[Federal Register Volume 75, Number 245 (Wednesday, December 22, 2010)]
[Notices]
[Pages 80557-80560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63555; File No. SR-NYSEAmex-2010-118]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Commentary
.11(a) to NYSE Amex Options Rule 915 To Permit Trading Options on
Leveraged Exchange-Traded Notes and Broaden the Definition of Futures
Linked Securities
December 15, 2010.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on December 9, 2010, NYSE Amex LLC (the ``Exchange'' or
``NYSE Amex'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a et seq.
\3\ 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 Commentary .11(a) to NYSE Amex
Options Rule 915 to: (1) Permit trading options on leveraged (multiple
or inverse) exchange-traded notes, and (2) broaden the definition of
``Futures-Linked [sic]. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
http://www.nyse.com.
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Commentary .11(a) to NYSE Amex
Options Rule 915 to: (1) Permit trading options on leveraged (multiple
or inverse) exchange-traded notes (``ETNs''), and (2) broaden the
definition of ``Futures-Linked Securities.'' \4\ ETNs are also known as
``Index-Linked Securities,'' which are designed for investors who
desire to participate in a specific market segment by providing
exposure to one or more identifiable underlying securities,
commodities, currencies, derivative instruments, or market indexes of
the foregoing. Index-Linked Securities are the nonconvertible debt of
an issuer that have a term of at least one (1) year but not greater
than thirty (30) years. Despite the fact that Index-Linked Securities
are linked to an underlying index, each trade as a single exchange-
listed security. Accordingly, rules pertaining to the listing and
trading of standard equity options apply to Index-Linked Securities.
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\4\ The amendments proposed herein are similar to changes
approved for the Chicago Board Options Exchange (``CBOE''). See
Securities Exchange Act Release No. 63202 (October 28, 2010), 75 FR
67794 (November 3, 2010) (SR-CBOE-2010-080).
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Leveraged ETN Options
The Exchange proposes to amend Commentary .11(a) to NYSE Amex
Options Rule 915 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
[[Page 80558]]
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 equity platform 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 equity platform and is an example of an inverse
leveraged ETN. The NYSE Arca equity platform also lists several other
inverse leveraged ETNs for trading.\5\
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\5\ 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, Commentary .11 to NYSE Amex Options Rule 915 provides
that securities deemed appropriate for options trading shall include
shares or other securities (``Index-Linked Securities,'' ``Commodity-
Linked Securities,'' ``Currency-Linked Securities,'' ``Fixed Income-
Linked Securities,'' ``Futures-Linked Securities,'' and ``Combination-
Linked Securities,'' collectively known as ``Section 107 Securities''),
as defined in Sections 107D, 107E, 107F, 107G, 107H and 107I of the
NYSE Amex Company Guide, 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:
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 NYSE
Amex Rule 1200B-AEMI(b)), or a basket or index of any of the foregoing
(``Currency Reference Asset'');
Fixed Income-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; (b)
interest rate futures or options or derivatives on the foregoing in
this subparagraph (b); or (c) CBOE Volatility Index (``VIX'') futures
(``Futures Reference Asset''); and
Combination-Linked Securities are securities that provide
for the payment at maturity of a cash amount based on the performance
of any combination of two or more Equity Reference Assets, Commodity
Reference Assets, Currency Reference Assets, Fixed Income Reference
Assets, or Futures Reference Assets (``Combination Reference Asset'').
For purposes of Commentary .11 to NYSE Amex Options Rule 915,
Equity Reference Assets, Commodity Reference Assets, Currency Reference
Assets, Fixed Income Reference Assets, Futures Reference Assets, and
Combination Reference Assets collectively are referred to as
``Reference Assets.''
In addition, Section 107 Securities must meet the criteria and
guidelines for underlying securities set forth in Commentary .01 to
NYSE Amex Options Rule 915 or the Section 107 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 the Section 107 Securities
that underlie the option as described in the Section 107 Securities
prospectus.
