[Federal Register Volume 75, Number 249 (Wednesday, December 29, 2010)]
[Notices]
[Pages 82109-82111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32728]



[[Page 82109]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63592; File No. SR-BX-2010-090]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
BOX Trading Rules To Permit Trading Options on Leveraged (Multiple or 
Inverse) Exchange-Traded Notes and Broaden the Definition of ``Futures-
Linked Securities''

December 21, 2010.
    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 December 15, 2010, NASDAQ OMX BX, Inc. (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 self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter IV, Section 3 (Criteria for 
Underlying Securities) of the Rules of the Boston Options Exchange 
Group, LLC (``BOX'') to: (a) Permit trading options on leveraged 
(multiple or inverse) exchange-traded notes, and (b) broaden the 
definition of ``Futures-Linked Securities.'' The text of the proposed 
rule change is available from the principal office of the Exchange, at 
the Commission's Public Reference Room and also on the Exchange's 
Internet Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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
    The purpose of the proposed rule change is to amend Chapter IV, 
Section 3(k) of the BOX Rules, titled Index-Linked Securities, to: (a) 
Permit trading options on leveraged (multiple or inverse) exchange-
traded notes (``ETNs''), and (b) broaden the definition of ``Futures-
Linked Securities.'' 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 non-convertible 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 trades as a single, exchange-listed security. 
Accordingly, rules pertaining to the listing and trading of standard 
equity options apply to Index-Linked Securities.
Leveraged ETN Options
    The Exchange proposes to amend Chapter IV, Section 3(k) of the BOX 
Rules 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 
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 Stock Exchange 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 Stock Exchange and is an example of an inverse 
leveraged ETN. The NYSE Arca Stock Exchange also lists several other 
inverse leveraged ETNs for trading.\3\
---------------------------------------------------------------------------

    \3\ 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'').
---------------------------------------------------------------------------

    Currently, Chapter IV, Section 3(k) of the BOX Rules provides that 
securities deemed appropriate for options trading shall include shares 
or other securities (``Equity Index-Linked Securities,'' ``Commodity-
Linked Securities,'' ``Currency-Linked Securities,'' ``Fixed Income 
Index-Linked Securities,'' ``Futures-Linked Securities,'' and 
``Multifactor Index-Linked Securities,'' collectively known as ``Index-
Linked Securities'') 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:
     Equity 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 
Subsection (i) of this Section 3), or a basket or index of any of the 
foregoing (``Currency Reference Asset'');
     Fixed Income Index-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

[[Page 82110]]

securities, supranational debt and debt of a foreign country or 
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 subdivision 
thereof, or options or other derivatives on any of the foregoing; or 
(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
     Multifactor Index-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 (``Multifactor Reference 
Asset'').
    For purposes of Chapter IV, Section 3(k) of the BOX Rules, Equity 
Reference Assets, Commodity Reference Assets, Currency Reference 
Assets, Fixed Income Reference Assets, Futures Reference Assets 
together with Multifactor Reference Assets, collectively are referred 
to as ``Reference Assets.''
    In addition, [sic] Index-Linked Securities must meet the criteria 
and guidelines for underlying securities set forth in Chapter IV, 
Section 3(b) of the BOX Rules; or (ii) the Index-Linked 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 Index-Linked Securities 
which underlie the option as described in the Index-Linked Securities 
prospectus.
    The Exchange proposes to amend Chapter IV, Section 3(k) of the BOX 
Rules to expand the type of Index-Linked Securities that may underlie 
options to include leveraged (multiple or inverse) ETNs. To affect this 
change, the Exchange proposes to amend Chapter IV, Section 3(k) of the 
BOX Rules at subparagraph (i) by adding the phrase, ``or the leveraged 
(multiple or inverse) performance'' to each of the subparagraphs ((1) 
through (6)) in that section which set forth the different eligible 
Reference Assets.
    The Exchange's current continuing listing standards for ETN options 
will continue to apply. Specifically, under Chapter IV, Section 4(k) of 
the BOX Rules, 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 of option contracts of the class 
covering such Securities whenever the underlying Securities are 
delisted and trading in the Securities is suspended on a national 
securities exchange, or the 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 
Index-Linked Securities in any of the following circumstances: (1) The 
underlying Index-Linked Security fails to comply with the terms of 
Chapter IV, Section 3(k), (2) in accordance with the terms of Chapter 
IV, Section 4(b), in the case of options covering Index-Linked 
Securities when such options were approved pursuant to Chapter IV, 
Section 3(k), except that, in the case of options covering Index-Linked 
Securities approved pursuant to Chapter IV, Section 3(k)(iii)(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 
600 of Regulation NMS; (3) in the case of any Index-Linked Security 
trading pursuant to Chapter IV, Section 3(k), the value of the 
Reference Asset is no longer calculated; or (4) such other event shall 
occur or condition exist that in the opinion of the Exchange make 
further dealing in such options on BOX inadvisable. Expanding the 
eligible types of ETNs for options trading under Chapter IV, Section 
3(k) of the BOX Rules will not have any effect on the rules pertaining 
to position and exercise limits \4\ or margin.\5\
---------------------------------------------------------------------------

    \4\ See Chapter XIV, Section 5 (Position Limits for Broad-Based 
Index Options) Section 6 (Position Limits for Industry Index 
Options) and Section 8 (Exercise Limits) of the BOX Rules.
    \5\ See Chapter XIII concerning Margin Requirements.
---------------------------------------------------------------------------

    This proposal is necessary to enable the Exchange to list and trade 
on BOX options on shares of the BXUB, BXUC, XXV, BXDB, BXDC, BXDD and 
the MLPL. BOX 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 (``ODD'') to accommodate the 
listing and trading of leveraged (multiple and inverse) ETN options.
Broaden the Definition of ``Futures-Linked Securities''
    The second change being proposed by this filing is to amend the 
definition of ``Futures-Linked Securities'' set forth in Chapter IV, 
Section 3(k)(i)(5) of the BOX Rules. 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; or 
(b) interest rate futures or options or derivatives on the foregoing in 
this subparagraph (b); or (c) CBOE Volatility Index (VIX) Futures.
    Chapter IV, Section 3(k) of the BOX Rules sets forth generic 
listing criteria for securities that may serve as underlyings for 
listed options trading. BOX 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''). BOX notes that all 
ETNs eligible for options trading must be principally traded on a 
national securities exchange and must be an ``NMS Stock.'' As a result, 
BOX believes that broadening the definition of

[[Page 82111]]

``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,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that the 
proposed rules applicable to trading pursuant to generic listing and 
trading criteria serve to foster investor protection.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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

    The Exchange has neither solicited nor received comments on 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 \8\ and Rule 19b-4(f)(6) thereunder.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19-4(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.
---------------------------------------------------------------------------

    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 requests 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.\10\ The Commission notes the proposal is substantively 
identical to a proposal that was recently approved by the Commission, 
and does not raise any new regulatory issues.\11\ For these reasons, 
the Commission designates the proposed rule change as operative upon 
filing.
---------------------------------------------------------------------------

    \10\ 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).
    \11\ See Securities Exchange Act Release No. 63202 (October 28, 
2010), 75 FR 67794 (November 3, 2010) (SR-CBOE-2010-080).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may 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-BX-2010-090 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-BX-2010-090. 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.\12\ 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-BX-2010-090 and should be 
submitted on or before January 19, 2011.
---------------------------------------------------------------------------

    \12\ The text of the proposed rule change is available on the 
Commission's Web site at www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32728 Filed 12-28-10; 8:45 am]
BILLING CODE 8011-01-P