[Federal Register Volume 69, Number 45 (Monday, March 8, 2004)]
[Notices]
[Pages 10804-10806]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5115]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49340; File No. SR-PCX-2004-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the Pacific Exchange, Inc. to Facilitate Listing and Trading of Options 
and FLEX Options of Fixed-Income Exchange-Traded Fund Shares

February 27, 2004.
    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 January 30, 2004, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
items I and II below, which items have been prepared by PCX. On 
February 18, 2004, the PCX filed Amendment No. 1 to the proposed rule 
change.\3\ The proposed rule change, as amended, has been filed by PCX 
under Rule 19b-4(f)(6) under the Act.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Tania J.C. Blanford, Regulatory Policy, to Nancy 
J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated February 17, 2004. (``Amendment No. 1''). In 
Amendment No. 1, the PCX made technical corrections to the proposed 
rule change.
    \4\ 17 CFR 240.19b-4(f)(6). For purposes of determining the 
effective date and calculating the 60-day period within which the 
Commission may summarily abrogate the proposed rule change under 
section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on February 18, 2004, the date PCX filed Amendment No. 
1. See 15 U.S.C. 78s(b)(3)(C).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend the definition of Exchange-
Traded Fund Shares (``ETFs'') in order to facilitate the listing and 
trading of options and FLEX options on fixed-income ETFs. Proposed new 
language is italicized; deleted language is in [brackets.]
* * * * *
    Rule 3.6(a)--(c)--No change.
    Commentary:
    .01--.05--No change.
    .06 Securities deemed appropriate for options trading shall include 
shares or other securities (``Exchange-Traded Fund Shares'') that are 
principally traded on a national securities exchange or through the 
facilities of a national securities association and reported as a 
national market security, and that represent an interest in a 
registered investment company organized as an open-end management 
investment company, a unit investment trust or a similar entity which 
holds securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities, provided:
    (a)
    (i) The Exchange-Traded Fund Shares meet the criteria and 
guidelines for underlying securities set forth in Rule 3.6(a); or
    (ii) The Exchange-Traded Fund Shares must be available for creation 
or redemption each business day in cash or in kind from the investment 
company at a price related to the net asset value. In addition, the 
investment company shall provide that fund shares may be created even 
though some or all of the securities needed to be deposited have not 
been received by the unit investment trust or the management investment 
company, provided the authorized creation participant has undertaken to 
deliver the shares as soon as possible and such undertaking has been 
secured by the delivery and maintenance of collateral consisting of 
cash or cash equivalents satisfactory to the fund which underlies the 
option as described in the fund or unit trust prospectus; and
    (b)
    (i) Any non-U.S. component securities (including fixedincome) 
[stocks] in the index or portfolio on which the Fund Shares are based 
that are not subject to comprehensive surveillance agreements do not in 
the aggregate represent more than 50% of the weight of the index or 
portfolio;
    (ii) Securities (including fixed income) [stocks] for which the 
primary market is in any one country that is not subject to a 
comprehensive surveillance agreement do not represent 20% or more of 
the weight of the index; and
    (iii) Securities (including fixed income) [stocks] for which the 
primary market is in any two countries that are not subject to 
comprehensive surveillance agreements do not represent 33% or more of 
the weight of the index.
    .07--No change.
* * * * *
    Rule 6.1 (a)--No change.
    (b) Definitions.The following terms as used in Rule 6 shall, unless 
the context otherwise indicates, have the meanings herein specified:
    (1)--(31)--No change.
    (32) Exchange-Traded Fund Share--For purposes of these Rules, the 
term Exchange-Traded Fund Share shall include Exchange-listed 
securities representing interests in open-end unit investment trusts or 
open-end management investment companies that hold securities 
(including fixed income securities) based on an index or a portfolio of 
securities.
* * * * *
    Rules 8.1--8.17 Reserved.
* * * * *
    Rule 8.100 (a)--Applicability. Rules 8.100 et seq. are applicable 
only to Flexible Exchange Options. Except to the extent that specific 
rules in this Section govern, or unless the context otherwise requires, 
the provisions of the Constitution and other rules and policies of the 
Board of Governors shall be applicable to the trading on the Exchange 
of such securities. Pursuant to the provisions of Rule 4.1, Flexible 
Exchange Options are included within the definition of ``security'' or 
``securities'' as such terms are used in the Constitution and Rules of 
the Exchange.
    [(1) Flexible Exchange Options on the following indexes are 
approved for trading on the Exchange:

[[Page 10805]]

