Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of MSCI EM Index Options, 11177-11179 [2012-4281]

Download as PDF Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the proposed rule change have not yet been solicited or received. DTC will notify the Commission of any written comments received by DTC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change was filed pursuant to Section 19(b)(3)(A) of the Act and paragraph (f)(4) of Rule 19b–4 and therefore, became effective on filing. At any time within sixty days of the filing of such 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 email to rulecomments@sec.gov. Please include File Number SR–DTC–2012–01 on the subject line. Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at DTC’s principal office and on DTC’s Web site at www.dtc.org. 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–DTC–2012–01 and should be submitted on or before March 16, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–4279 Filed 2–23–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66420; File No. SR–Phlx2011–179] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of MSCI EM Index Options srobinson on DSK4SPTVN1PROD with NOTICES Paper comments February 17, 2012. • 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–DTC–2012–01. This file number should be included on the subject line if email 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 I. Introduction VerDate Mar<15>2010 18:34 Feb 23, 2012 Jkt 226001 On December 21, 2011, NASDAQ OMX PHLX LLC (the ‘‘Exchange’’ or ‘‘Phlx’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend certain of its rules to provide for the listing and trading of options on the MSCI EM Index. The proposed rule change was published for comment in the Federal Register on January 6, 2012.3 On January 11, 2012, the Exchange filed Amendment No. 1 to the 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 66077 (January 3, 2012), 77 FR 829 (‘‘Notice’’). 1 15 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 11177 proposed rule change.4 The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change, as modified by Amendment No. 1 thereto. II. Description The proposed rule change would amend Phlx Rules 1079 (FLEX Index, Equity and Currency Options), 1009A (Designation of the Index) and 1101A (Terms of Option Contracts) to list and trade P.M. cash-settled, European-style options, including FLEX 5 options and LEAPS,6 on the MSCI EM Index, which is described below. The proposal would also create new Phlx Rule 1108A, entitled ‘‘MSCI EM Index,’’ which would provide additional detailed information pertaining to the index as required by the licensor including, but not limited to, liability and other representations on the part of MSCI Inc. (‘‘MSCI’’), which maintains the index. As described by the Exchange, the MSCI EM Index is a free float-adjusted market capitalization index consisting of large and midcap component securities from countries classified by MSCI as ‘‘emerging markets,’’ and is designed to measure equity market performance of emerging markets. The index consists of component securities from the following 21 emerging market countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. As further described by the Exchange, the MSCI EM Index is calculated in U.S. Dollars on a real time basis from the open of the first market on which the components are traded to the close of the last market on which the components are traded. The level of the index reflects the free float-adjusted market value of the component stocks relative to a particular base date, and the methodology used to calculate the value of the index is similar to the methodology used to calculate the value of other well-known market4 Amendment No. 1 made a technical correction to the Exhibit 3. Amendment No. 1 is not subject to notice and comment because it is technical in nature and does not materially alter the substance of the proposed rule change or raise any novel regulatory issues. 5 FLEX options are flexible exchange-traded index, equity, or currency option contracts that provide investors the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices. FLEX index options may have expiration dates within five years. See Exchange Rules 1079 and 1101A. 6 LEAPS or Long Term Equity Anticipation Securities are long term options that generally expire from twelve to thirty-nine months from the time they are listed. E:\FR\FM\24FEN1.SGM 24FEN1 11178 Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / Notices srobinson on DSK4SPTVN1PROD with NOTICES capitalization weighted indexes.7 As of December 31, 1987, when the MSCI EM Index was launched, its base index value was 100. On June 1, 2011, the index value was 1166.72.8 The MSCI EM Index is monitored and maintained by MSCI. Adjustments to the MSCI EM Index are made on a daily basis with respect to corporate events and dividends. The index is generally updated on a quarterly basis to reflect amendments to shares outstanding and free float. Full index reviews are conducted on a semi-annual basis for purposes of rebalancing the index. Options on the MSCI EM Index, as introduced by the proposed rule change, would be European-style and P.M. cashsettled. The settlement value for expiring options would be based on the closing prices of the component stocks on the last trading day prior to expiration. The expiration date would be the Saturday following the third Friday of the expiration month. The Options Clearing Corporation would be the issuer and guarantor. Phlx Rule 1009A(d) provides that the Exchange may trade options on a broadbased index 9 pursuant to Rule 19b–4(e) under the Act, when certain conditions are satisfied.10 The MSCI EM Index is a broad-based index. However, it does not meet all the conditions of Rule 1009A(d). The proposed rule change would establish listing standards that are specific to MSCI EM Index options, to be set forth in new Rule 1009A(g). Specifically, proposed Rule 1009A(g)(i) would provide that the Exchange may trade options on the MSCI EM Index if each of the following conditions is satisfied: (1) The index is broad-based; (2) Options on the index are designated as P.M.