Nasdaq, Nasdaq OMX PHLX approved to trade options on leveraged ETNs

By Angela McDaniels

Tacoma, Wash., Nov. 19 - The Nasdaq Stock Market and the Nasdaq OMX PHLX each filed a proposed rule change that would allow trading of options on leveraged exchange-traded notes, and the rule change became effective Wednesday, according to notices from the Securities and Exchange Commission.

The exchanges 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 also broadened the definition of "futures-linked securities." Previously, the definition was 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 on them; or (c) Chicago Board Options Exchange Volatility index futures.

The exchanges called the definition "unnecessarily restrictive" and said they were required to submit a filing to amend the definition each time a new ETN was 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, the exchanges proposed that the definition be revised to say that futures-linked securities are securities "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."

The International Securities Exchange, LLC and the Chicago Board Options Exchange recently received SEC authorization to make the same rule change.

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