    (A) the Wilshire Small Cap Index.
    (B) the PCX Technology Index.
    (C) the Dow Jones Co. Taiwan Index.
    (D) the Morgan Stanley Emerging Growth Index.
    (2) Flexible Exchange Options on the following Exchange-Traded Fund 
Shares, as defined in Rule 6.1(b)(32), are approved for trading on the 
Exchange:
    (A) Nasdaq-100 Index Tracking Stock (Symbol: QQQ)]
    (b)--(d)--No change.
* * * * *
    Rule 8.101(a)--(b)--No change.
* * * * *
    Rule 8.102(a)--(d)--No change.
    (e) Special Terms for FLEX Equity Options.
    (1) Reserved. [FLEX Equity Option transactions are limited to 
transactions in options on:
    (A) the Wilshire Small Cap Index.
    (B) The PCX Technology Index
    (C) The Dow Jones Co. Taiwan Index.
    (D) The Morgan Stanley Emerging Growth Index.]
    (3)--(4)--No change.
    (f)--No change.
* * * * *

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 PCX 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    PCX Rule 6.1(b)(32) defines ETFs as securities representing ``open-
end unit investment trusts or open-end management investment companies 
that hold securities based on an index or a portfolio of securities.'' 
The purpose of the proposed rule change is to amend this definition in 
order to facilitate the listing and trading of options and FLEX options 
on investment products that are based on an index of fixed-income 
securities. The Exchange, therefore, proposes to add the words 
``including fixed income securities'' to the definition of ETFs. The 
proposed rule change will allow the listing of the following options 
series of iShares Trust: iShares 1-3 Year Treasury Bond Fund, iShares 
7-10 Year Treasury Bond Fund, iShares Lehman 20+ Year Treasury Bond 
Fund, and iShares GS $ InvesTop Corporate Bond Fund.
    The Exchange also proposes to delete obsolete language from PCX 
Rules 8.100(a) and 8.102(e) to facilitate the addition of options on 
fixed-income ETFs. These rules currently delineate each FLEX Options 
product that is listed and traded on the Exchange. As the products 
listed are no longer traded on the Exchange, the PCX proposes to make 
an administrative change and delete the obsolete language referencing 
FLEX Options product names.\5\
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    \5\ The Exchange notes that PCX intends to conform its rules to 
those of other exchanges by not referencing product names available 
for trading. See e.g., CBOE Rule 24A-1.
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    This proposed rule change is substantially similar to the rule 
change proposals filed by the Chicago Board Options Exchange \6\ 
(``CBOE'') and the International Securities Exchange, Inc. 
(``ISE''),\7\ which were approved by the Commission. Thus, the Exchange 
is proposing to modify PCX Rule 6.1(b)(32) and related PCX rules to 
substantially mirror the proposed rule changes submitted by the BOE and 
ISE.
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    \6\ See Securities Exchange Act Release No. 46435 (August 29, 
2002), 67 FR 57046 (September 6, 2002) (File No. SR-CBOE-2002-47).
    \7\ See Securities Exchange Act Release No. 48226 (July 25, 
2003), 68 FR 45298 (August 1, 2003) (File No. SR-ISE-2003-19).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
objectives of section 6(b)(5) of the Act,\8\ in general, that it will 
promote just and equitable principles of trade to prevent fraudulent 
and manipulative acts and, in general, to protect investors and the 
public interest.
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    \8\ 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, 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change, as amended, has been filed by the 
Exchange pursuant to section 19(b)(3)(A) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\ PCX has designated 
the proposed rule change as one that: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate. Therefore, the foregoing 
rule change, as amended, has become effective pursuant to section 
19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ At any 
time within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate the rule change if it appears to the 
Commission that the action is necessary or appropriate in the public 
interest, for the protection of investors, or would otherwise further 
the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ See supra note 9.
    \12\ See supra note 10.
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\13\ the proposal 
may not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, and the self-
regulatory organization must file notice of its intent to file the 
proposed rule change at least five business days beforehand. The 
Exchange has requested that the Commission waive the five-day pre-
filing requirement and the 30-day operative delay so that the proposed 
rule change will become immediately effective upon filing.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission 
believes that waiving the pre-filing requirement and accelerating the 
operative date does not raise any new regulatory issues, significantly 
affect the protection of investors or the public interest, or impose 
any significant burden on competition. The Commission notes that the 
ISE and the CBOE have already adopted substantially similar rules to 
trade options on fixed income ETFs. For these reasons, the Commission 
designates the

[[Page 10806]]

proposed rule change as effective and operative immediately.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments 
may also be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
PCX-2004-06. The 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, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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 such filing will also be available for inspection and 
copying at the principal office of the Exchange. All submissions should 
refer to the File No. SR-PCX-2004-06 and should be submitted by March 
29, 2004.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-5115 Filed 3-5-04; 8:45 am]
BILLING CODE 8010-01-P[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][NOTICES]