a) Permit the trading of options on leveraged (multiple or inverse) exchange-traded notes (‘‘ETNs’’), and (b) broaden the definition of ‘‘FuturesLinked Securities.’’ On September 9, 2010, the Exchange filed Amendment 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 9 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on September 16, 2010.3 The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change as modified by Amendment No. 1. II. Description of the Proposal The purpose of CBOE’s proposed rule change is to amend Interpretation and Policy .13 to Rule 5.3 to: (a) Permit the trading of options on leveraged (multiple or inverse) ETNs,4 and (b) broaden the definition of ‘‘FuturesLinked Securities.’’ Leveraged ETN Options Multiple leveraged ETNs seek to provide investment results that correspond to a specified multiple of the percentage performance of a particular Reference Asset on a given day. Inverse leveraged ETNs seek to provide investment results that correspond to the inverse (opposite) of the percentage performance of a particular Reference Asset by a specified multiple on a given day. 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. Currently, Interpretation and Policy .13 to Rule 5.3 provides that securities deemed appropriate for options trading 3 See Securities Exchange Release No. 62880 (September 9, 2010), 75 FR 56628. 4 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 nonconvertible debt of an issuer that have a term of at least one year but not greater than thirty years. Index-Linked Securities are traded as a single, exchange-listed security. As such, rules pertaining to the listing and trading of standard equity options apply to Index-Linked Securities. E:\FR\FM\03NON1.SGM 03NON1 jlentini on DSKJ8SOYB1PROD with NOTICES Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices 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 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 VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 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 Assets, Currency Reference Assets, Fixed Income Reference Assets, Futures Reference Assets together with 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 PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 67795 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’’ stocks 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 makes 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 5 or margin.6 The Exchange has represented 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. Definition of ‘‘Futures-Linked Securities’’ The second change being proposed by the Exchange’s filing is to amend the definition of ‘‘Futures-Linked Securities’’ set forth in Rule 5.3.13(1)(E). Rule 5.3 sets forth generic listing criteria for securities that may serve as underlyings for listed options. Currently, the definition of ‘‘FuturesLinked 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 5 See Rules 4.11, Position Limits, and 4.12, Exercise Limits. 6 See Rule 12.3, Margin Requirements. E:\FR\FM\03NON1.SGM 03NON1 67796 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices 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. The Exchange is proposing to revise the definition of ‘‘Futures-Linked Securities’’ to provide that they are securities that pay at maturity 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’’). All ETNs eligible for options trading must still be principally traded on a national securities exchange and an ‘‘NMS Stock.’’ III. Commission Findings After careful consideration, the Commission finds that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,7 and in particular, the requirements of Section 6(b) of the Act.8 Specifically, the Commission finds that the proposed rule changes are consistent with Section 6(b)(5) of the Act,9 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. jlentini on DSKJ8SOYB1PROD with NOTICES Leveraged ETN Options The Commission notes that the Exchange has represented that, similar to its imposition of higher margin requirements for options on leveraged ETFs,10 the Exchange will impose higher margin requirements for leveraged ETNs, as allowed under CBOE Rules 12.3(h) and 12.10. The Exchange will also issue a Regulatory Circular announcing the new margin requirements prior to listing and trading options on leveraged ETNs. In addition, pursuant to the proposed rule change, the Exchange represented 7 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). 10 See CBOE Regulatory Circulars RG09–97 (August 31, 2009), RG09–132 (November 20, 2009). See also FINRA Regulatory Notices 09–53 (August 2009), 09–65 (November 2009). VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 that the current listing standards for ETN options will continue to apply. The Exchange has also represented that its existing surveillance procedures applicable to trading options are adequate to properly monitor trading of options on leveraged ETNs. The Commission believes that these representations are adequate to protect investors. Furthermore, the Commission believes that the ability to trade options on leveraged ETNs will provide investors with additional risk management tools. Therefore, the Commission believes that this proposed rule change is appropriate. Broaden the Definition of ‘‘FuturesLinked Securities’’ The Commission believes that this proposal will provide a more efficient process for the Exchange to list and trade options on ETNs. The Exchange will be able to list and trade options overlying newly introduced ETNs that do not fall within the current definition of ‘‘Futures-Linked Securities,’’ without first filing a rule change proposal with the Commission to change the definition of ‘‘Futures-Linked Securities’’ to include each specific new product. The Commission notes that all ETNs that underlie options traded on the Exchange must still be principally traded on a national securities exchange and must be an ‘‘NMS stock.’’ In addition, pursuant to the proposed rule change, the Exchange represented that the current listing standards for options on ETNs will continue to apply to options on ETNs that fall within the proposed definition of ‘‘Futures-Linked Securities.’’ The Exchange has also represented that its existing surveillance procedures applicable to trading options are adequate to properly monitor trading of options on ETNs. Therefore, the Commission believes that this proposed rule change is appropriate. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the propose rule change (SR–CBOE–2010– 080), as modified by Amendment No. 1, be, and is hereby, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–27768 Filed 11–2–10; 8:45 am] BILLING CODE 8011–01–P 11 15 12 17 PO 00000 Fmt 4703 [Release No. 34–63194; File No. SR–NSCC– 2010–12] Self-Regulatory Organizations; The National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Procedures Related to the Automated Customer Account Transfer Service October 27, 2010. Pursuant to Section 19(b)(4) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on October 15, 2010, The National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared primarily by NSCC. NSCC filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the Act 2 and Rule 19b–4(f)(4) 3 thereunder so that the proposal was effective upon filing with the Commission. 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 purpose of the proposed rule change is to modify NSCC’s Rules so that in certain circumstances shares delivered to a Member through NSCC’s Continuous Net Settlement System (‘‘CNS’’) would be allocated to a Member’s buy-in delivery obligation in a security before being allocated to satisfy an Automated Customer Account Transfer Service (‘‘ACATS’’) delivery obligation in the same security. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A), (B) and (C) below, of the most significant aspects of such statements.4 1 15 U.S.C. 78s(b)(1). U.S.C. 78s(b)(3)(A)(iii). 3 17 CFR 240.19b–4(f)(4). 4 The Commission has modified the text of the summaries prepared by NSCC. 2 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). Frm 00115 SECURITIES AND EXCHANGE COMMISSION Sfmt 4703 E:\FR\FM\03NON1.SGM 03NON1