-settled index options; 7 Details regarding the methodology for calculating the MSCI EM Index can be found in the Notice, supra note 3, and at https://www.msci.com/ eqb/methodology/meth_docs/ MSCI_May11_GIMIMethod.pdf. 8 According to the Exchange, static data regarding the MSCI EM Index is distributed daily to clients through MSCI as well as through major quotation vendors, including Bloomberg L.P. (‘‘Bloomberg’’), FactSet Research Systems, Inc. (‘‘FactSet’’) and Thomson Reuters (‘‘Reuters’’). Real time data is distributed at least every 15 seconds using MSCI’s real-time calculation engine to Reuters, Bloomberg, SIX Telekurs and FactSet. 9 A broad-based index is defined in Exchange Rule 1000A(b)(11) as an index designed to be representative of a stock market as a whole or of a range of companies in unrelated industries. 10 This provision is an exception to Exchange Rule 1009A(a), which provides generally that the listing of a class of index options on a new underlying index will be treated by the Exchange as a proposed rule change subject to filing with and approved by the Commission under Section 19(b) of the Act. VerDate Mar<15>2010 18:34 Feb 23, 2012 Jkt 226001 (3) The index is capitalizationweighted, price-weighted, modified capitalization-weighted or equal dollarweighted; (4) The index consists of 500 or more component securities; (5) All the component securities of the index have a market capitalization of greater than $100 million; (6) No single component security accounts for more than 15% of the weight of the index, and the five highest weighted component securities in the index do not, in the aggregate, account for more than 50% of the weight of the index; (7) Non-U.S. component securities (stocks or ADRs) that are not subject to comprehensive surveillance agreements do not, in the aggregate, represent more than 22.5% of the weight of the index; (8) The current index value is widely disseminated at least once every 15 seconds by one or more major market data vendors during the time options on the index are traded on the Exchange; (9) The Exchange reasonably believes it has adequate system capacity to support the trading of options on the index, based on a calculation of the Exchange’s current Independent System Capacity Advisor (ISCA) allocation and the number of new messages per second expected to be generated by options on such index; and (10) The Exchange has written procedures in place for the surveillance of trading of options on the index. After the initial listing of options on the MSCI EM Index under the above conditions, the following maintenance standards, as set forth in proposed Rule 1009A(g)(ii), would apply: The requirements set forth in proposed Rule 1009A(g)(i)(1), (2), (3), (4), (7), (8), (9), and (10) must continue to be satisfied. The requirements set forth in proposed Rule 1009A(g)(i)(5) and (6) must be satisfied only as of the first day of January and July in each year. In addition, the total number of component securities in the index could not increase or decrease by more than 35% from the number of component securities in the index at the time of its initial listing. The Exchange proposed to apply position limits of 25,000 contracts on the same side of the market to options on the MSCI EM Index.11 All position limit hedge exemptions would apply. In addition, the Exchange proposed to amend Rule 1079(d)(1) to note that, with respect to FLEX options on the MSCI EM index, the same number of contracts, 25,000, would apply with 11 The exercise limit would also be 25,000 contracts as per Exchange Rule 1002A. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 respect to the position limit. The Exchange also proposed to apply existing index option margin requirements for the purchase and sale of options on the MSCI EM Index.12 Further, as proposed, Exchange rules that apply to the trading of options on broad-based indexes also would apply to options on the MSCI EM Index.13 This includes, among others, Exchange rules governing margin requirements and trading halt procedures for index options.14 Finally, the Exchange proposed to add Rule 1108A, entitled ‘‘MSCI EM Index,’’ to provide additional detailed information pertaining to the index as required by the licensor, including, but not limited to, liability and other representations on the part of MSCI. III. Discussion and Commission Findings The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.15 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,16 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Commission believes that the listing and trading of options on the MSCI EM Index will broaden trading and hedging opportunities for investors by creating a new options instrument based on an index designed to measure the equity market performance of emerging markets. Because the MSCI EM Index is a broad-based index comprised of actively-traded, well12 See Exchange Rule 721. For additional proposed requirements for options on the MSCI EM Index, including strike price intervals, minimum tick size, and series openings, see Notice, supra note 3. 13 See generally Exchange Rules 1000A through 1107A (Rules Applicable to Trading of Options on Indices) and Exchange Rules 1000 through 1094 (Rules Applicable to Trading of Options on Stocks, Exchange-Traded Fund Shares and Foreign Currencies). 14 See Exchange Rules 721 (Proper and Adequate Margin) and 1047A (Trading Rotations, Halts or Reopenings). 