Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Exchange-Traded Notes, 71765-71768 [2010-29562]

Download as PDF Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 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). VerDate Mar<15>2010 15:30 Nov 23, 2010 Jkt 223001 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. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 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 71766 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices WReier-Aviles on DSKGBLS3C1PROD with NOTICES 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 Exchange Rule 1009 at Commentary .09 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, Exchange Rule 1009, Commentary .09 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 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’’). VerDate Mar<15>2010 15:30 Nov 23, 2010 Jkt 223001 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 Commentary .06 to this Rule 1009), 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 References Assets, or Futures Reference Assets (‘‘Multifactor Reference Asset’’). PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 For purposes of Exchange Rule 1009, Commentary .09, Equity Reference Assets, Commodity Reference Asset, 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 Exchange Rule 1009 at Commentary .01; 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 Exchange Rule 1009, Commentary .09 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 Commentary .09 of Exchange Rule 1009 at subparagraph (a) by adding the phrase, ‘‘or the leveraged (multiple or inverse) performance’’ to each of the subparagraphs ((i) through (vi)) 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 Exchange Rule 1010, Commentary .12, 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 Exchange Rule 1009, Commentary .09, (2) in accordance with the terms of Exchange Rule 1010, Commentary .01, in the case of options covering Index-Linked Securities when such options were approved pursuant to Exchange Rule 1009, Commentary .09, E:\FR\FM\24NON1.SGM 24NON1 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices WReier-Aviles on DSKGBLS3C1PROD with NOTICES except that, in the case of options covering Index-Linked Securities approved pursuant to Exchange Rule 1009, Commentary .09(c)(ii) 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 Exchange Rule 1009, Commentary .09, 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 Exchange Rule 1009, Commentary .09 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 ‘‘Futures-Linked Securities’’ set forth in Exchange Rule 1009, Commentary .09(a)(v). 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) 4 See Exchange Rules 1001 and 1002 regarding Position Limits and Exercise Limits, respectively. 5 See Exchange Rule 721 concerning Margin. VerDate Mar<15>2010 15:30 Nov 23, 2010 Jkt 223001 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). Exchange Rule 1009 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 ‘‘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. 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. 6 15 7 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00102 Fmt 4703 Sfmt 4703 71767 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– 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 8 15 U.S.C. 78s(b)(3)(A). 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. 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). 9 17 E:\FR\FM\24NON1.SGM 24NON1 71768 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 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: 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–Phlx–2010–159 on the subject line. WReier-Aviles on DSKGBLS3C1PROD with NOTICES 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–Phlx–2010–159. 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 11 See Securities Exchange Act Release No. 63202 (October 28, 2010), 75 FR 67794 (November 3, 2010) (SR–CBOE–2010–080). VerDate Mar<15>2010 15:30 Nov 23, 2010 Jkt 223001 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–Phlx– 2010–159 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. [FR Doc. 2010–29562 Filed 11–23–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION (Release No. 34–63342; File No. SR–BYX– 2010–001) Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to Proposed Rule Change, as Modified by Amendment No. 1, to Amend BYX Rule 11.8, Entitled ‘‘Obligations of Market Makers’’ November 18, 2010. I. Introduction On September 27, 2010, BATS Y-Exchange, Inc. (‘‘BYX’’ or the ‘‘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 amend its rules to enhance minimum quoting standards for market makers registered with the Exchange. The purpose of this rule change is to require equity market makers to post continuous two-sided quotations within a designated percentage of the inside market to eliminate market maker ‘‘stub quotes,’’ that are so far away from the prevailing market that they are not intended to be executed (such as an order to buy at a penny or sell at $100,000). The proposed rule change was published for comment in the Federal 12 The text of the proposed rule change is available on the Commission’s Web site at https:// 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. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 Register on October 15, 2010.3 In addition, BYX filed an Amendment No. 1 to the proposed rule change.4 The Commission received no comments on the proposed rule change. The Commission is publishing this notice and order to solicit comments on Amendment No. 1 and to approve the proposed rule change, as amended, on an accelerated basis. II. Description of the Proposal On May 6, 2010, the U.S. equity markets experienced a severe disruption.5 Among other things, the prices of a large number of individual securities suddenly declined by significant amounts in a very short time period, before suddenly reversing to prices consistent with their pre-decline levels. This severe price volatility led to a large number of trades being executed at temporarily depressed prices, including many that were more than 60% away from pre-decline prices and subsequently broken. As noted in the May 6 Staff Report, executions against stub quotes represented a significant proportion of broken trades on May 6. To address this aspect of the events of May 6, in coordination with the Commission, in addition to the Exchange, nine of the national securities exchanges and the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed proposals to address stub quotes by introducing minimum quoting standards for market makers.6 Those 3 See Securities Exchange Act Release No. 63068 (October 8, 2010), 75 FR 63528 (SR–BYX–2010– 001). 4 The Exchange filed Amendment No. 1 on November 8, 2010. Amendment No. 1 modifies the proposal so that a market maker is not expected to enter a quote based on the prior day’s last sale at the commencement of regular trading hours if there is no National Best Bid (‘‘NBB’’) or National Best Offer (‘‘NBO’’). As amended, in such a circumstance, the quoting obligation would commence as soon as there has been a regular-way transaction on the primary listing market in the security, as reported by the responsible single plan processor. In addition, the Amendment modifies the proposal so that a market maker’s quoting obligation shall be suspended during a trading halt, suspension or pause, and shall not re-commence until after the first regular-way transaction on the primary listing market following that halt, suspension or pause, as reported by the responsible single plan processor. Finally, so that the markets may coordinate implementation upon approval of the proposed rule changes, BYX stated in Amendment No. 1 that the planned implementation date for the proposed rule change would be December 6, 2010. 5 The events of May 6 are described more fully in the report of the staffs of the Commodity Futures Trading Commission (‘‘CFTC’’) and the Commission, titled Report of the Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues, ‘‘Findings Regarding the Market Events of May 6, 2010,’’ dated September 30, 2010 (‘‘May 6 Staff Report’’). 6 See Securities Exchange Act Release Nos. 62945 (September 20, 2010), 75 FR 58460 (September 24, E:\FR\FM\24NON1.SGM 24NON1

