[Federal Register: November 9, 2006 (Volume 71, Number 217)]
[Notices]
[Page 65851-65854]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09no06-143]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54693; File No. SR-CBOE-2006-74]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Regarding
the Initial and Continued Listing and Trading of Options on Units That
Represent Interests in a Trust That Holds a Specified Non-U.S. Currency
November 2, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 31, 2006, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Exchange filed Amendment No. 1 to the proposed rule change on
October 19, 2006.\3\ The Exchange filed Amendment No. 2 to the proposed
rule change on November 1, 2006.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons and is approving the proposal on an accelerated
basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced and superseded the original filing
in its entirety.
\4\ In Amendment No. 2, which supplemented the filing as
reflected in Amendment No. 1, the Exchange made several clarifying
changes to the proposed rule text contained in CBOE Rule 5.3,
Interpretation and Policy .06(D) and (E) and CBOE Rule 5.4,
Interpretation and Policy .08.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange hereby proposes to amend CBOE Rule 4.18 Interpretation
and Policy .01; CBOE Rule 5.3 Interpretation and Policy .06; CBOE Rule
5.4 Interpretation and Policy .08; CBOE Rule 8.9; and CBOE Rule 15.1
Interpretation and Policy .03 to enable the initial and continued
listing and trading on the Exchange of options on Units that represents
interests in a trust that holds a specified non-U.S. currency. The text
of the proposed rule change, as amended, is available on the Exchange's
Web site (http://www.cboe.com), at the Exchange's Office of the
Secretary, 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, as
amended, 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 III below. The Exchange has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend CBOE Rule 4.18, Interpretation and
Policy .01; CBOE Rule 5.3, Interpretation and Policy .06; CBOE Rule
5.4, Interpretation and Policy .08; CBOE Rule 8.9; and CBOE Rule 15.1,
Interpretation and Policy .03 to enable the initial and continued
listing and trading on the Exchange of options on Units that represent
interests in a trust that holds a specified non-U.S. currency.\5\
Currently, the term ``Units,'' as defined under CBOE Rule 5.3,
Interpretation and Policy .06, requires that the investment assets held
by a trust, investment company, or similar entity consist of portfolios
of securities. As proposed, amended CBOE Rule 5.3, Interpretation and
Policy .06 would permit the investment assets also to consist of a
trust that holds a specified non-U.S. currency deposited with the
trust.
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\5\ The Commission notes that it recently approved a
substantially similar rule change for the International Securities
Exchange, Inc. (n/k/a the International Securities Exchange LLC)
(``ISE''), upon which the CBOE has based this proposed rule change.
See Securities Exchange Act Release No. 54087 (June 30, 2006), 71 FR
38918 (July 10, 2006) (SR-ISE-2005-60).
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In particular, the proposed amendment to CBOE Rule 5.3,
Interpretation and Policy .06 would permit the Exchange to list options
on the Euro Currency Trust (``Trust''). The
[[Page 65852]]
Trust issues Euro Shares (``Shares'') that represent units of
fractional undivided beneficial interest in, and ownership of, the
Trust. PADCO Advisors II, Inc., d/b/a Rydex Investments, is the sponsor
of the Trust (``Sponsor'') \6\ and may be deemed the ``issuer'' of the
Shares pursuant to Section 2(a)(4) of the Securities Act of 1933, as
amended.\7\ The Bank of New York is the trustee of the Trust
(``Trustee''), JP Morgan Chase Bank, N.A., London Branch, is the
depository for the Trust, and Rydex Distributors, Inc. is the
distributor for the Trust. The Trust intends to issue additional Shares
on a continuous basis through the Trustee.
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\6\ The Sponsor maintains a public Web site on behalf of the
Trust, http://www.currencyshares.com, which contains information
about the Trust and Shares.
\7\ The Exchange does not consider Rydex Investments to be an
``issuer'' as per CBOE rules.
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As stated in the Trust's Registration statement,\8\ the investment
objective of the Trust is for the Shares to reflect the price of the
euro. The Sponsor believes that the Trust is the first exchange traded
fund (``ETF'') \9\ whose assets are limited to a particular foreign
currency. The Shares may be purchased from the Trust only in one or
more blocks of 50,000 Shares, as described in the prospectus under
``Creation and Redemption of Shares.'' A block of 50,000 shares is
called a Basket. The Trust issues Shares in Baskets on a continuous
basis to certain authorized participants (``Authorized Participants'').
