Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Notices 17963 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Commission notes that the cash-settled 

FCOs that ISE proposes to list and trade pursuant 

to this proposed rule change are rate-modified. 

Cash-settled foreign currency options that trade on 

the Philadelphia Stock Exchange (‘‘Phlx’’) are not 

rate-modified. See Securities Exchange Act Release 

No. 54989 (December 21, 2006), 71 FR 78506 

(December 29, 2006) (SR–PHLX–2006–34). See also 

Phlx Rules 1000–1093. Accordingly, the term 

‘‘FCO’’ used throughout this Order refers only to 

ISE’s proposed cash-settled rate-modified foreign 

currency options. FCOs listed and traded by ISE 

pursuant to this proposed rule change will not be 

fungible with those listed and traded by Phlx. 

4Amendment No. 1 replaced and superseded the 

original filing in its entirety. 

5See Securities Exchange Act Release No. 55336 

(February 23, 2007), 72 FR 09364 (‘‘Notice’’). 

6The text of Amendment No. 2 is available at the 

Exchange, on the Exchange’s Web site (http:// 

www.iseoptions.com), and at the Commission’s 

Public Reference Room. In Amendment No. 2, ISE 

clarified its plans to list cross-rate FCOs by 

specifying the cross-rate pairs it intends to offer as 

well as the applicable modifier and position limits 

for each proposed cross-rate pair. ISE also made a 

non-substantive change to the title of the proposed 

rule text and to the text of proposed ISE Rule 2200. 

7The Commission notes that ISE refers to these 

FCO products in its marketing literature as ‘‘FX 

OptionsTM.’’ 8The Exchange’s existing rules and procedures 

would also be applicable to FCOs, unless such rules 

are specifically replaced or are supplanted by the 

proposed new rules governing FCOs. See Proposed 

ISE Rule 2200. The Commission notes that futures 

contracts, and options on such futures contracts, are 

currently traded by the Chicago Mercantile 

Exchange (‘‘CME’’) on all of the Currencies. 

9See Amendment No. 2. In other words, a crossrate FCO would not involve the U.S. Dollar on one 

side of the underlying currency pair (e.g., EUR/ 

GBP). 

10The Reuters data is based on an amalgamation 

of midpoint dealer quotes on its foreign exchange 

dealing system. 

11See Proposed ISE Rule 2201(8) (defining 

‘‘modified exchange rate’’). 

12For example, if one U.S. Dollar buys .84177 

euros, a modifier of 100 would be used so that the 

modified exchange rate would become 84.18. 

Modifiers used for creating underlying values will 

be posted on the Exchange’s Web site no later than 

the first day on which FCOs begin trading on ISE. 

Once a modifier has been assigned to a currency 

pair, it can only be changed upon a filing of a 

proposed rule change with the Commission. 

13See Proposed ISE Rule 2201(8). 

14See Proposed ISE Rule 2207. The Exchange will 

also disseminate FCO quotes and trades through 

OPRA. 

15See File No. SR–OCC–2007–02 (proposing to 

amend OCC’s by-laws and rules to accommodate 

the clearance and settlement of ISE’s FCOs). 

16See Proposed ISE Rule 2201(3) (defining 

‘‘exercise price’’). 

17See Proposed ISE Rule 2206(a)(4). 

18See ISE Rules 2000 and 2001. 

19See Proposed ISE Rule 2205. While the 

proposed rules would permit the Exchange to list 

FCOs that have up to 36 months to expiration, the 

Exchange has stated that it does not anticipate 

listing these long-term series initially. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55575; File No. SR–ISE–

2006–59] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Amendment 

No. 2 to and Order Granting 

Accelerated Approval of a Proposed 

Rule Change as Modified by 

Amendment Nos. 1 and 2 Thereto 

Relating to Foreign Currency Options 

April 3, 2007. 

I. Introduction 

On September 29, 2006, the 

International Securities Exchange, LLC 

(‘‘ISE’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

adopt rules for the listing and trading of 

cash-settled rate-modified foreign 

currency options (‘‘FCOs’’).3 On 

February 23, 2007, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.4 The proposed rule change, as 

modified by Amendment No. 1, was 

published for comment in the Federal 

Register on March 1, 2007.5 The 

Commission received no comments on 

the proposal. On April 3, 2007, the 

Exchange filed Amendment No. 2 to the 

proposed rule change.6 This order 

provides notice of Amendment No. 2 to 

the proposed rule change and approves 

the proposed rule change, as modified 

by Amendment Nos. 1 and 2, on an 

accelerated basis. 

