[Federal Register Volume 75, Number 75 (Tuesday, April 20, 2010)]
[Notices]
[Pages 20649-20651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-9032]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61892; File No. SR-CBOE-2010-015)
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 ETFS Palladium Trust and the
ETFS Platinum Trust
April 13, 2010.
On February 8, 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
ETFS Palladium Trust and the ETFS Platinum Trust (collectively ``ETFS
Options''). The proposed rule change was published in the Federal
Register on March 12, 2010.\3\ The Commission received no comments on
the proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 61663 (March 5,
2010), 75 FR 11955.
---------------------------------------------------------------------------
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\ Now,
the Exchange proposes to list and trade options on the ETFS Palladium
Trust and the ETFS Platinum Trust.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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 (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.\7\ This rule change proposes to expand
the types of ETFs that may be approved for options trading on the
Exchange to include the ETFS Palladium Trust and the ETFS Platinum
Trust.
---------------------------------------------------------------------------
\7\ See Interpretation and Policy .06 to CBOE Rule 5.3.
---------------------------------------------------------------------------
Apart from allowing the ETFS Palladium Trust and the ETFS Platinum
Trust to be an underlying security 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
[[Page 20650]]
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 ETFS Palladium Trust
and the ETFS Platinum 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) Following the
initial twelve-month period beginning upon the commencement of trading
of the Units, there are fewer than 50 record and/or beneficial holders
of the Units for 30 or more consecutive trading days; (2) 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 (3) such other event occurs or condition exists that in
the opinion of the Exchange makes further dealing on the Exchange
inadvisable.
Additionally, the ETFS Palladium Trust and the ETFS Platinum 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 ETFS Palladium Trust and the
ETFS Platinum Trust, if the ETFS Palladium Trust and the ETFS Platinum
Trust ceases to be an ``NMS stock'' as provided for in paragraph (f) of
Interpretation and Policy .01 of Rule 5.4 or the ETFS Palladium Trust
and the ETFS Platinum Trust is halted from trading on its primary
market.
The addition of the ETFS Palladium Trust and the ETFS Platinum
Trust to Interpretation and Policy .06 to Rule 5.3 will not have any
effect on the rules pertaining to position and exercise limits \8\ or
margin.\9\
---------------------------------------------------------------------------
\8\ See CBOE Rules 4.11 and 4.12.
\9\ See CBOE Rule 12.3.
---------------------------------------------------------------------------
The Exchange represents that its surveillance procedures applicable
to trading in options on the ETFS Palladium Trust and the ETFS Platinum
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
ETFS Palladium Trust and the ETFS Platinum 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 palladium or
platinum.
II. Commission Findings
After careful consideration, the Commission finds that the proposed
rule change submitted by CBOE is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
national securities exchange \10\ and, in particular, the requirements
of Section 6 of the Act.\11\ Specifically, the Commission finds that
the proposal is consistent with Section 6(b)(5) of the Act,\12\ 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).
---------------------------------------------------------------------------
\10\ 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).
\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As a national securities exchange, the CBOE is required under
Section 6(b)(1) of the Act \13\ 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 ETFS Options will also be subject to best
execution obligations and FINRA rules.\14\ Applicable exchange rules
also require that customers receive appropriate disclosure before
trading ETFS Options.\15\ Further, brokers opening accounts and
recommending options transactions must comply with relevant customer
suitability standards.\16\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b)(1).
\14\ See NASD Rule 2320.
\15\ See CBOE Rule 9.15.
\16\ See FINRA Rule 2360(b) and CBOE Rules 9.7 and 9.9.
---------------------------------------------------------------------------
ETFS 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 ETFS Options available on other
exchanges and, thereby, satisfy CBOE's obligation under the Options
Order Protection and Locked/Crossed Market Plan.\17\ Series of the ETFS
Options will be subject to exchange rules regarding continued listing
requirements, including standards applicable to the underlying ETFS
Silver and ETF Gold Trusts. Shares of the ETFS Silver and ETFS Gold
Trusts 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.\18\ In addition, the underlying shares must continue to
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.\19\ If the ETFS Silver or ETFS Gold Trust shares fail to meet
these requirements, the exchanges will not open for trading any new
series of the respective ETFS Options.
---------------------------------------------------------------------------
\17\ See CBOE Rule 6.81. Specifically, CBOE is a participant in
the Options Order Protection and Locked/Crossed Market Plan.
\18\ 17 CFR 242.600.
\19\ See Interpretation and Policy .06 to CBOE Rule 5.3.
---------------------------------------------------------------------------
CBOE has represented that it has surveillance programs in place for
the listing and trading of ETFS 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, palladium or platinum. Additionally,
the listing and trading of ETFS Options will be subject to the
[[Page 20651]]
exchange's rules pertaining to position and exercise limits \20\ and
margin.\21\
---------------------------------------------------------------------------
\20\ See CBOE Rules 4.11 and 4.12.
\21\ See CBOE Rule 12.3. See also FINRA Rule 2360(b) and
Commentary .01 to FINRA Rule 2360.
---------------------------------------------------------------------------
III. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the propose rule change (SR-CBOE-2010-015) be, and is
hereby, approved.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9032 Filed 4-19-10; 8:45 am]
BILLING CODE 8011-01-P