CBOE seeks rule change needed to trade options on leveraged ETNs

By Angela McDaniels

Tacoma, Wash., Sept. 13 - The Chicago Board Options Exchange has filed a proposed rule change that would allow trading of options on leveraged exchange-traded notes, according to a notice from the Securities and Exchange Commission.

CBOE listed UBS AG's 2x Monthly Leveraged Long Exchange Traded Access Securities linked to the Alerian MLP Infrastructure index and Barclays Bank plc's ETN+ Inverse S&P 500 VIX Short-Term Futures ETNs as examples of leveraged ETNs.

The rule change would also broaden the definition of "futures-linked securities." Currently, the definition 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 Treasuries, securities issued by government-sponsored entities, supranational debt or debt of a foreign country or options on them; (b) interest rate futures or options or on them or (c) CBOE Volatility index futures.

CBOE believes the current definition is "unnecessarily restrictive" and said it is required 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 including in the existing rule.

To address this issue, CBOE proposed that the definition be revised to say that futures-linked securities are "securities that 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."

Comments on the proposed rule changes can be submitted to the SEC at www.sec.gov/rules/sro.shtml or by e-mail at rule-comments@sec.gov (include file number SR-CBOE-2010-080 in the subject line).

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