September 30, 2010
CFTC Issues Request for Comment on Options for a Proposed Exemptive Order Relating to the Trading and Clearing of Precious Metal Commodity-Based ETFs and Concept Release
Washington, DC – The Commodity Futures Trading Commission (CFTC) today issued a Federal Register release containing both a Request for Comment on Options for a Proposed Exemptive Order Relating to the Trading and Clearing of Precious Metal Commodity-Based Exchange-Traded Funds (ETFs) and a Concept Release regarding a March 1, 2010, submission from the Options Clearing Corporation (OCC). The OCC has requested approval of a rule amendment that would permit options and futures on ETF Securities Ltd.’s Physical Palladium Shares (symbol: PALL) and Physical Platinum Shares (symbol: PPLT) to be traded and cleared as options on securities and security futures, respectively. Both PALL and PPLT are exchange-traded funds (ETFs) registered with the Securities Exchange Commission (SEC) and listed on NYSE Arca. The ETFs are commodity-based ETFs in that their only assets consist of holdings of the underlying physical commodity, usually a precious metal (in this case, palladium or platinum). Commodity-based ETFs purport to allow investors to track the market price of the underlying commodity.
The pending request follows previous exemptions granted by the CFTC with respect to gold and silver commodity-based ETF products issued by SPDR® (exemptions issued on June 5, 2008), iShares® (exemptions issued on December 30, 2008) and ETF Securities Ltd. (exemptions issued on June 15, 2010). After granting each of the previous exemptions pursuant to Section 4(c) of the Commodity Exchange Act, the CFTC approved rule amendments that permitted options and futures on the gold and/or silver ETFs in question to be cleared as options on securities and security futures, respectively. The OCC’s pending submission represents the first time the Commission has reviewed a request to trade and clear options and futures on either palladium or platinum ETFs.
By issuing the Release, the Commission is examining the unique character of the palladium and platinum markets as compared to the gold and silver markets. The Commission also is considering and requesting comment on whether it should adopt a categorical approach (via exemption, rule or otherwise) to address requests to trade and clear options and futures on commodity-based ETFs holding physical gold, silver, palladium and/or platinum. The Release’s comment period will run for thirty days from its publication date in the Federal Register.
R. David Gary
Last Updated: September 30, 2010