[Federal Register Volume 75, Number 133 (Tuesday, July 13, 2010)]
[Notices]
[Pages 40005-40007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16997]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62463; File No. SR-CBOE-2010-043]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of Proposed Rule Change To Enable
the Listing and Trading of Options on the Sprott Physical Gold Trust
July 7, 2010.
On May 11, 2010, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade options on the
Sprott Physical Gold Trust (``Sprott Options''). The proposed rule
change was published in the Federal Register on June 4, 2010.\3\ The
Commission received no comments on the proposal. This order approves
the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62193 (May 28,
2010), 75 FR 31823.
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I. Description of Proposal
Recently, the Commission authorized CBOE to list and trade options
on the SPDR Gold Trust,\4\ the iShares COMEX Gold Trust, the iShares
Silver Trust,\5\ the ETFS Silver Trust and the ETFS Gold Trust,\6\ the
ETFS Palladium Trust and the ETFS Platinum Trust.\7\ Now, the
[[Page 40006]]
Exchange proposes to list and trade options on the Sprott Physical Gold
Trust.
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\4\ See Securities Exchange Act Release No. 57897 (May 30,
2008), 73 FR 32061 (June 5, 2008) (order approving SR-CBOE-2005-11).
\5\ See Securities Exchange Act Release No. 59055 (December 4,
2008), 73 FR 75148 (December 10, 2008) (order approving SR-CBOE-
2008-72).
\6\ See Securities Exchange Act Release No. 61483 (February 3,
2010), 75 FR 6753 (February 10, 2010) (order approving SR-CBOE-2010-
007).
\7\ See Securities Exchange Act Release No. 61892 (April 13,
2010), 75 FR 20649 (April 20, 2010) (order approving SR-CBOE-2010-
015).
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Under current Rule 5.3, only Units (also referred to herein as
exchange traded fund (``ETFs'')) representing (i) interests in
registered investment companies (or series thereof) organized as open-
end management investment companies, unit investment trusts or similar
entities that hold portfolios of securities and/or financial
instruments including, but not limited to, stock index futures
contracts, options on futures, options on securities and indexes,
equity caps, collars and floors, swap agreements, forward contracts,
repurchase agreements and reverse purchase agreements (the ``Financial
Instruments''), and money market instruments, including, but not
limited to, U.S. government securities and repurchase agreements (the
``Money Market Instruments'') comprising or otherwise based on or
representing investments in indexes or portfolios of securities and/or
Financial Instruments and Money Market Instruments (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities and/or Financial
Instruments and Money Market Instruments), or (ii) interests in a trust
or similar entity that holds a specified non-U.S. currency deposited
with the trust or similar entity when aggregated in some specified
minimum number may be surrendered to the trust by the beneficial owner
to receive the specified non-U.S. currency and pays the beneficial
owner interest and other distributions on deposited non-U.S. currency,
if any, declared and paid by the trust; or (iii) commodity pool
interests principally engaged, directly or indirectly, in holding and/
or managing portfolios or baskets of securities, commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities and/or non-U.S.
currency (``Commodity Pool Units''), or (iv) represent interests in the
streetTRACKS Gold Trust or the iShares COMEX Gold Trust or the iShares
Silver Trust or the ETFS Silver Trust or the ETFS Gold Trust or the
ETFS Palladium Trust or the ETFS Platinum Trust; or (v) represents an
interest in a registered investment company (``Investment Company'')
organized as an open-end management investment company or similar
entity, that invests in a portfolio of securities selected by the
Investment Company's investment adviser consistent with the Investment
Company's investment objectives and policies, which is issued in a
specified aggregate minimum number in return for a deposit of a
specified portfolio of securities and/or a cash amount with a value
equal to the next determined net asset value (``NAV''), and when
aggregated in the same specified minimum number, may be redeemed at a
holder's request, which holder will be paid a specified portfolio of
securities and/or cash with a value equal to the next determined NAV
(``Managed Fund Share'') are eligible as underlying securities for
options traded on the Exchange.\8\ This rule change proposes to expand
the types of ETFs that may be approved for options trading on the
Exchange to include the Sprott Physical Gold Trust.
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\8\ See Interpretation and Policy .06 to Rule 5.3.
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Apart from allowing the Sprott Physical Gold Trust to be an
underlying for options traded on the Exchange as described above, the
listing standards for ETFs will remain unchanged from those that apply
under current Exchange rules. ETFs on which options may be listed and
traded must still be listed and traded on a national securities
exchange and must satisfy the other listing standards set forth in
Interpretation and Policy .06 to Rule 5.3.
Specifically, in addition to satisfying the aforementioned listing
requirements, Units must meet either: (1) The criteria and guidelines
under Rule 5.3 and Interpretation and Policy .01 to Rule 5.3, Criteria
for Underlying Securities; or (2) they must be available for creation
or redemption each business day from or through the issuer in cash or
in kind at a price related to net asset value, and the issuer must be
obligated to issue Units in a specified aggregate number even if some
or all of the investment assets required to be deposited have not been
received by the issuer, subject to the condition that the person
obligated to deposit the investments has undertaken to deliver the
investment assets as soon as possible and such undertaking is secured
by the delivery and maintenance of collateral consisting of cash or
cash equivalents satisfactory to the issuer, as provided in the
respective prospectus.