15 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 16 15 U.S.C. 78f(b)(5). E:\FR\FM\24FEN1.SGM 24FEN1 srobinson on DSK4SPTVN1PROD with NOTICES Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / Notices capitalized stocks, the trading of options on the MSCI EM Index does not raise unique regulatory concerns. The Commission believes that the listing standards, which are created specifically and exclusively for the MSCI EM Index, are consistent with the Act, for the reasons discussed below. The Commission notes that proposed Rule 1009A(g) would require that the MSCI EM Index consist of 500 or more component securities. The component securities of the MSCI EM Index are listed and traded on markets spread over 21 different countries. Further, for options on the MSCI EM Index to trade, each of the minimum of 500 component securities would need to have a market capitalization of greater than $100 million. Moreover, the Commission notes that, according to the Exchange, the MSCI EM Index is comprised of more than 800 components, all of which must meet the market capitalization requirement to permit an option on the index to begin trading. The Commission notes that the proposed listing standards for options on the MSCI EM Index would not permit any single security to comprise more than 15% of the weight of the index, and would not permit a group of five securities to comprise more than 50% of the weight of the index. The Commission believes that, in view of the requirement on the number of securities in the index, the number of countries represented in the index, and the market capitalization, this concentration standard is consistent with the Act. Further, the Exchange stated that, of the more than 800 components that comprise the MSCI EM Index, no single component comprises more than 5% of the index. The Exchange has represented that it has an adequate surveillance program in place for options on the MSCI EM Index, and intends to apply the same procedures for surveillance that it applies to its other index options. The Exchange also is a member of the Intermarket Surveillance Group and an affiliate member of the International Organization of Securities Commissions, and has entered into various Information Sharing Agreements and/or Memoranda of Understandings with various stock exchanges. Under the proposed rule change, nonU.S. component securities of the MSCI EM Index that are not subject to comprehensive surveillance agreements will not, in the aggregate, represent more than 22.5% of the weight of the index. The Commission expects the Exchange to continue to work to secure comprehensive surveillance agreements with exchanges on which the VerDate Mar<15>2010 18:34 Feb 23, 2012 Jkt 226001 component securities of the MSCI EM Index trade, but with which the Exchange currently does not have comprehensive surveillance agreements in place. The proposed listing standards require the current value of the MSCI EM Index to be widely disseminated at least once every 15 seconds by one or more major market data vendors during the time options on the index are traded on the Exchange. Further, the standards require that the Exchange have adequate system capacity to support the trading of options on the MSCI EM Index. The Exchange stated that these requirements will be met. As a national securities exchange, the Exchange is required, under Section 6(b)(1) of the Act,17 to enforce compliance by its members, and persons associated with its members, with the provisions of the Act, Commission rules and regulations thereunder, and its own rules. In this regard, the Commission notes that Exchange rules that apply to the trading of options on broad-based indexes would apply to options on the MSCI EM Index.18 In addition, the Exchange has stated that options on the MSCI EM Index would be subject to the same rules that govern all Exchange index options, including rules that are designed to protect public customer trading.19 The Commission further believes that the Exchange’s proposed position and exercise limits, strike price intervals, minimum tick size, series openings, and other aspects of the proposed rule change are appropriate and consistent with the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,20 that the proposed rule change (SR–Phlx–2011– 179), as modified by Amendment No. 1 thereto, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–4281 Filed 2–23–12; 8:45 am] BILLING CODE 8011–01–P 17 15 U.S.C. 78f(b)(1). generally Exchange Rules 1000A through 1107A (Rules Applicable to Trading of Options on Indices) and Exchange Rules 1000 through 1094 (Rules Applicable to Trading of Options on Stocks, Exchange-Traded Fund Shares and Foreign Currencies). 19 See Notice, supra note 3 and Exchange Rules 1024–1029. See also supra notes 13 and 14. 20 15 U.S.C. 78s(b)(2). 21 17 CFR 200.30–3(a)(12). 18 See PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 11179 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66422; File No. SR–BATS– 2012–010] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Fees for Use of BATS Exchange, Inc. February 17, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b-4 thereunder,2 notice is hereby given that on February 8, 2012, BATS Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to institute a fee change applicable to securities listed on the Exchange. Changes to the Exchange’s fees pursuant to this proposal will be effective upon filing. The text of the proposed rule change is available at the Exchange’s Web site at https://www.batstrading.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 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 2 17 E:\FR\FM\24FEN1.SGM 24FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 37 (Friday, February 24, 2012)]
[Notices]
[Pages 11177-11179]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-4281]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66420; File No. SR-Phlx-2011-179]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 1 Thereto, Relating to the Listing and Trading of MSCI EM Index
Options

