Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, June 3, 2008

SEC & CFTC Approve Novel Derivative Products

The SEC and the CFTC announced that each has approved the trading and clearing of two novel derivative products — futures and option contracts based on shares of the SPDR® Gold Trust (Gold Trust), an exchange traded fund (ETF). The SEC approved trading in options on the Gold Trust shares and the CFTC approved trading in futures on them.

Option contracts on the Gold Trust's shares will be listed on the American Stock Exchange, Chicago Board Options Exchange, International Securities Exchange, Philadelphia Stock Exchange, and the NYSE Arca Exchange. Futures contracts will trade on OneChicago, a security futures exchange. The Options Clearing Corporation will clear both types of contracts.

In order to address growing areas of mutual interest, the SEC and CFTC entered into a Memorandum of Understanding (MOU) on March 11, 2008, that established a permanent regulatory liaison between the agencies. The MOU provides for enhanced information sharing and articulates several key principles intended to guide the agencies' review of novel derivative products containing elements of both securities and commodity futures or options. In accordance with these principles, the agencies have recognized their mutual regulatory interests and have agreed to encourage innovation, competition, market neutrality, and legal certainty. Today's approvals for the trading of futures and option contracts on shares of the Gold Trust represent the first product approvals under the MOU.

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