Comment Text:
Mr. David A. Stawick
Secretary
THE OPTIONS
CLEARING CORPORATION
ONE N. WACKER DRIVE. SUITE \00. CHICAGO. ILLINOIS 60606
WILLIAM H. NAVIN
EXECUTIVE VICE PRESIDENT. GENERAL. COUNSEL. AND SECRETARY
TEL 312.321
1817
FAX JI2322.1Bl6
WNAVIN@THEOCC COM
May 17,2010
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21 st Street, N. W.
Washington, DC 20581
Re:
Proposal to Exempt, Pursuant to the Authority in Section 4( c) of the Commodity
Exchange Act ("CEA") the Trading and Clearing of Certain Products Related to
ETFS Physical Swiss Gold Shares and ETFS Physical Silver Shares
Dear Mr. Stawick:
This letter is submitted by The Options Clearing Corporation ("OCC") in response to the
Commission's request for comment on its proposal to exempt, pursuant to Section 4(c) of the
CEA, trading and clearing of options and security futures on the above-captioned two classes of
exchange-traded fund shares (the "ETFs") that hold physical gold and physical silver,
respectively.' The proposed exemptive order ("Proposed Order") would permit options on the
ETFs to be traded on national securities exchanges as securities and futures on such ETFs to be
traded as security futures, while allowing OCC to clear such products as securities and security
futures, respectively, in its capacity as a registered securities clearing agency. As noted in the
filing, OCC has filed a proposed rule change with the Commission for approval pursuant to
Section 5c( c) of the CEA in order to confirm that clearing such options and security futures
(collectively, the "Contracts") as securities rather than as commodity options and commodity
futures subject to the Commission's exclusive jurisdiction would not be deemed to violate the
CEA. OCC supports the adoption of the proposed exemption because it is our understanding that
the Commission chooses to rely on the exemption as the basis for its approval of OCC's
proposed rule change.
Notwithstanding our support for the issuance of the proposed exemption, there are certain
aspects ofthe Release that OCC's finds troubling. The fundamental legal issue with respect to
the proposed Contracts is whether the underlying ETFs are themselves securities. If they are,
then options on such securities would be securities for purposes of the Securities Exchange Act
of 1934 (the "Exchange Act") and outside the Commission's jurisdiction under Section
J 75 FR 19619·19622 (April 15, 2010) (the "Release"). 2(a)(l)(C)(i) of the CEA. Similarly, futures on them would be security futures subject to the
joint jurisdiction of the SEC and CFTC. While we recognize that arguments can and have been
made concerning the status of the underlying ETFs, OCC strongly believes that they are
securities both because they are investment contracts within the meaning of that term as used in
the Exchange Act and because essentially identical ETFs have been traded on securities
exchanges and sold by registered broker-dealers to securities customers for several years and are
commonly known as securities. While we recognize that a contrary characterization is possible,
we do not believe that it is appropriate for the Commission to continue to deal with these
contracts on a case-by-case basis by requiring a separate filing for each new brand ofETF or
each new underlying interest. No new issues are raised by these Contracts. No legitimate
regulatory purpose is served by requiring these case-by-case filings. See comments contained in
the recent joint letter from OCC's Chairman and the Chairman of the Chicago Board Options
Exchange to Chairman Gensler and Chairman Schapiro.2 By imposing unnecessary delay and
expense in bringing these products to market, this practice frustrates the goal of the 4( c)
exemption as a "means of providing certainty and stability to existing and emerging markets so
that financial innovation and market development can proceed in an effective and competitive
manner."
The first two questions on which comment was requested in the Release (whether the
exemptions should be granted in the context of these transactions and whether all persons trading
these Contracts are appropriate persons) have been asked and answered in connection with the
Commission's issuance of its previous exemptive orders. There is nothing to add in the present
context.
For the first time in this Release, the Commission asks whether it should amend all
previous exemptive orders to impose market and large trader reporting requirements in order to
assist it in monitoring and addressing, among other things, the effect on designated contract
markets of trading in such products. While we do not here take a view as to what information
the Commission needs to carry out its regulatory responsibilities, we strongly urge that it would
be inappropriate to unilaterally impose these requirements under the CEA and thus create
overlapping and potentially duplicative regulation. Consistent with the Memorandum of
Understanding referred to in the Commission's release and with recent mandates to harmonize
SEC and CFTC regulation, we strongly urge the Commission to work with the SEC through the
harmonization process to consider the need for any additional reporting requirements.
On a different point, we note the description in the Release of the options on these
underlying interests as "certain contracts called 'options. '" While this formulation has appeared
in prior releases, we find it very troubling. The options in question are plain vanilla standardized
options with terms identical to standardized options on other exchange-traded equity securities.
By referring to them as "contracts called options" the Commission apparently seeks to cast doubt
on whether they are properly characterized as options and thus to open yet another avenue
through which to raise ajurisdictional question. We believe that this is entirely inappropriate. In
OCC's view, the CFTC should be expending its efforts toward creating jurisdictional certainty
and not gratuitously raising questions concerning the characterization of contracts that have
traded as securities for more than thirty years.
2 Letter dated April 15, 2010. W~
