
[Federal Register Volume 75, Number 244 (Tuesday, December 21, 2010)]
[Notices]
[Pages 80084-80086]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63550; File No. SR-NYSEArca-2010-115]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Options Rule 5.3(j) To Permit Trading Options on Leveraged Exchange-
Traded Notes and Broaden the Definition of Futures Linked Securities

December 15, 2010.
    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 December 9, 2010, 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 et seq.
    \3\ 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 amend NYSE Arca Options Rule 5.3(j) to: 
(1) Permit trading options on leveraged (multiple or inverse) exchange-
traded notes, and (2) broaden the definition of ``Futures-Linked 
Securities [sic]. The text of the proposed rule change is available at 
the Exchange, the Commission's Public Reference Room, and http://www.nyse.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 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 proposes to amend NYSE Arca Options Rule 5.3(j) to: 
(1) Permit trading options on leveraged (multiple or inverse) exchange-
traded notes (``ETNs''), and (2) broaden the definition of ``Futures-
Linked Securities.'' \4\ 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 nonconvertible 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 trade as a single exchange-listed security. 
Accordingly, rules pertaining to the listing and trading of standard 
equity options apply to Index-Linked Securities.
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    \4\ The amendments proposed herein are similar to changes 
approved for the Chicago Board Options Exchange (``CBOE''). See 
Securities Exchange Act Release No. 63202 (October 28, 2010), 75 FR 
67794 (November 3, 2010) (SR-CBOE-2010-080).
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Leveraged ETN Options
    The Exchange proposes to amend NYSE Arca Options Rule 5.3(j) 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 equity platform 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 equity platform and is an example of an inverse 
leveraged ETN. The NYSE Arca equity platform also lists several other 
inverse leveraged ETNs for trading.\5\
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    \5\ 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'').
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    Currently, NYSE Arca Options Rule 5.3 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''), as defined in NYSE Arca Equities Rule 5.2(j)(6), 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 NYSE 
Arca Equities Rule 8.202(c)), or a basket or index of any of

[[Page 80085]]

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 securities, supranational debt and debt of a foreign country 
or a 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 a subdivision 
thereof, or options or other derivatives on any of the foregoing; (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 NYSE Arca Options Rule 5.3(j), Equity Reference 
Assets, Commodity Reference Assets, Currency Reference Assets, Fixed 
Income Reference Assets, Futures Reference Assets, and Multifactor 
Reference Assets collectively are referred to as ``Reference Assets.''
    In addition, Index-Linked Securities must meet the criteria and 
guidelines for underlying securities set forth in NYSE Arca Options 
Rule 5.3 or 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 the Index-Linked Securities that underlie 
the option as described in the Index-Linked Securities prospectus.
    The Exchange proposes to amend NYSE Arca Options Rule 5.3 to expand 
the type of Index-Linked Securities that may underlie options to 
include leveraged (multiple or inverse) ETNs. To effect this change, 
the Exchange proposes to amend NYSE Arca Options Rule 5.3(j) by adding 
the phrase, ``or the leveraged (multiple or inverse) performance'' to 
each of the subparagraphs ((A) through (F)) in that section, which sets 
forth the different eligible Reference Assets.\6\
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    \6\ The Exchange also proposes a technical correction to the 
Rule to conform a definition. In particular, we are changing the 
defined term ``NMS Stock'' to ``NMS stock'' to conform to how it is 
defined in Rule 600 of Regulation NMS under the Securities and 
Exchange Act of 1934.
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    The Exchange's current continuing listing standards for ETN options 
will continue to apply. Specifically, under NYSE Arca Options Rule 
5.4(m), 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 Index-Linked Securities whenever the underlying 
securities are delisted and trading in the Index-Linked Securities is 
suspended on a national securities exchange, or the Index-Linked 
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 NYSE Arca Options Rule 
5.3(j); (2) in accordance with the terms of NYSE Arca Options Rule 
5.4(b), in the case of options covering Index-Linked Securities when 
such options were approved pursuant to NYSE Arca Options Rule 5.3(j), 
except that, in the case of options covering Index-Linked Securities 
approved pursuant to NYSE Arca Options Rule 5.3(j)(3)(B) 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 NYSE Arca Options Rule 5.3(j), the value of the 
Reference Asset is no longer calculated or available or (4) such other 
event shall occur or condition exist that in the opinion of the 
Exchange make further dealing in such options on the Exchange 
inadvisable. Expanding the eligible types of ETNs for options trading 
under NYSE Arca Options Rule 5.3 will not have any effect on the rules 
pertaining to position and exercise limits \7\ or margin.\8\
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    \7\ See Rules 5.15, Position Limits, and 5.18, Exercise Limits.
    \8\ See Rule 5.25, Margins.
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    This proposal is necessary to enable the Exchange to list and trade 
options on shares of BXUB, BXUC, XXV, BXDB, BXDC, BXDD and MLPL. The 
Exchange 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 to accommodate the listing and 
trading of leveraged (multiple and inverse) ETN options.
    Broaden the Definition of ``Futures-Linked Securities''
    The second change proposed by this filing is to amend the 
definition of ``Futures-Linked Securities'' set forth in NYSE Arca 
Options Rule 5.3(j)(1)(E). 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; (b) 
interest rate futures or options or derivatives on the foregoing; or 
(c) CBOE VIX futures.
    NYSE Arca Options Rule 5.3 sets forth generic listing criteria for 
securities that may serve as underlyings for listed options trading. 
The Exchange 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

[[Page 80086]]

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''). The 
Exchange notes that all ETNs eligible for options trading must be 
principally traded on a national securities exchange and an ``NMS 
stock.'' As a result, the Exchange believes that broadening the 
definition of ``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,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is 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. The 
Exchange believes the proposed rules applicable to trading pursuant to 
generic listing and trading criteria serve to foster investor 
protection.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 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 with respect to 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 \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-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.
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    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 requested 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.\13\ The Commission notes the proposal is substantively 
identical a proposal that was recently approved by the Commission, and 
does not raise any new regulatory issues.\14\ For these reasons, the 
Commission designates the proposed rule change as operative upon 
filing.
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    \13\ 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).
    \14\ See supra note 4.
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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.

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-NYSEArca-2010-115 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-NYSEArca-2010-115. 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.\15\ 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-2010-115 and should be submitted on or before January 11, 
2011.
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    \15\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31994 Filed 12-20-10; 8:45 am]
BILLING CODE 8011-01-P