II. Description of the Proposal 

A. Product Specifications 

The Exchange proposes to adopt rules 

for the listing and trading of FCOs 7 on 

the following currencies: The euro, the 

British pound, the Australian dollar, the 

New Zealand dollar, the Japanese yen, 

the Canadian dollar, the Swiss franc, the 

Chinese renminbi, the Mexican peso, 

the Swedish krona, the Russian ruble, 

the South African rand, the Brazilian 

real, the Israeli shekel, the Norwegian 

krone, the Polish zloty, the Hungarian 

forint, the Czech koruna and the Korean 

won (individually, a ‘‘Currency’’ and 

collectively, the ‘‘Currencies’’).8 The 

Exchange proposes to list and trade 

FCOs that include the U.S. Dollar on 

one side of the underlying currency 

pair, as well as certain cross-rate FCOs 

that include two of the aforementioned 

Currencies in the underlying currency 

pair (‘‘cross-rate FCOs’’).9

The Exchange proposes to list and 

trade FCOs based on the Reuters 

Composite Currency Rate 10 as modified 

by ISE in a way that permits the 

underlying price of the FCO contract to 

resemble a price level similar to that of 

an index option.11 The Exchange 

proposes to use fixed, pre-assigned 

modifiers of 1, 10, or 100 depending on 

the exchange rate level of the 

underlying foreign currency.12 The 

Exchange would disseminate the 

current modified exchange rate 13 at 

least once every fifteen seconds through 

the Options Price Reporting Authority 

(‘‘OPRA’’) or one or more major market 

data vendors during the time FCOs are 

traded on the Exchange.14 FCOs would 

be quoted in U.S. Dollars and would be 

European-style exercise. 

FCOs listed by the Exchange would be 

cleared by The Options Clearing 

Corporation (‘‘OCC’’),15 and holders of 

options contracts would receive U.S. 

Dollars representing the difference 

between the modified exchange rate and 

the exercise price 16 of the option, which 

would be multiplied by 100. 

Specifically, upon exercise of an in-themoney FCO call option, the holder 

would receive from OCC, U.S. Dollars 

representing the difference between the 

exercise price and the closing settlement 

value of the FCO contract multiplied by 

100. Upon exercise of an in-the-money 

FCO put option, the holder would 

receive from OCC, U.S. Dollars 

representing the excess of the exercise 

price over the closing settlement value 

of the cash-settled FCO contract 

multiplied by 100. Additionally, FCOs 

that are in-the-money by any amount on 

the expiration date would be exercised 

automatically by OCC, while FCOs that 

are out-of-the-money on the expiration 

date would expire worthless. 

Minimum Increments. The interval 

between exercise prices of series of 

FCOs would be no less than $0.10.17

Additionally, under the Exchange’s 

current rules, the minimum trading 

increment for a FCO contract trading at 

less than $3.00 would be $0.05, and for 

a FCO contract trading at $3.00 or 

higher, the minimum trading increment 

would be $0.10. 

Expirations. The Exchange proposes 

to permit FCOs to be listed with 

expirations that are the same as the 

expirations permitted for index 

options,18 except that FCOs would be 

permitted to have expirations only up to 

36 months.19 Accordingly, after a class 

of options contracts involving any of the 

Currencies has been approved for listing 

and trading, the Exchange could open 

for trading series of FCOs that expire in 

consecutive monthly intervals, that 

expire in three or ‘‘cycle’’ month 


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17964 Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Notices 

20Consecutive month and cycle month 

expirations of a given series will never overlap. See 

Proposed ISE Rule 2205(a)(1). 

21See Proposed ISE Rule 2205; see also Notice, 

supra note 5 (describing the proposed provisions 

governing the listing and trading of series of FCOs). 

22 If Friday is an Exchange holiday, the settlement 

value for FCOs would be determined on the 

preceding trading day, which will also be the last 

trading day for the expiring option. 

23See Proposed ISE Rule 2212; see also supra 

note 12 and accompanying text (discussing rate 

modifiers). 

24 In such cases, the Exchange has stated that it 

may use the WM/Reuters Closing Spot rate. 

25See Notice, supra note 5 (providing a detailed 

discussion of how the WM/Reuters Closing Spot 

rate is calculated and providing a list of the 

Currencies for which the Federal Reserve Bank of 

New York does not currently publish a Noon 

Buying Rate). In the event the Federal Reserve Bank 

of New York begins to publish a Noon Buying Rate 

for any of the Currencies for which it currently does 

not publish a Noon Buying Rate, the Exchange 

would resort to the Noon Buying Rate in place of 

the WM/Reuters Composite Spot rate to determine 

the closing settlement value for the applicable FCO. 

