Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Exchange-Traded Notes, 71762-71765 [2010-29561]
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Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Clearing Corporation. The basket
represents one Creation Unit of the
Fund. The NAV of the Fund will
normally be determined as of the close
of the regular trading session on the
NYSE (ordinarily 4 p.m. Eastern Time)
on each business day.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.16 The Exchange may halt
trading in the Shares if the value of the
Portfolio Indicative Value is no longer
calculated or available or the Disclosed
Portfolio is not made available to all
market participants at the same time.17
In addition, NYSE Arca Equities Rule
8.600(d)(2)(B)(ii) requires that the
Reporting Authority that provides the
Disclosed Portfolio implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material non-public
information regarding the actual
components of the portfolio. Lastly, the
Commission notes that the Exchange
will halt trading in the Shares under the
specific circumstances set forth in NYSE
Arca Equities Rule 8.600(d)(2)(D) and
that, if there is an additional Fund subadvisor that is affiliated with a brokerdealer, that sub-advisor must erect a fire
wall between it and such broker-dealer
with respect to access to information
concerning the composition and/or
changes to the investment portfolio of
the Fund.18
The Exchange has represented that
the Shares are deemed to be equity
securities, thus rendering trading in the
16 See NYSE Arca Equities Rule 8.600(d)(1)(B)
(also requiring that the Exchange obtain a
representation from the issuer that the NAV per
Share will be calculated daily).
17 See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
With respect to trading halts, the Exchange may
consider other relevant factors in exercising its
discretion to halt or suspend trading in the Shares.
Trading on the Exchange in the Shares may be
halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in
the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the
securities comprising the Disclosed Portfolio
and/or the financial instruments of the Fund; or (2)
whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly
market are present.
18 The Commission notes that the Exchange has
represented that neither the Fund’s Advisor nor
Sub-Advisor is affiliated with a broker-dealer. See
supra note 6.
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Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) The Exchange’s surveillance
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
(4) Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Unit
aggregations (including noting that
Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (c) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated PIV will not be
calculated or publicly disseminated; (d)
how information regarding the PIV is
disseminated; (e) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(5) A minimum of 100,000 Shares will
be outstanding at the commencement of
trading on the Exchange.
(6) For initial and continued listing,
the Shares must comply with Rule
10A–3 under the Act.19
This approval order is based on the
Exchange’s representations.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 20 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,21 that the
proposed rule change (SR–NYSEArca–
2010–86), be, and it hereby is, approved.
CFR 240.10A–3.
U.S.C. 78f(b)(5).
21 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–29560 Filed 11–23–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63333; File No. SR–
NASDAQ–2010–148]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Exchange-Traded Notes
November 17, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
notice is hereby given that on November
15, 2010 The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the NASDAQ.
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 NASDAQ Stock Market LLC
proposes to amend Chapter IV, Section
3, titled Criteria for Underlying
Securities, 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 proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, 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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change. The text of
these statements may be examined at
19 17
22 17
20 15
1 15
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Chapter IV, Section
3(l), titled Index-Linked Securities, 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, exchangelisted security. Accordingly, rules
pertaining to the listing and trading of
standard equity options apply to IndexLinked Securities.
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Leveraged ETN Options
The Exchange proposes to amend
Chapter IV, Section 3(l) 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
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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, Chapter IV, Section 3(l)
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 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 Section 3(i)), 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
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’’).
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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)
(‘‘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 Reference Assets, or
Futures Reference Assets (‘‘Multifactor
Reference Asset’’).
For purposes of Chapter IV, Section
3(l), 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
Chapter IV, Section 3(b); or (ii) 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 IndexLinked Securities prospectus.
The Exchange proposes to amend
Chapter IV, Section 3(l) 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 Chapter IV, Section
3(l) at subparagraph (i) by adding the
phrase, ‘‘or the leveraged (multiple or
inverse) performance’’ to each of the
subparagraphs ((1) through (6)) 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
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Chapter IV, Section 4(k), 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 Chapter IV, Section
3(l), (2) in accordance with the terms of
Chapter IV, Section 4(b), in the case of
options covering Index-Linked
Securities when such options were
approved pursuant to Chapter IV,
Section 3(l), except that, in the case of
options covering Index-Linked
Securities approved pursuant to Chapter
IV, Section 3(l)(iii)(2) 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 Chapter IV, Section 3(l), 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
Chapter IV, Section 3(l) 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)
4 See Chapter XIV, Sections 5 and 7, Position
Limits, and Section 9, Exercise Limits.
5 See Chapter XIII concerning Margin
Requirements.
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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
‘‘Futures-Linked Securities’’ set forth in
Chapter IV, Section 3(l)(i)(5). 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).
Chapter IV, Section 3(l) sets forth
generic listing criteria for securities that
may serve as underlyings for listed
options trading. The Exchange believes
that the current definition of ‘‘FuturesLinked 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 be principally
traded on a national securities exchange
and must be an ‘‘NMS Stock.’’ As a
result, the Exchange believes that
broadening the definition of ‘‘FuturesLinked Securities’’ by no longer
specifically listing the types of futures
and options on futures contracts that
may be tracked by an ETN is
appropriate.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 6 in general, and furthers the
objectives of Section 6(b)(5) of the Act 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
The Exchange 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.
