
[Federal Register: May 5, 2008 (Volume 73, Number 87)]
[Notices]               
[Page 24618-24621]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my08-515]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57735; File No. SR-BSE-2008-16]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To List and Trade Options on Index Multiple ETFs and Index Inverse ETFs

April 29, 2008.
    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 April 25, 2008, the Boston Stock Exchange, Inc. (``BSE'' 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. 
The Exchange filed the proposed rule change as a ``non-controversial'' 
proposed rule change pursuant to section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission. 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Rules of the Boston Options 
Exchange (``BOX'') to permit the initial and continued listing and 
trading on BOX of options on Index Multiple Exchange Traded Fund Shares 
(``Index Multiple ETFs'') and Index Inverse Exchange Traded Fund Shares 
(``Index Inverse ETFs''). The text of the proposed rule change is 
available at the principal office of the Exchange, the Commission's 
Public Reference Room, and http://www.bostonstock.com.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. BSE 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 Sections 3 and 
4 of Chapter IV of the BOX Rules to enable the listing and trading on 
BOX of options on Index Multiple ETFs and Index Inverse ETFs. An Index 
Multiple

[[Page 24619]]

ETF seeks to provide investment results, before fees and expenses, that 
correspond to a specified multiple of the percentage performance on a 
given day of a particular foreign or domestic stock index. An Index 
Inverse ETF seeks to provide investment results, before fees and 
expenses, that correspond to the inverse (opposite) of the percentage 
performance on a given day of a particular foreign or domestic stock 
index by a specified multiple. Index Multiple ETFs and Index Inverse 
ETFs differ from traditional ETFs in that they do not merely correspond 
to the performance of a given index, but rather attempt to match a 
multiple or inverse of such underlying index performance. The ProShares 
Ultra Funds, which currently trade on the American Stock Exchange 
(``Amex''), are examples of Index Multiple ETFs. The ProShares Short 
Funds and Ultra Short Funds, which are also currently listed for 
trading on Amex, are examples of Index Inverse ETFs.\5\
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    \5\ The Ultra Funds are expected to gain, on a percentage basis, 
approximately twice (200%) as much as the underlying benchmark index 
and should lose approximately twice (200%) as much as the underlying 
benchmark index when such prices decline. The Short Funds are 
expected to achieve investment results, before fees and expenses, 
that correspond to the inverse or opposite (-100%) of the daily 
performance of an underlying benchmark index. Lastly, the UltraShort 
Funds are expected to achieve investment results, before fees and 
expenses, that correspond to twice the inverse or opposite (-200%) 
of the daily performance of the underlying benchmark index. See 
Securities Exchange Act Release No. 52553 (October 3, 2005), 70 FR 
59100 (October 11, 2005) (SR-Amex-2004-62). See also Securities 
Exchange Act Release No. 54040 (June 23, 2006), 71 FR 37629 (June 
30, 2006) (SR-Amex-2006-41).
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    To achieve investment results that provide either a positive 
multiple or inverse of the benchmark index, Index Multiple ETFs or 
Index Inverse ETFs may hold a combination of financial instruments, 
including, among other things: Stock index futures contracts; options 
on futures; options on securities and indexes; equity caps, collars, 
and floors; swap agreements; forward contracts; repurchase agreements; 
and reverse repurchase agreements (collectively, ``Financial 
Instruments''). The underlying portfolio of an Index Multiple ETF 
generally will hold at least 85% of its assets in the component 
securities of the underlying relevant benchmark index. The remainder is 
devoted to Financial Instruments that are intended to create the 
additional exposure to the underlying index necessary to pursue its 
investment objective. Typically, 100% of the value of the portfolio 
underlying the Index Inverse ETF will be devoted to Financial 
Instruments and money market instruments, including U.S. government 
securities and repurchase agreements (the ``Money Market 
Instruments'').
    Currently, Section 3(i) of Chapter IV of the BOX Rules provides 
securities deemed appropriate for options trading shall include shares 
or other securities (``Fund Shares'') \6\ that represent interests in 
registered investment companies (or series thereof) organized as open-
end management investment companies, unit investment trusts or similar 
