

[Federal Register: October 5, 2007 (Volume 72, Number 193)]
[Notices]               
[Page 57078-57081]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05oc07-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56559; File No. SR-CBOE-2007-103]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change To Trade Shares of the iShares FTSE/Xinhua 
China 25 Index Fund Pursuant to Unlisted Trading Privileges

September 27, 2007.
    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 September 6, 2007, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``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 substantially prepared by 
the Exchange. This order provides notice of the proposed rule change 
and approves the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to trade on the CBOE Stock Exchange 
(``CBSX'') shares of the iShares FTSE/Xinhua China 25 Index Fund 
(``Fund'') pursuant to unlisted trading privileges (``UTP''). The text 
of the proposed rule change is available at CBOE, the Commission's 
Public Reference Room, and http://www.cboe.org/legal.


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

[[Page 57079]]

proposed rule change. The text of these 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to trade shares of the Fund on CBSX pursuant 
to UTP. The Fund seeks investment results that correspond generally to 
the price and yield performance, before fees and expenses, of the FTSE/
Xinhua China 25 Index (``Index''). The Index consists of 25 of the 
largest and most liquid companies in the Chinese equity market that are 
available to international investors. The Commission previously 
approved the original listing and trading of the Fund shares on the New 
York Stock Exchange LLC (``NYSE'').\3\ Subsequently, the Commission 
approved the listing and trading of the Fund shares on the Pacific 
Exchange, Inc.,\4\ which is now known as NYSE Arca, Inc. (``NYSE 
Arca''), and the trading of the Fund shares pursuant to UTP on the 
American Stock Exchange LLC (``Amex'').\5\
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    \3\ See Securities Exchange Act Release No. 50505 (October 8, 
2004), 69 FR 61280 (October 15, 2004) (SR-NYSE-2004-55).
    \4\ See Securities Exchange Act Release No. 50799 (December 6, 
2004), 69 FR 72242 (December 13, 2004) (SR-PCX-2004-99).
    \5\ See Securities Exchange Act Release No. 50800 (December 6, 
2004), 69 FR 72228 (December 13, 2004) (SR-Amex-2004-85).
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    The Exchange deems the Fund shares to be equity securities, thus 
rendering trading in the Fund shares subject to the Exchange's existing 
rules governing the trading of equity securities. The trading hours for 
the Fund shares on CBSX will be from 8:15 a.m. until 3:15 p.m. Central 
Time or 9:15 a.m until 4:15 p.m. Eastern Time (``ET'').
    Quotations for and last-sale information regarding the Fund shares 
are disseminated through the Consolidated Quotation System. The value 
of the Index is updated intraday on a real-time basis as individual 
component securities of the Index change in price. The intraday value 
of the Index is disseminated at least every 60 seconds from 8:15 p.m. 
until 3 a.m. ET.\6\ In addition, a value for the Index is disseminated 
once each trading day, based on closing prices in the relevant exchange 
market.\7\
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    \6\ E-mail from Angelo Evangelou, Assistant General Counsel, 
CBOE, to Rebekah Goshorn, Division of Market Regulation, Commission, 
dated September 19, 2007 (correcting the timing of the dissemination 
of the intraday value of the Index).
    \7\ See supra note 4, 69 FR at 72245 (providing a more detailed 
discussion of the calculation and dissemination of the Index value).
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    To provide updated information relating to the Fund for use by 
investors, professionals, and persons wishing to create or redeem the 
shares, NYSE disseminates through the facilities of the Consolidated 
Tape Association the Intraday Indicative Value (``IIV'') for the Fund, 
as calculated by a securities information provider. The IIV is 
disseminated on a per-share basis every 15 seconds during regular NYSE 
trading hours.\8\
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    \8\ See supra note 4, 69 FR at 72246.
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    In connection with the trading of the Fund shares, the Exchange 
will inform members and member organizations in an Information Circular 
of the special characteristics and risks associated with trading the 
Fund shares, including how they are created and redeemed, the 
prospectus or product description delivery requirements applicable to 
the Fund, applicable Exchange rules, how information about the value of 
the underlying Index is disseminated, and trading information. In 
addition, before a member recommends a transaction in the Fund, the 
member must determine that the Fund is suitable for the customer, as 
required by CBOE Rule 53.6.
    The Exchange intends to utilize its existing surveillance 
procedures applicable to exchange-traded funds to monitor trading in 
the Fund shares. CBOE represents that these procedures are adequate to 
monitor Exchange trading of the Fund shares.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Fund shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Fund shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities comprising 
the Index and/or the financial instruments of the Fund; (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present; or (3) trading of 
the Fund shares has been halted or suspended in the primary market.\9\ 
In addition, trading in the Fund shares will be subject to trading 
halts caused by extraordinary market volatility pursuant to the 
Exchange's ``circuit breaker'' rule.\10\ UTP trading in the Fund is 
also governed by the trading halts provisions of CBOE Rule 52.3 
relating to temporary interruptions in the calculation or wide 
dissemination of the IIV or the value of the underlying Index.
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    \9\ See CBOE Rule 6.3(a). E-mail from Angelo Evangelou, 
Assistant General Counsel, CBOE, to Rebekah Goshorn, Division of 
Market Regulation, Commission, dated September 27, 2007 
(clarification on trading halts).
    \10\ See CBOE Rule 6.3B.
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2. Statutory Basis
    CBOE believes that the proposed rule change is consistent with the 
Act, the rules and regulations thereunder applicable to a national 
securities exchange, and, in particular, the requirements of Section 
6(b) of the Act.\11\ Specifically, CBOE believes that the proposed rule 
change is consistent with the Section 6(b)(5) of the Act \12\ in that 
it is designed 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 to protect investors and the 
public interest. In addition, CBOE believes that the proposal is 
consistent with Rule 12f-5 under the Act \13\ because it deems the Fund 
shares to be equity securities, thus rendering trading in the Fund 
shares subject to the Exchange's existing rules governing the trading 
of equity securities.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 17 CFR 240.12f-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 will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purpose 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 written comments on 
the proposed rule change.