February 17, 2012.

I. Introduction

On December 21, 2011, NASDAQ OMX PHLX LLC (the ``Exchange'' or
``Phlx'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend certain of its rules to provide for the
listing and trading of options on the MSCI EM Index. The proposed rule
change was published for comment in the Federal Register on January 6,
2012.\3\ On January 11, 2012, the Exchange filed Amendment No. 1 to the
proposed rule change.\4\ The Commission received no comment letters on
the proposed rule change. This order approves the proposed rule change,
as modified by Amendment No. 1 thereto.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 66077 (January 3,
2012), 77 FR 829 (``Notice'').
\4\ Amendment No. 1 made a technical correction to the Exhibit
3. Amendment No. 1 is not subject to notice and comment because it
is technical in nature and does not materially alter the substance
of the proposed rule change or raise any novel regulatory issues.
---------------------------------------------------------------------------

II. Description

The proposed rule change would amend Phlx Rules 1079 (FLEX Index,
Equity and Currency Options), 1009A (Designation of the Index) and
1101A (Terms of Option Contracts) to list and trade P.M. cash-settled,
European-style options, including FLEX \5\ options and LEAPS,\6\ on the
MSCI EM Index, which is described below. The proposal would also create
new Phlx Rule 1108A, entitled ``MSCI EM Index,'' which would provide
additional detailed information pertaining to the index as required by
the licensor including, but not limited to, liability and other
representations on the part of MSCI Inc. (``MSCI''), which maintains
the index.
---------------------------------------------------------------------------

\5\ FLEX options are flexible exchange-traded index, equity, or
currency option contracts that provide investors the ability to
customize basic option features including size, expiration date,
exercise style, and certain exercise prices. FLEX index options may
have expiration dates within five years. See Exchange Rules 1079 and
1101A.
\6\ LEAPS or Long Term Equity Anticipation Securities are long
term options that generally expire from twelve to thirty-nine months
from the time they are listed.
---------------------------------------------------------------------------

As described by the Exchange, the MSCI EM Index is a free float-
adjusted market capitalization index consisting of large and midcap
component securities from countries classified by MSCI as ``emerging
markets,'' and is designed to measure equity market performance of
emerging markets. The index consists of component securities from the
following 21 emerging market countries: Brazil, Chile, China, Colombia,
Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia,
Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa,
Taiwan, Thailand, and Turkey.
As further described by the Exchange, the MSCI EM Index is
calculated in U.S. Dollars on a real time basis from the open of the
first market on which the components are traded to the close of the
last market on which the components are traded. The level of the index
reflects the free float-adjusted market value of the component stocks
relative to a particular base date, and the methodology used to
calculate the value of the index is similar to the methodology used to
calculate the value of other well-known market-

[[Page 11178]]

capitalization weighted indexes.\7\ As of December 31, 1987, when the
MSCI EM Index was launched, its base index value was 100. On June 1,
2011, the index value was 1166.72.\8\
---------------------------------------------------------------------------

\7\ Details regarding the methodology for calculating the MSCI
EM Index can be found in the Notice, supra note 3, and at https://www.msci.com/eqb/methodology/meth_docs/MSCI_May11_GIMIMethod.pdf.
\8\ According to the Exchange, static data regarding the MSCI EM
Index is distributed daily to clients through MSCI as well as
through major quotation vendors, including Bloomberg L.P.
(``Bloomberg''), FactSet Research Systems, Inc. (``FactSet'') and
Thomson Reuters (``Reuters''). Real time data is distributed at
least every 15 seconds using MSCI's real-time calculation engine to
Reuters, Bloomberg, SIX Telekurs and FactSet.
---------------------------------------------------------------------------