entities. These are principally traded on a national securities 
exchange or through the facilities of a national securities association 
and are defined as an ``NMS stock'' under Rule 600 of Regulation NMS, 
and that hold portfolios of securities comprising or otherwise based on 
or representing investments in broad-based indexes or portfolios of 
securities (or that hold securities in one or more other registered 
investment companies that themselves hold such portfolios of 
securities) (``Funds'').
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    \6\ The Exchange also proposes to make technical conforming 
changes to its current Sections 3, 4, and 6 of Chapter IV and 
Section 3 of Chapter V of the BOX Rules to those of ISE and Amex. As 
a result, and in the context of this filing, the Exchange refers to 
Fund Shares as Exchange-Traded Fund Shares hereafter.
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    The Exchange proposes to amend section 3 of Chapter IV of the BOX 
Rules to expand the type of options that can be listed and traded to 
include options based on Index Multiple ETFs and Index Inverse ETFs 
that may hold or invest in any combination of securities, Financial 
Instruments, and/or Money Market Instruments. Index Multiple ETFs and 
Index Inverse ETFs on which Exchange-listed options are based must 
continue to otherwise satisfy the listing standards of section 3(i) of 
Chapter IV of the BOX Rules. The Exchange also proposes to make non-
substantive, clarifying changes to section 3(i) of Chapter IV of the 
BOX Rules by conforming the construction of this rule to those of Amex 
and the International Securities Exchange (``ISE''). The Exchange notes 
that these changes are not significant, and do not substantively alter 
the listing standards found in section 3 of Chapter IV of the BOX 
Rules. Accordingly, in addition to certain repositioning of existing 
rule text, the Exchange also proposes to remove the reference to a 
``national securities association'' in section 3(i) of Chapter IV.
    As set forth in proposed amended section 3(i) of Chapter IV of the 
BOX Rules, an Index Multiple ETF or Index Inverse ETF on which an 
Exchange-listed option is based must be traded on a national securities 
exchange and must be an ``NMS stock'' as defined under Rule 600 of 
Regulation NMS. In addition, such Index Multiple ETF and Index Inverse 
ETF must meet either: (1) The criteria and guidelines set forth in 
paragraphs (a) and (b) of section 3, Chapter IV of the BOX Rules; or 
(2) be available for creation or redemption each business day from or 
through the issuing trust, investment company, or other entity in cash 
or in kind at a price related to net asset value. The investment 
company shall provide that shares may be created even though some or 
all of the securities and/or cash (in lieu of Financial Instruments) 
needed to be deposited have not been received by the investment 
company, provided that the person obligated to deposit the investment 
assets has undertaken to deliver the shares and/or cash as soon as 
possible and such undertaking has been secured by the delivery and 
maintenance of collateral consisting of cash or cash equivalents 
satisfactory to the issuer of the fund shares, all as described in the 
fund shares' prospectus.
    Additionally, the Fund Shares must also meet all of the following 
conditions: (1) Any non-U.S. component securities of the index or 
portfolio of securities on which the Fund Shares are based that are not 
subject to comprehensive surveillance agreements do not in aggregate 
represent more than 50% of the weight of the index or portfolio; (2) 
component securities of an index or portfolio of securities on which 
the Fund Shares are based for which the primary market is in any one 
country that is not subject to a comprehensive surveillance agreement 
do not represent 20% or more of the weight of the index; and (3) 
component securities of an index or portfolio of securities on which 
the Fund Shares are based for which the primary market is in any two 
countries that are not subject to comprehensive surveillance agreements 
do not represent 33% or more of the weight of the index.\7\
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    \7\ See existing Section 3(i) of Chapter IV of the BOX Rules, 
items (i) to (iii).
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    The Exchange also proposes to amend section 4(h) of Chapter IV of 
the BOX Rules to indicate that the index or portfolio may consist of, 
among other things, securities, Financial Instruments and/or Money 
Market Instruments. In proposing to make the Exchange's Rules conform 
to those of the Amex and ISE, the Exchange also seeks to delete 
reference to ``national securities association'' set forth in section 
4(h) of Chapter IV of the BOX Rules.
    Under the applicable continued listing criteria for section 4(h) of