III. 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 rule-comments@sec.gov. Please include 

File

[[Page 57080]]

Number SR-CBOE-2007-103 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-2007-103. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of 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-2007-103 and should be 
submitted on or before October 26, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change, is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange.\14\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\15\ which 
requires that an exchange have rules designed, among other things, 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. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade shares of 
the Fund.
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    \14\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\16\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\17\ The Commission notes that it previously approved the 
listing and trading of the shares on NYSE and NYSE Arca \18\ and 
trading of the Fund shares pursuant to UTP on Amex.\19\ The Commission 
also finds that the proposal is consistent with Rule 12f-5 under the 
Act,\20\ which provides that an exchange shall not extend UTP to a 
security unless the exchange has in effect a rule or rules providing 
for transactions in the class or type of security to which the exchange 
extends UTP. The Exchange has represented that it meets this 
requirement because it deems the Fund shares to be equity securities, 
thus rendering trading in such shares subject to the Exchange's 
existing rules governing the trading of equity securities.
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    \16\ 15 U.S.C. 78l(f).
    \17\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \18\ See supra notes 3 and 4.
    \19\ See supra note 5.
    \20\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\21\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last-sale information regarding the Fund 
shares are disseminated through the Consolidated Quotation System. The 
value of the Index is disseminated every 60 seconds from 8:15 p.m. 
until 3 a.m. ET. In addition, NYSE disseminates through the facilities 
of the Consolidated Tape Association the IIV for the Fund on a per-
share basis every 15 seconds during regular NYSE trading hours.
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    \21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Moreover, the proposal appears reasonably designed to halt trading 
in the Fund shares when transparency is impaired. UTP trading in the 
Fund is also governed by the trading halts provisions of CBOE Rule 52.3 
relating to temporary interruptions in the calculation or wide 
dissemination of the IIV or the value of the underlying Index. If the 
listing market halts trading in the shares, or the IIV or the Index 
value is not being calculated or disseminated as required, the Exchange 
would halt trading in the shares.
    The Commission notes that, if the Fund shares should be delisted by 
the listing exchange, the Exchange would no longer have authority to 
trade the shares pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange represents that its surveillance procedures are 
adequate to monitor Exchange trading of the Fund shares.
    (2) The Exchange will inform its members in an Information Circular 
of the special characteristics and risks associated with trading the 
Fund shares, including suitability recommendation requirements.
    (3) The Exchange will require its members to deliver a prospectus 
or product description to investors purchasing shares of the Fund and 
will note this prospectus delivery requirement in the Information 
Circular.
    This approval order is based on the Exchange's representations.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As noted above, the Commission previously found that 
the listing and trading of the Fund shares on NYSE and NYSE Arca is 
consistent with the Act.\22\ In addition, the Commission notes that it 
previously approved the trading of the Fund shares on Amex pursuant to 
UTP.\23\ The Commission presently is not aware of any regulatory issue 
that should cause it to revisit these findings or would preclude the 
trading of the Fund shares on the Exchange pursuant to UTP. Therefore, 
accelerating approval of this proposal should benefit investors by 
creating, without undue delay, additional competition in the market for 
such shares.
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    \22\ See supra notes 3 and 4.
    \23\ See supra note 5.

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[[Page 57081]]

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\24\ that the proposed rule change (SR-CBOE-2007-103), be, and it 
hereby is, approved on an accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-19670 Filed 10-4-07; 8:45 am]

BILLING CODE 8011-01-P
