[Federal Register Volume 80, Number 137 (Friday, July 17, 2015)]
[Notices]
[Pages 42587-42590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17494]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75440; File No. SR-NYSEArca-2015-60]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Allowing the 
Listing of Options Overlying Portfolio Depositary Receipts and Index 
Fund Shares That are Listed Pursuant to Generic Listing Standards on 
Equities Exchanges for Series of ETFs Based on International or Global 
Indexes Under Which a Comprehensive Surveillance Sharing Agreement Is 
Not Required

July 13, 2015.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on July 2, 2015, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission (the 
``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 change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to allow the listing of options overlying 
portfolio depositary receipts and index fund shares (collectively, 
``ETFs'') that are listed pursuant to generic listing standards on 
equities exchanges for series of ETFs based on international or global 
indexes under which a comprehensive surveillance sharing agreement is 
not required. The text of the proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 42588]]

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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend Rule 5.3(g) (Criteria for 
Underlying Securities) to list options overlying ETFs that are listed 
pursuant to generic listing standards on equities exchanges for series 
of ETFs based on international or global indexes under which a 
comprehensive surveillance sharing agreement (``CSSA'' or 
``comprehensive surveillance agreement'') is not required.\4\ This 
proposal will enable the Exchange to list and trade options on ETFs 
without a CSSA provided that the ETF is listed on an equities exchange 
pursuant to the generic listing standards that do not require a CSSA 
pursuant to Rule 19b-4(e) of the Exchange Act.\5\ Rule 19b-4(e) 
provides that the listing and trading of a new derivative securities 
product by a self-regulatory organization (``SRO'') shall not be deemed 
a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4, if 
the Commission has approved, pursuant to section 19(b) of the Act, the 
SRO's trading rules, procedures and listing standards for the product 
class that would include the new derivatives securities product, and 
the SRO has a surveillance program for the product class.\6\ In other 
words, this proposal will amend the listing standards to allow the 
Exchange to list and trade options on ETFs based on international or 
global indexes to a similar degree that they are allowed to be listed 
on several equities exchanges.\7\
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    \4\ See, e.g., NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.01(a)(B); NYSE MKT Rule 1000, Commentary .03(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(e).
    \6\ When relying on Rule 19b-4(e), the SRO must submit Form 19b-
4(e) to the Commission within five business days after the SRO 
begins trading the new derivative securities products. See 
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952 (December 22, 1998).
    \7\ See, e.g., NYSE Arca Equities Rule 5.2(j)(3) Commentary 
.01(a)(B); NYSE MKT Rule 1000 Commentary .03(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii) and (b)(3)(A)(ii); and BATS Rule 
14.11(b)(3)(A)(ii). See also Securities Exchange Act Release Nos. 
55621 (April 12, 2007), 72 FR 19571 (April 18, 2007) (SR-NYSEArca-
2006-86); 54739 (November 9, 2006), 71 FR 66993 (SR-Amex-2006-78); 
55269 (February 9, 2007), 72 FR 7490 (February 15, 2007) (SR-NASDAQ-
2006-050).
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Exchange-Traded Funds: Current Rule 5.3(g)
    Currently, the Exchange allows for the listing and trading of 
options on ETFs. Rule 5.3(g) provides the listings standards for 
options on ETFs, such as ETFs based on international or global 
indexes.\8\ Rule 5.3(g)(2)(A) requires that any non-U.S. component 
securities in an index or portfolio of securities on which the Fund 
Shares are based that are not subject to a CSSA do not in the aggregate 
represent more than 50% of the weight of the index or portfolio. Rule 
5.3(g)(2)(B) requires that any component securities of an index or 
portfolio of securities on which Fund Shares are based for which the 
primary market is in any one country that is not subject to a CSSA do 
not represent 20% or more of the weight of the index. And, Rule 
5.3(g)(2)(C) requires that any component securities of an index or 
portfolio of securities on which Fund Shares are based for which the 
primary market is in any two countries that are not subject to a CSSA 
do not represent 33% or more of the weight of the index.
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    \8\ See Rule 5.3(g)(2)(A)-(D), to be re-numbered as proposed 
Rule 5.3(g)(2)(B)(i)-(iv) as discussed herein.
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Generic Listing Standards for Exchange-Traded Funds
    The Exchange notes that the Commission has previously approved 
generic listing standards pursuant to Rule 19b-4(e) of the Exchange Act 
for ETFs based on indexes that consist of stocks listed on U.S. 
exchanges.\9\ In general, the criteria for the underlying component 
securities in the international and global indexes are similar to those 
for the domestic indexes, but with modifications as appropriate for the 
issues and risks associated with non-U.S. securities. In addition, the 
Commission has previously approved the listing and trading of ETFs 
based on international indexes--those based on non-U.S. component 
stocks, as well as global indexes--those based on non-U.S. and U.S. 
component stocks.\10\
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    \9\ See Commentary .03 to Amex Rule 1000 and Commentary .02 to 
Amex Rule 1000A. See also Securities Exchange Act Release No. 42787 
(May 15, 2000), 65 FR 33598 (May 24, 2000).
    \10\ See, e.g., Securities Exchange Act Release Nos. 50189 
(August 12, 2004), 69 FR 51723 (August 20, 2004) (approving the 
listing and trading of certain Vanguard International Equity Index 
Funds); 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001) 
(approving the listing and trading of series of the iShares Trust 
based on certain S&P global indexes).
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    In approving ETFs for equities exchange trading, the Commission 
thoroughly considered the structure of the ETFs, their usefulness to 
investors and to the markets, and SRO rules that govern their trading. 
The Exchange believes that allowing the listing of options overlying 
ETFs that are listed pursuant to the generic listing standards on 
equities exchanges for ETFs based on international and global indexes 
and applying Rule 19b-4(e) should fulfill the intended objective of 
that rule by allowing options on those ETFs that have satisfied the 
generic listing standards to commence trading, without the need for the 
public comment period and Commission approval. The proposed rule has 
the potential to reduce the time frame for bringing options on ETFs to 
market, thereby reducing the burdens on issuers and other market 
participants. The failure of a particular ETF to comply with the 
generic listing standards under Rule 19b-4(e) would not, however, 
preclude the Exchange from submitting a separate filing pursuant to 
section 19(b)(2),\11\ requesting Commission approval to list and trade 
options on a particular ETF.
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    \11\ 15 U.S.C. 78s(b)(2).
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Requirements for Listing and Trading Options Overlying ETFs Based on 
International and Global Indexes
    Options on ETFs listed pursuant to these generic standards for 
international and global indexes would be traded, in all other 
respects, under the Exchange's existing trading rules and procedures 
that apply to options on ETFs and would be covered under the Exchange's 
surveillance program for options on ETFs.
    Pursuant to the proposed rule, the Exchange may list and trade 
options on an ETF without a CSSA provided that the ETF is listed 
pursuant to generic listing standards for series of ETFs based on 
international or global indexes under which a comprehensive 
surveillance agreement is not required.\12\ The Exchange believes that 
these generic listing standards are intended to ensure that stocks with 
substantial market capitalization and trading volume account for a 
substantial