Each Basket, when created, is offered and sold to an Authorized
Participant at a price in euro equal to the net asset value (``NAV'')
for 50,000 Shares on the day that the order to create the Basket is
accepted by the Trustee.
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\8\ See Registration No. 333-125581.
\9\ The Exchange notes that the Trust is not a registered
investment company under the Investment Company Act of 1940 (the
``1940 Act'') and is not required to register under the 1940 Act.
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The Exchange believes that permitting options on foreign currency-
based Units to be traded on the Exchange is consistent with the
Commission's approval order of a rule change filed by the New York
Stock Exchange, Inc. (``NYSE'') to list and trade shares of the
Trust.\10\ Through this rule change to CBOE's listing criteria for
Units, the Exchange intends to provide appropriate listing standards
for options on shares of these and similar types of foreign currency-
based Units that may be listed in the future.
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\10\ See Securities Exchange Act Release No. 52843 (November 28,
2005), 70 FR 72486 (December 5, 2005). The Shares trade under the
symbol ``FXE.''
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Specifically, the Exchange is proposing to amend CBOE Rule 5.3,
Interpretation and Policy .06 (Criteria for Underlying Securities) to
broaden the definition of Units to include shares or other securities
that represent interests in registered investment companies or unit
investment trusts or similar entities that hold a specified non-U.S.
currency. The Exchange is also proposing to make other conforming
changes to the text of CBOE Rule 5.3, Interpretation and Policy .06 to
reflect the proposed broadened definition of Units. In addition, the
Exchange is proposing to require, in CBOE Rule 5.3, Interpretation and
Policy .06(D), that before listing and trading options on Units based
on a non-U.S. currency, the Exchange must have entered into a
comprehensive surveillance sharing agreement with the applicable
marketplace or marketplaces with last sale reporting that represent(s)
the highest volume in derivatives (options or futures) on the specified
non-U.S. currency, which are utilized by the national securities
exchange where the underlying Units are listed and traded.
For options trading, the underlying Units will continue to need to
satisfy the initial listing standards in CBOE Rule 5.3, Interpretation
and Policy .06. Specifically, the Units must be traded on a national
securities exchange or through the facilities of a national securities
association and must be an ``NMS stock'' as defined under Rule 600 of
Regulation NMS.\11\ The Units must also meet either: (1) The criteria
and guidelines under CBOE Rule 5.3(a)(1) or (2) (Criteria for
Underlying Securities); or (2) be available for creation or redemption
each business day from and through the issuing trust, investment
company, or other entity in cash or in-kind at a price related to net
asset value, and the investment company or issuer is 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 investment company or issuer, subject to the condition that the
person obligated to deposit the investment assets has undertaken to
deliver them 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 described in the Units'
prospectus.
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\11\ 17 CFR 242.600.
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The Exchange also proposes to amend CBOE Rule 4.18, Interpretation
and Policy .01 to require a member to establish, maintain, and enforce
written policies and procedures to prevent the misuse of any material
nonpublic information it might have or receive in a related security,
option, or derivative security or in the applicable non-U.S. currency,
non-U.S. currency options, futures or options on futures on such
currency, or any other derivatives based on such currency. In addition,
the Exchange proposes to amend CBOE Rules 8.9 and 15.1, Interpretation
and Policy .03 to require that Market-Makers handling options on Units
provide the Exchange with all necessary information relating to their
trading in the applicable non-U.S. currency, non-U.S. currency options,
futures or options on futures on such currency, or any other
derivatives based on such currency. In addition, proposed CBOE Rule
8.9(a) would prohibit Market-Makers from engaging in stock, options,
non-U.S. currency, non-U.S. currency options, futures or options on
futures on such currency, or any other derivatives based on such
currency or related securities trading in an account which has not been
reported in a manner prescribed by the Exchange.\12\
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\12\ The Exchange anticipates requiring Market-Makers to provide
the information upon request, consistent with CBOE Rule 8.9(a).