Agencies

[Federal Register Volume 75, Number 212 (Wednesday, November 3, 2010)]
[Notices]
[Pages 67794-67796]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27768]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63202; File No. SR-CBOE-2010-080]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of a 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''

October 28, 2010.

I. Introduction

    On August 31, 2010, the Chicago Board Options Exchange (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act''), and Rule 19b-4 thereunder,\2\ a 
proposed rule change to: (a) Permit the trading of options on leveraged 
(multiple or inverse) exchange-traded notes (``ETNs''), and (b) broaden 
the definition of ``Futures-Linked Securities.'' On September 9, 2010, 
the Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as modified by Amendment No. 1, was published for 
comment in the Federal Register on September 16, 2010.\3\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change as modified by Amendment 
No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Release No. 62880 (September 9, 
2010), 75 FR 56628.
---------------------------------------------------------------------------

II. Description of the Proposal

    The purpose of CBOE's proposed rule change is to amend 
Interpretation and Policy .13 to Rule 5.3 to: (a) Permit the trading of 
options on leveraged (multiple or inverse) ETNs,\4\ and (b) broaden the 
definition of ``Futures-Linked Securities.''
---------------------------------------------------------------------------

    \4\ 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 non-convertible debt of an issuer that have a term of 
at least one year but not greater than thirty years. Index-Linked 
Securities are traded as a single, exchange-listed security. As 
such, rules pertaining to the listing and trading of standard equity 
options apply to Index-Linked Securities.
---------------------------------------------------------------------------