[[Page 42589]]

portion of the weight of an index or portfolio.
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    \12\ See proposed Rule 5.3(g)(2)(A).
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    The Exchange believes that this proposed listing standard for 
options on ETFs is reasonable for international and global indexes, 
and, when applied in conjunction with the other listing 
requirements,\13\ will result in options overlying ETFs that are 
sufficiently broad-based in scope and not readily susceptible to 
manipulation. The Exchange also believes that allowing the Exchange to 
list options overlying ETFs that are listed on equities exchanges 
pursuant to generic standards for series of portfolio depositary 
receipts or index fund shares \14\ based on international or global 
indexes under which a CSSA is not required, will result in options 
overlying ETFs that are adequately diversified in weighting for any 
single security or small group of securities to significantly reduce 
concerns that trading in options overlying ETFs based on international 
or global indexes could become a surrogate for trading in unregistered 
securities.
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    \13\ All of the other listing criteria under the Exchange's 
rules will continue to apply to any options listed pursuant to the 
proposed rule change.
    \14\ The Exchange notes that the proposed rule text differs 
slightly from that of other exchanges, with the exception of BATS 
Exchange, in order to make clear that the rule applies to ETFs that 
have been listed on equities exchanges pursuant to generic listing 
standards for series of ``portfolio depositary receipts or index 
fund shares'' rather than ``portfolio depositary receipts and index 
fund shares.'' Such difference does not represent a substantive 
difference from the rules of other exchanges. See infra n. 18.
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    The Exchange believes that ETFs based on international and global 
indexes that have been listed pursuant to the generic standards are 
sufficiently broad-based enough so as to make options overlying such 
ETFs not susceptible instruments for manipulation. The Exchange 
believes that the threat of manipulation is sufficiently mitigated for 
underlying ETFs that have been listed on equities exchanges pursuant to 
generic listing standards for series of portfolio depositary receipts 
or index fund shares based on international or global indexes under 
which a comprehensive surveillance agreement is not required and for 
the overlying options, that the Exchange does not see the need for a 
CSSA to be in place before listing and trading options on such ETFs. 
The Exchange notes that its proposal does not replace the need for a 
CSSA as provided in the current rule. The provisions of the current 
rule, including the need for a CSSA, remain materially unchanged in the 
proposed rule and will continue to apply to options on ETFs that are 
not listed on an equities exchange pursuant to generic listing 
standards for series of portfolio depositary receipts or index fund 
shares based on international or global indexes under which a 
comprehensive surveillance agreement is not required. Instead, the 
proposed rule adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange.
    Finally, the Exchange is also proposing to make several non-
substantive changes to the rule text in order to make it easier to read 
and understand. Specifically, the Exchange is proposing to move Rule 
5.3(g)(1)(C) (regarding Commodity Pool Units) to become Rule 
5.3(g)(2)(B)(v). In addition, to account for proposed Rule 
5.3(g)(2)(A), the Exchange proposes to re-number paragraphs (g)(2)(A)-
(D) as paragraphs (g)(2)(B)(i)-(iv), and to make clear that each of the 
proposed newly numbered paragraphs (i.e., Rule 5.3(g)(2)(B)(i)-(v)) 
apply to the series of Exchange-Traded Fund Shares that do not meet the 
criteria in proposed Rule 5.3(g)(2)(A).
2. Statutory Basis
    The proposed rule change is consistent with section 6(b) \15\ of 
the Securities Exchange Act of 1934 (the ``Act''), in general, and 
furthers the objectives of section 6(b)(5),\16\ 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 mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change has the potential to reduce 
the time frame for bringing options on ETFs to market, thereby reducing 
the burdens on issuers and other market participants. The Exchange also 
believes that enabling the listing and trading of options on ETFs 
pursuant to this new listing standard will benefit investors by 
providing them with valuable risk management tools. The Exchange notes 