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The Exchange further proposes to amend CBOE Rule 5.4,
Interpretation and Policy .08 regarding withdrawal of approval of the
underlying securities to specify that Units approved for options
trading under CBOE Rule 5.3, Interpretation and Policy .06 will not be
deemed to meet the requirements for continued approval, and CBOE will
not open any additional series of options contracts thereof, if, among
other things, the Units are delisted in accordance with the terms of
CBOE Rule 5.4, Interpretation and Policy .01(f), or the Units are
halted from trading in their primary market, or if the value of the
non-U.S. currency on which the Units are based is no longer calculated
or available.
The Exchange represents that the expansion of the types of
investments that may be held by a Unit under the listing standards in
CBOE Rule 5.3, Interpretation and Policy .06 will not have any effect
on the rules pertaining to position and exercise limits.\13\ The
Exchange also represents that the margin requirements for options on
Units that represent interests in a trust that holds a specific non-
U.S. currency will be evaluated for each product the Exchange
anticipates listing. The Exchange represents that any new margin rules
it deems necessary will be filed separately with the Commission.
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\13\ See CBOE Rules 4.11 and 4.12. See also Amendment No. 1,
supra note 3.
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The Exchange represents that it has an adequate surveillance
program in place
[[Page 65853]]
for options on Units based on the value of a non-U.S. currency, and it
intends to apply those same program procedures that apply to options on
Units that currently trade on the Exchange. In addition, the Exchange
may obtain trading information upon request via the Intermarket
Surveillance Group (``ISG'') from other exchanges who are members or
affiliates of the ISG. Specifically, CBOE can obtain such information
from the Philadelphia Stock Exchange (``Phlx'') in connection with euro
options trading on the Phlx and from the Chicago Mercantile Exchange
(``CME'') and the London International Financial Futures Exchange
(``LIFFE'') in connection with euro futures trading on those
exchanges.\14\
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\14\ Phlx is a member of ISG. CME and LIFFE are affiliate
members of ISG.
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2. Statutory Basis
The Exchange believes that, with the commencement of trading of a
currency-based ETF on the NYSE, amending its rules to accommodate the
listing and trading of options on publicly-traded shares of other
securities that hold investment assets consisting of foreign currency
will benefit investors by providing them with the same valuable risk
management tool that is currently available with respect to other
publicly-traded ETFs whose investment assets consist of securities.
Accordingly, the Exchange believes that the proposed rule change, as
amended, is consistent with Section 6(b) of the Act, in general, and
furthers the objectives of Section 6(b)(5) in particular, in that it
would remove impediments to and perfect the mechanism for a free and
open market in a manner consistent with the protection of investors and
public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change, as amended,
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 by the Exchange with
respect to the proposed rule change, as amended.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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 rule-comments@sec.gov. Please include
File Number SR-CBOE-2006-74 on the subject line.
Paper comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2006-74. 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 inspection
and copying in the Commission's Public Reference Room. Copies of the
filing also will be available for inspection and copying at the
principal office of the CBOE. 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-CBOE-2006-74 and should be submitted on or before
November 30, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
CBOE has asked the Commission to approve its proposal on an
accelerated basis to accommodate its timetable for listing options on
the Units. After careful consideration, the Commission finds that the
proposed rule change, as amended, is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange.\15\ In particular, the Commission finds
that the proposed rule change, as amended, is consistent with the
requirements of Section 6(b)(5) of the Act,\16\ which requires, among
other things, that the rules of an 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. Further, the
Commission finds that the CBOE's proposal, as amended, is substantially
similar to one it recently approved for the ISE.\17\
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\15\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(5).
\17\ See Securities Exchange Act Release No. 54087 (June 30,
2006), 71 FR 38918 (July 10, 2006) (SR-ISE-2005-60). The CBOE based
its proposed rule change on the ISE filing.
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Currently, CBOE's rules permit it to list options on Units that
represent interests in registered investment companies, unit investment
trusts, or similar entities that hold portfolios of securities composed
or otherwise based on or representing investments in indexes or
portfolios of securities.\18\ The Exchange's proposal would allow it to
list and trade options on Units whose investment assets consist of a
specified non-U.S. currency deposited with a trust. For example, the
proposed rule change would allow the CBOE to list options on the Euro
Currency Trust.
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\18\ See CBOE Rule 5.3, Interpretation and Policy .06.
