[Federal Register Volume 71, Number 217 (Thursday, November 9, 2006)]
[Notices]
[Pages 65851-65854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-18955]


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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    \3\ Amendment No. 1 replaced and superseded the original filing 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 [email protected]. 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