The Exchange states that the current continued listing standards
for options on ETFs will apply to options on the Sprott Physical Gold
Trust. Specifically, under Interpretation and Policy .08 to Rule 5.4,
options on Units may be subject to the suspension of opening
transactions as follows: (1) In the case of Units listed pursuant to
Interpretation and Policy .06(v)(E)(y) to Rule 5.3, following the
initial twelve-month period beginning upon the commencement of trading
of the Units, if there are fewer than 50 record and/or beneficial
holders of the Units for 30 or more consecutive trading days; or (2) in
the case of Units listed pursuant to Interpretation and Policy
.06(v)(E)(x) to Rule 5.3, in accordance with the terms of paragraphs
(a)-(d) of Interpretation and Policy .01 to Rule 5.4; or (3) the value
of the index or portfolio of securities, non-U.S. currency, or
portfolio of commodities including commodity futures contracts, options
on commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or Financial Instruments and Money Market
Instruments on which Units are based is no longer calculated or
available; or (4) such other event occurs or condition exists that in
the opinion of the Exchange makes further dealing on the Exchange
inadvisable.
Additionally, the Sprott Physical Gold Trust shall not be deemed to
meet the requirements for continued approval, and the Exchange shall
not open for trading any additional series of option contracts of the
class covering the Sprott Physical Gold Trust, if the Sprott Physical
Gold Trust ceases to be an ``NMS stock'' as provided for in paragraph
(f) of Interpretation and Policy .01 of Rule 5.4 or the Sprott Physical
Gold Trust is halted from trading on its primary market.
The addition of the Sprott Physical Gold Trust to Interpretation
and Policy .06 to Rule 5.3 will not have any effect on the rules
pertaining to position and exercise limits \9\ or margin.\10\
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\9\ See CBOE Rules 4.11 and 4.12.
\10\ See CBOE Rule 12.3.
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The Exchange represents that its surveillance procedures applicable
to trading in options on the Sprott Physical Gold Trust will be similar
to those applicable to all other options on other Units currently
traded on the Exchange. The Exchange represents that its surveillance
procedures applicable to trading in options on the Sprott Physical Gold
Trust will be similar to those applicable to all other options on other
ETFs currently traded on the Exchange. Also, the Exchange may obtain
information from the New York Mercantile Exchange, Inc. (``NYMEX'') (a
member of the Intermarket Surveillance Group) related to any financial
instrument that is based, in whole or in part, upon an interest in or
performance of gold.
II. Commission Findings
After careful consideration, the Commission finds that the proposed
rule change submitted by CBOE is
[[Page 40007]]
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
\11\ and, in particular, the requirements of Section 6 of the Act.\12\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\13\ which requires, among other things,
that the rules of a national securities exchange be designed 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. In accordance with the Memorandum of Understanding
entered into between the Commodity Futures Trading Commission
(``CFTC'') and the Commission on March 11, 2008, and in particular the
addendum thereto concerning Principles Governing the Review of Novel
Derivative Products, the Commission believes that novel derivative
products that implicate areas of overlapping regulatory concern should
be permitted to trade in either or both a CFTC- or Commission-regulated
environment, in a manner consistent with laws and regulations
(including the appropriate use of all available exemptive and
interpretive authority).
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\11\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(5).
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As a national securities exchange, the CBOE is required under
Section 6(b)(1) of the Act \14\ 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
addition, brokers that trade Sprott Options will also be subject to
best execution obligations and FINRA rules.\15\ Applicable exchange
rules also require that customers receive appropriate disclosure before
trading Sprott Options.\16\ Further, brokers opening accounts and
recommending options transactions must comply with relevant customer
suitability standards.\17\
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\14\ 15 U.S.C. 78f(b)(1).
\15\ See NASD Rule 2320.
\16\ See CBOE Rule 9.15.
\17\ See FINRA Rule 2360(b) and CBOE Rules 9.7 and 9.9.
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Sprott Options will trade as options under the trading rules of the
CBOE. These rules, among other things, are designed to avoid trading
through better displayed prices for Sprott Options available on other
exchanges and, thereby, satisfy CBOE's obligation under the Options
Order Protection and Locked/Crossed Market Plan.\18\ Series of the
Sprott Options will be subject to exchange rules regarding continued
listing requirements, including standards applicable to the underlying
Sprott Physical Gold Trust. Shares of the Sprott Physical Gold Trust
must continue to be traded through a national securities exchange or
through the facilities of a national securities association, and must
be ``NMS stock'' as defined under Rule 600 of Regulation NMS.\19\ In
addition, the underlying shares must continue to comply with the
Exchange's continued listing standards applicable to Units.\20\ If the
Sprott Physical Gold Trust shares fail to meet these requirements, the
exchanges will not open for trading any new series of the respective
Sprott Options.
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\18\ See CBOE Rule 6.81. Specifically, CBOE is a participant in
the Options Order Protection and Locked/Crossed Market Plan.
\19\ 17 CFR 242.600.
\20\ See Interpretation and Policy .08 to CBOE Rule 5.4.
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CBOE has represented that it has surveillance programs in place for
the listing and trading of Sprott Options. For example, CBOE may obtain
trading information via the ISG from the NYMEX related to any financial
instrument traded there that is based, in whole or in part, upon an
interest in, or performance of, gold. Additionally, the listing and
trading of Sprott Options will be subject to the exchange's rules
pertaining to position and exercise limits \21\ and margin.\22\
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\21\ See CBOE Rules 4.11 and 4.12.
\22\ See CBOE Rule 12.3. See also FINRA Rule 2360(b) and
Commentary .01 to FINRA Rule 2360.
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III. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the propose rule change (SR-CBOE-2010-043) be, and is
hereby, approved.
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\23\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16997 Filed 7-12-10; 8:45 am]
BILLING CODE 8010-01-P