The MSCI EM Index is monitored and maintained by MSCI. Adjustments
to the MSCI EM Index are made on a daily basis with respect to
corporate events and dividends. The index is generally updated on a
quarterly basis to reflect amendments to shares outstanding and free
float. Full index reviews are conducted on a semi-annual basis for
purposes of rebalancing the index.
Options on the MSCI EM Index, as introduced by the proposed rule
change, would be European-style and P.M. cash-settled. The settlement
value for expiring options would be based on the closing prices of the
component stocks on the last trading day prior to expiration. The
expiration date would be the Saturday following the third Friday of the
expiration month. The Options Clearing Corporation would be the issuer
and guarantor.
Phlx Rule 1009A(d) provides that the Exchange may trade options on
a broad-based index \9\ pursuant to Rule 19b-4(e) under the Act, when
certain conditions are satisfied.\10\ The MSCI EM Index is a broad-
based index. However, it does not meet all the conditions of Rule
1009A(d). The proposed rule change would establish listing standards
that are specific to MSCI EM Index options, to be set forth in new Rule
1009A(g).
---------------------------------------------------------------------------

\9\ A broad-based index is defined in Exchange Rule 1000A(b)(11)
as an index designed to be representative of a stock market as a
whole or of a range of companies in unrelated industries.
\10\ This provision is an exception to Exchange Rule 1009A(a),
which provides generally that the listing of a class of index
options on a new underlying index will be treated by the Exchange as
a proposed rule change subject to filing with and approved by the
Commission under Section 19(b) of the Act.
---------------------------------------------------------------------------

Specifically, proposed Rule 1009A(g)(i) would provide that the
Exchange may trade options on the MSCI EM Index if each of the
following conditions is satisfied:
(1) The index is broad-based;
(2) Options on the index are designated as P.M.-settled index
options;
(3) The index is capitalization-weighted, price-weighted, modified
capitalization-weighted or equal dollar-weighted;
(4) The index consists of 500 or more component securities;
(5) All the component securities of the index have a market
capitalization of greater than $100 million;
(6) No single component security accounts for more than 15% of the
weight of the index, and the five highest weighted component securities
in the index do not, in the aggregate, account for more than 50% of the
weight of the index;
(7) Non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than 22.5% of the weight of the index;
(8) The current index value is widely disseminated at least once
every 15 seconds by one or more major market data vendors during the
time options on the index are traded on the Exchange;
(9) The Exchange reasonably believes it has adequate system
capacity to support the trading of options on the index, based on a
calculation of the Exchange's current Independent System Capacity
Advisor (ISCA) allocation and the number of new messages per second
expected to be generated by options on such index; and
(10) The Exchange has written procedures in place for the
surveillance of trading of options on the index.
After the initial listing of options on the MSCI EM Index under the
above conditions, the following maintenance standards, as set forth in
proposed Rule 1009A(g)(ii), would apply: The requirements set forth in
proposed Rule 1009A(g)(i)(1), (2), (3), (4), (7), (8), (9), and (10)
must continue to be satisfied. The requirements set forth in proposed
Rule 1009A(g)(i)(5) and (6) must be satisfied only as of the first day
of January and July in each year. In addition, the total number of
component securities in the index could not increase or decrease by
more than 35% from the number of component securities in the index at
the time of its initial listing.
The Exchange proposed to apply position limits of 25,000 contracts
on the same side of the market to options on the MSCI EM Index.\11\ All
position limit hedge exemptions would apply. In addition, the Exchange
proposed to amend Rule 1079(d)(1) to note that, with respect to FLEX
options on the MSCI EM index, the same number of contracts, 25,000,
would apply with respect to the position limit. The Exchange also
proposed to apply existing index option margin requirements for the
purchase and sale of options on the MSCI EM Index.\12\
---------------------------------------------------------------------------

\11\ The exercise limit would also be 25,000 contracts as per
Exchange Rule 1002A.
\12\ See Exchange Rule 721. For additional proposed requirements
for options on the MSCI EM Index, including strike price intervals,
minimum tick size, and series openings, see Notice, supra note 3.
---------------------------------------------------------------------------

Further, as proposed, Exchange rules that apply to the trading of
options on broad-based indexes also would apply to options on the MSCI
EM Index.\13\ This includes, among others,
---------------------------------------------------------------------------

\13\ See generally Exchange Rules 1000A through 1107A (Rules
Applicable to Trading of Options on Indices) and Exchange Rules 1000
through 1094 (Rules Applicable to Trading of Options on Stocks,
Exchange-Traded Fund Shares and Foreign Currencies).
---------------------------------------------------------------------------

Exchange rules governing margin requirements and trading halt
procedures for index options.\14\
---------------------------------------------------------------------------

\14\ See Exchange Rules 721 (Proper and Adequate Margin) and
1047A (Trading Rotations, Halts or Reopenings).
---------------------------------------------------------------------------

Finally, the Exchange proposed to add Rule 1108A, entitled ``MSCI
EM Index,'' to provide additional detailed information pertaining to
the index as required by the licensor, including, but not limited to,
liability and other representations on the part of MSCI.