The Exchange proposes to amend Commentary .11(a) to NYSE Amex
Options Rule 915 to expand the type of Section 107 Securities that may
underlie options to include leveraged (multiple or inverse) ETNs. To
effect this change, the Exchange proposes to amend Commentary .11(a) to
NYSE Amex Options Rule 915 by adding the phrase ``or the leveraged
(multiple or inverse) performance'' to each of the subparagraphs ((1)
through (6)) in that section, which sets forth the different eligible
Reference Assets.\6\
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\6\ The Exchange also proposes technical corrections to the Rule
to conform certain definitions. In particular, we are changing the
defined term ``NMS Stock'' to ``NMS stock'' to conform to how it is
defined in Rule 600 of Regulation NMS under the Securities and
Exchange Act of 1934.
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The Exchange's current continuing listing standards for ETN options
will continue to apply. Specifically, under Commentary .12 to NYSE Amex
Options Rule 916, 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 [sic] option contracts of
the class covering such Section 107 Securities whenever the underlying
securities are delisted and trading in the Section 107 Securities is
suspended on a national securities exchange, or the Section 107
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 Section 107 Securities in
any of the following circumstances: (1) The underlying Section 107
Security fails to comply with the terms of Commentary .11 to NYSE Amex
Options Rule 915; (2) in accordance with the terms of Commentary .01 to
NYSE Amex Options Rule 916, in the case of options covering Section 107
Securities when such options were approved pursuant to Commentary .11
to NYSE Amex Options Rule 915, except that, in the case of options
covering Section 107 Securities approved pursuant to Commentary
.11(c)(2) that are redeemable at the option of the holder at least on a
weekly basis, then option contracts of the class covering such
Securities may only continue to be open for trading as long as the
Securities are listed on a national securities exchange and are ``NMS
stock'' as defined in Rule
[[Page 80559]]
600 of Regulation NMS; (3) in the case of any Section 107 Security
trading pursuant to Commentary .11 to NYSE Amex Options Rule 915, the
value of the Reference Asset is no longer calculated or available 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 Commentary .11 to NYSE Amex Options Rule 915 will not have any
effect on the rules pertaining to position and exercise limits \7\ or
margin.\8\
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\7\ See NYSE Amex Options Rule 904, Position Limits, and Rule
905, Exercise Limits.
\8\ See NYSE Amex Options Rule 462, Minimum Margin.
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This proposal is necessary to enable the Exchange to list and trade
options on shares of BXUB, BXUC, XXV, BXDB, BXDC, BXDD and 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 to accommodate the listing and
trading of leveraged (multiple and inverse) ETN options.
Broaden the Definition of ``Futures-Linked Securities''
The second change proposed by this filing is to amend the
definition of ``Futures-Linked Securities'' set forth in Commentary
.11(a)(5) to NYSE Amex Options Rule 915. 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; (b)
interest rate futures or options or derivatives on the foregoing; or
(c) CBOE VIX futures.
NYSE Amex Options Rule 915 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 provide 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 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,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is 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
Exchange believes the proposed rules applicable to trading pursuant to
generic listing and trading criteria serve to foster investor
protection.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is 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 solicited or received with respect to the
proposed rule change.
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 \11\ and Rule 19b-4(f)(6)
thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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 requested 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.\13\ The Commission notes the proposal is substantively
identical a proposal that was recently approved by the Commission, and
does not raise any new regulatory issues.\14\ For these reasons, the
Commission designates the proposed rule change as operative upon
filing.
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\13\ 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).
\14\ See supra note 4.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may
[[Page 80560]]
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 (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NYSEAmex-2010-118 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-NYSEAmex-2010-118. 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 (http://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.\15\ 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-
NYSEAmex-2010-118 and should be submitted on or before January 12,
2011.
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\15\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32087 Filed 12-21-10; 8:45 am]
BILLING CODE 8011-01-P