Agencies

[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71765-71768]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29562]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63334; File No. SR-Phlx-2010-159]


Self-Regulatory Organizations; NASDAQ OMX PHLX 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, NASDAQ OMX PHLX LLC (``Phlx'' 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 Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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. Index- Linked Securities are the non-convertible debt of 
an issuer that have a term of at least one (1) year but not

[[Page 71766]]

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 Exchange Rule 1009 at Commentary .09 
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'').
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    Currently, Exchange Rule 1009, Commentary .09 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 
Commentary .06 to this Rule 1009), 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 
References Assets, or Futures Reference Assets (``Multifactor Reference 
Asset'').
    For purposes of Exchange Rule 1009, Commentary .09, Equity 
Reference Assets, Commodity Reference Asset, 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 Exchange Rule 1009 at 
Commentary .01; 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 Exchange Rule 1009, Commentary .09 
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 Commentary .09 of Exchange Rule 1009 at 
subparagraph (a) by adding the phrase, ``or the leveraged (multiple or 
inverse) performance'' to each of the subparagraphs ((i) through (vi)) 
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 Exchange Rule 1010, 
Commentary .12, 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 
Exchange Rule 1009, Commentary .09, (2) in accordance with the terms of 
Exchange Rule 1010, Commentary .01, in the case of options covering 
Index-Linked Securities when such options were approved pursuant to 
Exchange Rule 1009, Commentary .09,

[[Page 71767]]

except that, in the case of options covering Index-Linked Securities 
approved pursuant to Exchange Rule 1009, Commentary .09(c)(ii) 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 Exchange Rule 1009, Commentary .09, 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 Exchange Rule 
1009, Commentary .09 will not have any effect on the rules pertaining 
to position and exercise limits \4\ or margin.\5\
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    \4\ See Exchange Rules 1001 and 1002 regarding Position Limits 
and Exercise Limits, respectively.
    \5\ See Exchange Rule 721 concerning Margin.
---------------------------------------------------------------------------

    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 Exchange Rule 
1009, Commentary .09(a)(v). 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).
    Exchange Rule 1009 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.
---------------------------------------------------------------------------

    \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

    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-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

[[Page 71768]]

new regulatory issues.\11\ For these reasons, the Commission designates 
the proposed rule change as operative upon filing.
---------------------------------------------------------------------------

    \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-Phlx-2010-159 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-Phlx-2010-159. 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-Phlx-2010-159 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 https://www.sec.gov.
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29562 Filed 11-23-10; 8:45 am]
BILLING CODE 8011-01-P
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