26The Commission notes that, as discussed 

above, modified exchange rates will be 

disseminated through OPRA, as will FCO quotes 

and trades, while closing settlement values will 

only be posted on the Exchange’s Web site. 

Investors should consult these values when trading 

FCOs. 

27See Proposed ISE Rule 2208. For the purpose 

of determining which positions are on the same 

side of the market, long call positions would be 

aggregated with short put positions and short call 

positions would be aggregated with long put 

positions. 

28See Amendment No. 2 and proposed ISE Rule 

2208(a). 

29See Proposed ISE Rule 2209. 

30See Proposed ISE Rule 2210(a). 

31See Proposed ISE Rule 2210(b); see also Notice, 

supra note 5 (providing further details regarding 

trading rotations and instituting halts and 

suspensions in the trading of an FCO). 

32See Proposed ISE Rule 2213. 

33See Proposed ISE Rule 2213; see also Notice, 

supra note 5 (providing a detailed discussion of 

rules governing market maker trading licenses). 

Under the proposed rules, a firm would not be 

permitted to hold more than four FXPMM trading 

licenses across all currencies or more than one 

FXCMM trading license per currency pair. 

Additionally, market makers would not be 

permitted to hold and act as both a FXPMM and 

FXCMM in the same currency pair. Market maker 

trading licenses would generally not be able to be 

leased or transferred, although they would be 

permitted to be transferred to an affiliated Member, 

or to another qualified Member which continues 

substantially the same business as the Member that 

currently holds the market maker trading license. 34See Proposed ISE Rule 2213; see also Notice, 

supra note 5 (describing the rules governing the 

auction processes). The Exchange proposes to 

assess market maker trading licenses that are sold 

between annual auctions a premium of ten percent 

of the price at which the market maker trading 

license was sold during the preceding auction. 35See Proposed ISE Rule 2213(f). 36The proposed rule provides that an FXPMM 

generally would not be permitted to terminate its 

trading license. In the event a FXPMM is unable to 

fulfill its obligations, a backup FXPMM would be 

designated by the Exchange; however, the FXPMM 

would be required to continue to pay its trading 

license price until the license expires. See Proposed 

ISE Rule 2213(f)(6). 37See Proposed ISE Rule 2213(g). Based on 

market demand, the Exchange may increase the 

number of FXCMM trading licenses available at the 

next regularly scheduled auction. 

38See Proposed ISE Rule 2213(g)(2) (setting forth 

the manner in which the Exchange will conduct the 

‘‘Dutch’’ auction). 

39See Proposed ISE Rule 2213(g)(4). 

intervals,20 or that have up to 36 months 

to expiration.21 The expiration date for 

the consecutive and cycle month 

options would be 11:59 p.m. Eastern 

Time on the Saturday immediately 

following the third Friday of the 

expiration month. 

Settlement Value. The closing 

settlement value would be based on the 

Noon Buying Rate (to the extent it is 

maintained for the applicable Currency), 

as determined by the Federal Reserve 

Bank of New York, on the last trading 

day during expiration week,22 and 

would be modified using the applicable 

modifier that is used in calculating the 

respective modified exchange rate.23 If 

the Noon Buying Rate is not announced 

by 2 p.m. Eastern Time, the closing 

settlement value would be the most 

recently announced Noon Buying Rate, 

as modified by the applicable modifier, 

unless the Exchange determines to 

apply an alternative closing settlement 

value as a result of extraordinary 

circumstances.24 In the event that the 

Noon Buying Rate is not published for 

an underlying Currency, the Exchange 

proposes to apply the WM/Reuters 

Closing Spot rate to determine the 

closing settlement value.25 Like the 

Noon Buying Rate, in determining the 

closing settlement value, the WM/ 

Reuters Closing spot rate would be 

modified using the applicable modifier 

that is used in calculating the respective 

modified exchange rate. The Exchange 

proposes to post closing settlement 

values on its Web site, but such values 

would not be disseminated through 

OPRA.26

Position Limits. The Exchange 

proposes to impose the following 

position limits for FCOs involving the 

U.S. Dollar on the same side of the 

market: 1,200,000 contracts for the euro; 

600,000 contracts for the Australian 

dollar, the British pound, the Canadian 

dollar, the Israeli shekel, the Japanese 

yen, the Swedish krona and the Swiss 

franc; 300,000 contracts for the 

remaining Currencies.27 Position limits 

for each of the proposed cross-rate FCOs 

are specified in proposed ISE Rule 

2008.28 Exercise limits for FCOs over 

any five consecutive business days 

would be equivalent to the position 

limits prescribed to that FCO.29

Hours of Trading. The Exchange 

proposes to permit trading of FCOs on 

the Exchange between the hours of 9:30 

a.m. and 4:15 p.m. Eastern Time, except 

that on the last trading day of the week 

during which a FCO is set to expire, 

trading would cease at 12 p.m. Eastern 

Time.30 The opening rotation for FCOs 

would be held at or as soon as 

practicable after the Exchange’s market 

opens, unless an Exchange official 

determines to delay the opening rotation 

in the interest of maintaining a fair and 

orderly market.31 Trading in FCOs 

would follow the holiday schedule of 

the U.S. equity markets. 