III. Discussion and Commission Findings

The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\15\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\16\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest.
---------------------------------------------------------------------------

\15\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation.
\16\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the listing and trading of options on
the MSCI EM Index will broaden trading and hedging opportunities for
investors by creating a new options instrument based on an index
designed to measure the equity market performance of emerging markets.
Because the MSCI EM Index is a broad-based index comprised of actively-
traded, well-

[[Page 11179]]

capitalized stocks, the trading of options on the MSCI EM Index does
not raise unique regulatory concerns. The Commission believes that the
listing standards, which are created specifically and exclusively for
the MSCI EM Index, are consistent with the Act, for the reasons
discussed below.
The Commission notes that proposed Rule 1009A(g) would require that
the MSCI EM Index consist of 500 or more component securities. The
component securities of the MSCI EM Index are listed and traded on
markets spread over 21 different countries. Further, for options on the
MSCI EM Index to trade, each of the minimum of 500 component securities
would need to have a market capitalization of greater than $100
million. Moreover, the Commission notes that, according to the
Exchange, the MSCI EM Index is comprised of more than 800 components,
all of which must meet the market capitalization requirement to permit
an option on the index to begin trading.
The Commission notes that the proposed listing standards for
options on the MSCI EM Index would not permit any single security to
comprise more than 15% of the weight of the index, and would not permit
a group of five securities to comprise more than 50% of the weight of
the index. The Commission believes that, in view of the requirement on
the number of securities in the index, the number of countries
represented in the index, and the market capitalization, this
concentration standard is consistent with the Act. Further, the
Exchange stated that, of the more than 800 components that comprise the
MSCI EM Index, no single component comprises more than 5% of the index.
The Exchange has represented that it has an adequate surveillance
program in place for options on the MSCI EM Index, and intends to apply
the same procedures for surveillance that it applies to its other index
options. The Exchange also is a member of the Intermarket Surveillance
Group and an affiliate member of the International Organization of
Securities Commissions, and has entered into various Information
Sharing Agreements and/or Memoranda of Understandings with various
stock exchanges.
Under the proposed rule change, non-U.S. component securities of
the MSCI EM Index that are not subject to comprehensive surveillance
agreements will not, in the aggregate, represent more than 22.5% of the
weight of the index. The Commission expects the Exchange to continue to
work to secure comprehensive surveillance agreements with exchanges on
which the component securities of the MSCI EM Index trade, but with
which the Exchange currently does not have comprehensive surveillance
agreements in place.
The proposed listing standards require the current value of the
MSCI EM Index to be widely disseminated at least once every 15 seconds
by one or more major market data vendors during the time options on the
index are traded on the Exchange. Further, the standards require that
the Exchange have adequate system capacity to support the trading of
options on the MSCI EM Index. The Exchange stated that these
requirements will be met.
As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\17\ to enforce compliance by its members,
and persons associated with its members, with the provisions of the
Act, Commission rules and regulations thereunder, and its own rules. In
this regard, the Commission notes that Exchange rules that apply to the
trading of options on broad-based indexes would apply to options on the
MSCI EM Index.\18\ In addition, the Exchange has stated that options on
the MSCI EM Index would be subject to the same rules that govern all
Exchange index options, including rules that are designed to protect
public customer trading.\19\
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\17\ 15 U.S.C. 78f(b)(1).
\18\ See generally Exchange Rules 1000A through 1107A (Rules
Applicable to Trading of Options on Indices) and Exchange Rules 1000
through 1094 (Rules Applicable to Trading of Options on Stocks,
Exchange-Traded Fund Shares and Foreign Currencies).
\19\ See Notice, supra note 3 and Exchange Rules 1024-1029. See
also supra notes 13 and 14.
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The Commission further believes that the Exchange's proposed
position and exercise limits, strike price intervals, minimum tick
size, series openings, and other aspects of the proposed rule change
are appropriate and consistent with the Act.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-Phlx-2011-179), as modified
by Amendment No. 1 thereto, be, and hereby is, approved.
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\20\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4281 Filed 2-23-12; 8:45 am]
BILLING CODE 8011-01-P

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