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The underlying Units would continue to need to satisfy the listing
standards in CBOE Rule 5.3. To accommodate the listing and trading of
options on Units investing primarily in a non-U.S. currency, the
Exchange proposes to amend CBOE Rule 4.18 to require a member to
establish, maintain, and enforce written policies and procedures
designed to prevent the misuse of any material nonpublic information it
might have or receive in a related security, option, or derivative
security or in the applicable non-U.S. currency, non-U.S. currency
options, futures or options on futures on such currency, or any other
derivatives based on such currency. In addition, the Exchange proposes
to amend CBOE Rule 8.9 and CBOE Rule 15.1, Interpretation and Policy
.03 to require that Market-Makers handling options on Units provide the
Exchange with all necessary information relating to their trading in
the applicable non-U.S. currency, non-U.S. currency
[[Page 65854]]
options, futures or options on futures on such currency, or any other
derivatives based on such currency. The Commission believes that these
requirements are designed to minimize the potential for manipulating
the underlying currency held by the Units.
In addition, the Units must be traded on a national securities
exchange or through the facilities of a registered securities
association and, as the Exchange has proposed, must be an ``NMS stock''
as defined under Rule 600(b)(47) of Regulation NMS.\19\ The Units must
also either: (1) Meet the criteria and guidelines under CBOE Rule 5.3
(Criteria for Underlying Securities); or (2) be available for creation
or redemption each business day from and through the issuing trust,
investment company, or other entity in cash or in-kind at a price
related to net asset value, and the issuer is obligated to issue Units
in a specified aggregate number.\20\ The Commission notes that the
Exchange has represented that the expansion of the types of investments
that may be held by Units will not have any effect on the rules
pertaining to position and exercise limits or margin.
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\19\ 17 CFR 242.600(b)(47).
\20\ See proposed CBOE Rule 5.3, Interpretation and Policy
.06(E).
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Finally, under the proposed change to CBOE Rule 5.4, Interpretation
and Policy .08, Units would not be deemed to meet the requirements for
continued approval, and the Exchange would not open for trading any
additional series of option contracts of the class covering such Units,
if, among other things, the Units are delisted in accordance with the
terms of CBOE Rule 5.4, Interpretation and Policy .01(f), or the Units
are halted from trading in their primary market. The Commission
believes that the Exchange's proposal to expand CBOE Rule 5.4,
Interpretation and Policy .08 to address the effect of a trading halt
or a delisting of the Units is consistent with the protection of
investors and the public interest. The Commission also believes that
the proposed change by which the Exchange will consider the suspension
of opening transactions for Units if the value of the non-U.S. currency
on which the Units are based is no longer calculated or available is
similarly consistent with the protection of investors and the public
interest.\21\
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\21\ See proposed CBOE Rule 5.4, Interpretation and Policy
.08(c).
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The Commission notes that the Exchange has represented that it has
an adequate surveillance program in place for options on Units based on
the value of a non-U.S. currency. In addition, the Exchange is able to
obtain currency-related trading information via the ISG from other
exchanges who are members or affiliates of the ISG, as discussed above,
in connection with options and futures trading on those exchanges.
The Commission finds good cause for approving the proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of the notice of filing thereof in the Federal Register.
The Exchange has requested accelerated approval because this proposed
rule change is based on, and is substantially similar to, a proposal by
the ISE that the Commission recently approved.\22\ Accordingly, this
proposal raises no new or novel regulatory issues that have not been
previously considered by the Commission. In addition, the Commission
notes that it did not receive any comments on the ISE's proposal. The
Commission believes that expanding CBOE Rule 5.3 to encompass options
on Units that represent interests in a trust that holds a non-U.S.
currency deposited with the trust will provide investors with an
additional investment choice and that accelerated approval of the
proposal will allow investors to begin trading these products on the
CBOE without further delay. Additionally, the proposal contains
measures that are designed to minimize the potential for manipulation
of the underlying currency held by the Units. Therefore, the Commission
finds good cause, consistent with Section 19(b)(2) of the Act, to
approve the proposal on an accelerated basis.
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\22\ See Securities Exchange Act Release No. 54087 (June 30,
2006), 71 FR 38918 (July 10, 2006) (SR-ISE-2005-60).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change, as amended, (SR-CBOE-2006-74)
is hereby approved on an accelerated basis.
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\23\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E6-18955 Filed 11-8-06; 8:45 am]
BILLING CODE 8011-01-P