Leveraged ETN Options

    Multiple leveraged ETNs seek to provide investment results that 
correspond to a specified multiple of the percentage performance of a 
particular Reference Asset on a given day. Inverse leveraged ETNs seek 
to provide investment results that correspond to the inverse (opposite) 
of the percentage performance of a particular Reference Asset by a 
specified multiple on a given day. 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.
    Currently, Interpretation and Policy .13 to Rule 5.3 provides that 
securities deemed appropriate for options trading

[[Page 67795]]

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 Assets, Currency Reference 
Assets, Fixed Income Reference Assets, Futures Reference Assets 
together with 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'' stocks 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 makes 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 \5\ or 
margin.\6\
---------------------------------------------------------------------------

    \5\ See Rules 4.11, Position Limits, and 4.12, Exercise Limits.
    \6\ See Rule 12.3, Margin Requirements.
---------------------------------------------------------------------------

    The Exchange has represented 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.

Definition of ``Futures-Linked Securities''

    The second change being proposed by the Exchange's filing is to 
amend the definition of ``Futures-Linked Securities'' set forth in Rule 
5.3.13(1)(E). Rule 5.3 sets forth generic listing criteria for 
securities that may serve as underlyings for listed options. 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

[[Page 67796]]

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. The Exchange is proposing to revise the definition of 
``Futures-Linked Securities'' to provide that they are securities that 
pay at maturity 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''). All ETNs eligible for options trading must still be 
principally traded on a national securities exchange and an ``NMS 
Stock.''

III. Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule changes are consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange,\7\ and in particular, the requirements of Section 6(b) of the 
Act.\8\ Specifically, the Commission finds that the proposed rule 
changes are consistent with Section 6(b)(5) of the Act,\9\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and in general, to protect investors and the 
public interest.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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Leveraged ETN Options

    The Commission notes that the Exchange has represented that, 
similar to its imposition of higher margin requirements for options on 
leveraged ETFs,\10\ the Exchange will impose higher margin requirements 
for leveraged ETNs, as allowed under CBOE Rules 12.3(h) and 12.10. The 
Exchange will also issue a Regulatory Circular announcing the new 
margin requirements prior to listing and trading options on leveraged 
ETNs.
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    \10\ See CBOE Regulatory Circulars RG09-97 (August 31, 2009), 
RG09-132 (November 20, 2009). See also FINRA Regulatory Notices 09-
53 (August 2009), 09-65 (November 2009).
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    In addition, pursuant to the proposed rule change, the Exchange 
represented that the current listing standards for ETN options will 
continue to apply. The Exchange has also represented that its existing 
surveillance procedures applicable to trading options are adequate to 
properly monitor trading of options on leveraged ETNs.
    The Commission believes that these representations are adequate to 
protect investors. Furthermore, the Commission believes that the 
ability to trade options on leveraged ETNs will provide investors with 
additional risk management tools. Therefore, the Commission believes 
that this proposed rule change is appropriate.

Broaden the Definition of ``Futures-Linked Securities''

    The Commission believes that this proposal will provide a more 
efficient process for the Exchange to list and trade options on ETNs. 
The Exchange will be able to list and trade options overlying newly 
introduced ETNs that do not fall within the current definition of 
``Futures-Linked Securities,'' without first filing a rule change 
proposal with the Commission to change the definition of ``Futures-
Linked Securities'' to include each specific new product. The 
Commission notes that all ETNs that underlie options traded on the 
Exchange must still be principally traded on a national securities 
exchange and must be an ``NMS stock.'' In addition, pursuant to the 
proposed rule change, the Exchange represented that the current listing 
standards for options on ETNs will continue to apply to options on ETNs 
that fall within the proposed definition of ``Futures-Linked 
Securities.'' The Exchange has also represented that its existing 
surveillance procedures applicable to trading options are adequate to 
properly monitor trading of options on ETNs. Therefore, the Commission 
believes that this proposed rule change is appropriate.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the propose rule change (SR-CBOE-2010-080), as modified 
by Amendment No. 1, be, and is hereby, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-27768 Filed 11-2-10; 8:45 am]
BILLING CODE 8011-01-P
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