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
Because the foregoing proposed rule
change: (1) Does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 8 and Rule
19b–4(f)(6) thereunder.9
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of filing. However, Rule 19b–
6 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
8 15 U.S.C. 78s(b)(3)(A).
9 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its
intent to file the proposed rule change, along with
a brief description and text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has fulfilled this requirement.
7 15
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4(f)(6)(iii) permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange requests that the Commission
waive the 30-day operative delay so that
the Exchange can list and trade options
on leveraged (multiple or inverse) ETNs
and implement the amended definition
of ‘‘Futures-Linked Securities’’
immediately. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest.10 The
Commission notes the proposal is
substantively identical to a proposal
that was recently approved by the
Commission, and does not raise any
new regulatory issues.11 For these
reasons, the Commission designates the
proposed rule change as operative upon
filing.
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:
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.12 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–
NASDAQ–2010–148 and should be
submitted on or before December 15,
2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Florence E. Harmon,
Deputy Secretary.
WReier-Aviles on DSKGBLS3C1PROD 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–2010–148 on the
subject line.
[FR Doc. 2010–29561 Filed 11–23–10; 8:45 am]
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–NASDAQ–2010–148. This
file number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Exchange-Traded Notes
10 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
11 See Securities Exchange Act Release No. 63202
(October 28, 2010), 75 FR 67794 (November 3, 2010)
(SR–CBOE–2010–080).
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63334; File No. SR–Phlx2010–159]
November 17, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on November
15, 2010, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
12 The text of the proposed rule change is
available on the Commission’s Web site at
www.sec.gov.
13 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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71765
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 1009, titled Criteria for
Underlying Securities, at Commentary
.09 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 proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings, at the
principal office of the Exchange, 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
Exchange 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
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Exchange Rule 1009
at Commentary .09 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. IndexLinked Securities are the nonconvertible debt of an issuer that have
a term of at least one (1) year but not
E:\FR\FM\24NON1.SGM
24NON1
]]>Agencies
[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71762-71765]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29561]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63333; File No. SR-NASDAQ-2010-148]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Exchange-Traded Notes
November 17, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on November 15, 2010 The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the NASDAQ. 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 NASDAQ Stock Market LLC proposes to amend Chapter IV, Section
3, titled Criteria for Underlying Securities, 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 proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, 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 Exchange included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at
[[Page 71763]]
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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Chapter IV,
Section 3(l), titled Index-Linked Securities, 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 Chapter IV, Section 3(l) 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\
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\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'').
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Currently, Chapter IV, Section 3(l) 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
Section 3(i)), 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) (``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
Reference Assets, or Futures Reference Assets (``Multifactor Reference
Asset'').
For purposes of Chapter IV, Section 3(l), 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 Chapter IV, Section
3(b); or (ii) 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 Chapter IV, Section 3(l) 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 Chapter IV, Section 3(l) at subparagraph
(i) by adding the phrase, ``or the leveraged (multiple or inverse)
performance'' to each of the subparagraphs ((1) through (6)) 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
[[Page 71764]]
Chapter IV, Section 4(k), 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
Chapter IV, Section 3(l), (2) in accordance with the terms of Chapter
IV, Section 4(b), in the case of options covering Index-Linked
Securities when such options were approved pursuant to Chapter IV,
Section 3(l), except that, in the case of options covering Index-Linked
Securities approved pursuant to Chapter IV, Section 3(l)(iii)(2) 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 Chapter IV, Section 3(l), 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 Chapter IV,
Section 3(l) will not have any effect on the rules pertaining to
position and exercise limits \4\ or margin.\5\
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\4\ See Chapter XIV, Sections 5 and 7, Position Limits, and
Section 9, Exercise Limits.
\5\ See Chapter XIII concerning Margin Requirements.
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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 ``Futures-Linked Securities'' set forth in Chapter IV,
Section 3(l)(i)(5). 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).
Chapter IV, Section 3(l) 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 be principally traded on a national securities
exchange and must be 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 its proposal is consistent with Section
6(b) of the Act \6\ in general, and furthers the objectives of Section
6(b)(5) of the Act \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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has fulfilled this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-
[[Page 71765]]
4(f)(6)(iii) permits the Commission to designate a shorter time if such
action is consistent with the protection of investors and the public
interest. The Exchange requests that the Commission waive the 30-day
operative delay so that the Exchange can list and trade options on
leveraged (multiple or inverse) ETNs and implement the amended
definition of ``Futures-Linked Securities'' immediately. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest.\10\ The Commission
notes the proposal is substantively identical to a proposal that was
recently approved by the Commission, and does not raise any new
regulatory issues.\11\ For these reasons, the Commission designates the
proposed rule change as operative upon filing.
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\10\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\11\ See Securities Exchange Act Release No. 63202 (October 28,
2010), 75 FR 67794 (November 3, 2010) (SR-CBOE-2010-080).
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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:
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-NASDAQ-2010-148 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-NASDAQ-2010-148. 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.\12\ 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-
NASDAQ-2010-148 and should be submitted on or before December 15, 2010.
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\12\ The text of the proposed rule change is available on the
Commission's Web site at www.sec.gov.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29561 Filed 11-23-10; 8:45 am]
BILLING CODE 8011-01-P