[[Page 24620]]

Chapter IV of the BOX Rules, options on Fund Shares may be subject to 
the suspension of opening transactions as follows:
     Following the initial 12-month period beginning with the 
commencement of trading of the Fund Shares, there are fewer than 50 
record and/or beneficial holders of the Fund Shares for 30 or more 
consecutive trading days;
     The value of the index or portfolio of securities and/or 
Financial Instruments and Money Market Instrument, on which the Fund 
Shares are based is no longer calculated or available; or
     Such other event occurs or condition exists that in the 
opinion of the Exchange makes further dealing on the Exchange 
inadvisable.
    Additionally, an Index Multiple ETF or Index Inverse ETF shall not 
be deemed to meet requirements for continued approval, and the Exchange 
shall not open for trading any additional series of option contracts of 
the class covering such ETF, if: (1) The underlying ETF is halted from 
trading on its primary market; (2) the underlying ETF is delisted in 
accordance with the terms of Section 4(h) of Chapter IV; or (3) the 
value of the index or portfolio on which the underlying ETF is based is 
no longer calculated or available.
    The expansion of the types of investments that may be held by Index 
Multiple ETFs or Index Inverse ETFs under Section 3(i) of Chapter IV of 
the BOX Rules would not have any effect on the rules pertaining to 
position and exercise limits \8\ or margin.\9\
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    \8\ See Sections 7 and 9 of Chapter III of the BOX Rules.
    \9\ See Section 3 of Chapter XIII of the BOX Rules.
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    The Exchange believes that this proposal is necessary to enable the 
Exchange to list and trade options on the shares of the Ultra Fund, 
Short Fund, and UltraShort Fund of the ProShares Trust.\10\ The 
Exchange believes the ability to trade options on Index Multiple ETFs 
and Index Inverse ETFs will provide investors with greater risk 
management tools.
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    \10\ See supra note 5.
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    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in Index Multiple ETF options and Index Inverse ETF options.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\11\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\12\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
prevent fraudulent and manipulative acts, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, because the ability to trade options on Index Multiple 
ETFs and Index Inverse ETFs will provide investors with greater risk 
management tools and, in general, will allow for the protection of 
investors and the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
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

    The Exchange has neither solicited nor received written comments on 
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 after the date of 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 \13\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). The Exchange has satisfied the 
five-day pre-filing requirement of Rule 19b-4(f)(6)(iii).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change as operative 
upon filing. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The proposed rule change is substantially similar to those of 
other options exchanges that have been previously approved by the 
Commission \15\ and does not appear to present any novel regulatory 
issues. Therefore, the Commission designates the proposal operative 
upon filing.\16\
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    \15\ See Securities Exchange Act Release Nos. 56871 (November 
30, 2007), 72 FR 68924 (December 6, 2007) (SR-ISE-2007-87); 56715 
(Oct. 29, 2007), 72 FR 62287 (November 2, 2007) (SR-CBOE-2007-119); 
and 56650 (October 12, 2007), 72 FR 59123 (October 18, 2007) (SR-
Amex-2007-35).
    \16\ For purposes only of waiving the operative delay of this 
proposal, the Commission has 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 may summarily abrogate 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 the 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 rule-comments@sec.gov. Please include 
File Number SR-BSE-2008-16 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-BSE-2008-16. 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

[[Page 24621]]

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 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-BSE-
2008-16 and should be submitted on or before May 27, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-9782 Filed 5-2-08; 8:45 am]

BILLING CODE 8010-01-P