that its proposal does not replace the need for a comprehensive 
surveillance agreement as provided in the current rule. The provisions 
of the current rule, including the need for a CSSA, remain materially 
unchanged and will continue to apply to options on ETFs that are not 
listed on an equities exchange pursuant to generic listing standards 
for series of portfolio depositary receipts or index fund shares based 
on international or global indexes under which a comprehensive 
surveillance agreement is not required. Instead, proposed Rule 
5.3(g)(2)(A) adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange in a manner 
that 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, 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 also believes that the proposed non-substantive 
organizational changes are reasonable, fair, and equitable because they 
are designed to make the rule easier to comprehend. As noted above, the 
proposed non-substantive changes do not change the need for a CSSA as 
provided in the current rule. The provisions of the current rule, 
including the need for a CSSA, remain materially unchanged in the 
proposed rule and will continue to apply to options on ETFs that are 
not listed on an equities exchange pursuant to generic listing 
standards for series of portfolio depositary receipts or index fund 
shares based on international or global indexes under which a 
comprehensive surveillance agreement is not required. These non-
substantive changes to the rules are intended to make the rules clearer 
and less confusing for participants and investors and to eliminate 
potential confusion, thereby removing impediments to and perfecting the 
mechanism of a free and open market and a national market system, and, 
in general, protecting investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with section 6(b)(8) of the Act,\17\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act. To the contrary, the proposed rule change is a 
competitive change that is substantially similar to recent rule changes 
filed by MIAX Options Exchange (``MIAX''), NASDAQ OMX PHLX LLC 
(``Phlx''), International Securities Exchange LLC (``ISE''), BOX

[[Page 42590]]

Options Exchange LLC (``BOX'') and BATS Exchange ``BATS'').\18\ 
Furthermore, the Exchange believes this proposed rule change will 
benefit investors by providing additional methods to trade options on 
ETFs, and by providing them with valuable risk management tools. 
Specifically, the Exchange believes that market participants on the 
Exchange would benefit from the introduction and availability of 
options on ETFs in a manner that is similar to equities exchanges and 
will provide investors with a venue on which to trade options on these 
products. For all the reasons stated above, the Exchange does not 
believe that the proposed rule changes will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act, and believes the proposed change will enhance competition.
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    \17\ 15 U.S.C. 78f(b)(8).
    \18\ See Securities Exchange Act Release Nos. 74509 (March 13, 
2015), 80 FR 14425 (March 19, 2015) (SR-MIAX-2015-04); 74553 (March 
20, 2015) 80 FR 16072 (March 26, 2015) (SR-Phlx-2015-27); 74832 
(April 29, 2015), 80 FR 25738 (May 5, 2015) (SR-ISE-2015-16); 75132 
(June 9, 2015), 80 FR 34175 (June 15, 2015) (SR-BOX-2015-21), 75166, 
(June 12, 2015), 80 FR 34946 (June 18, 2015) (SR-BATS-2015-43).
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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 with respect to the 
proposed rule change.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to section 
19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \21\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
stated that waiver of the operative delay will permit the Exchange to 
list and trade certain ETF options on the same basis as other options 
markets.\23\ The Commission believes the waiver of the operative delay 
is consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\24\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ See supra note 18.
    \24\ 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).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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 email to [email protected]. Please include 
File Number SR-NYSEArca-2015-60 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2015-60. This 
file number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-NYSEArca-2015-60, and should 
be submitted on or before August 7, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17494 Filed 7-16-15; 8:45 am]
 BILLING CODE 8011-01-P