B. Market Makers 

The Exchange proposes to create two 

new classes of market makers on the 

Exchange that may quote and trade 

FCOs: FXPMMs (i.e., primary market 

makers) and FXCMMs (i.e., competitive 

market makers).32 The Exchange states 

that such market makers would have 

similar obligations to the PMMs and 

CMMs on the Exchange’s equity and 

index markets. The proposed rule sets 

forth the rules and the obligations of 

such market makers and the procedures 

under which an FXPMM and/or 

FXCMM would be able to purchase a 

trading license from the Exchange.33

Market maker trading licenses for a 

calendar year would be sold annually 

through an auction conducted during 

the fourth quarter of the preceding 

year.34

FXPMM. The Exchange proposes to 

offer one FXPMM trading license per 

currency pair by a sealed bid auction, 

and prospective FXPMMs would be 

required to submit a bid amount with a 

market quality commitment using 

parameters similar to those currently 

used by the Exchange for ETF and index 

options.35 An FXPMM’s trading license 

would have a three year term,36 and at 

the end of the three year term, the 

incumbent FXPMM would have the 

right of first refusal to match the highest 

bid and market quality commitment 

from another bidding firm. An FXPMM 

that continuously fails to meet its stated 

market quality commitments would 

have its trading license terminated. 

FXCMM. The Exchange proposes to 

initially sell ten FXCMM trading 

licenses per currency pair, with each 

trading license having a term of one 

year.37 The Exchange proposes to 

conduct a ‘‘Dutch’’ auction to sell 

FXCMM trading licenses.38 An FXCMM 

would have the ability to terminate its 

trading license prior to its scheduled 

expiration, so long as the FXCMM 

provides the requisite written notice 

and pays a termination fee.39

C. Margin 

The Exchange is also proposing to 

amend its existing margin requirements 


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40See Proposed ISE Rule 1202(d). 

41Similar to Phlx Rule 722, Commentary .16, the 

Exchange would calculate the margin requirement 

for customers that assume short FCO positions by 

adding a percentage of the current market value of 

the underlying foreign currency contract to the 

option premium price less an adjustment for the 

out-of-the-money amount of the option contract. On 

a quarterly calendar basis, ISE would review fiveday price changes over the preceding three-year 

period for each underlying currency and set the 

add-on percentage at a level which would have 

covered those price changes at least 97.5% of the 

time (the ‘‘confidence level’’). If the results of 

subsequent reviews show that the current margin 

level provides a confidence level below 97%, ISE 

would increase the margin requirement for that 

individual currency up to a 98% confidence level. 

If the confidence level is between 97% and 97.5%, 

the margin level would remain the same but will 

be subject to monthly follow-up reviews until the 

confidence level exceeds 97.5% for two consecutive 

months. If during the course of the monthly followup reviews, the confidence level drops below 97%, 

the margin level would be increased to a 98% level 

and if it exceeds 97.5% for two consecutive months, 

the currency would be taken off monthly reviews 

and will be put back on the quarterly review cycle. 

If the currency exceeds 98.5%, the margin level 

would be reduced to a 98% confidence level during 

the most recent 3 year period. Finally, in order to 

account for large price movements outside the 

established margin level, if the quarterly review 

shows that the currency had a price movement, 

either positive or negative, greater than two times 

the margin level during the most recent 3 year 

period, the margin requirement would be set at a 

level to meet a 99% confidence level (‘‘Extreme 

Outlier Test’’). 

42The OCC, together with the Exchange, has 

prepared an amendment to the Options Disclosure 

Document (‘‘ODD’’), to include characteristics of the 

Exchange’s FCOs and trading examples. 

43See Notice, supra note 5, at 72 FR 9368. 

44See id. 

45 15 U.S.C. 78f(b)(5). 

46 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

47See Securities Exchange Act Release No. 54989 

(December 21, 2006), 71 FR 78506 (December 29, 

2006) (SR–PHLX–2006–34); see also Phlx Rules 

1000–1093. As noted above, ISE’s FCOs will be ratemodified, whereas Phlx lists and trades cash-settled 

foreign currency options that are not rate-modified. 

48See supra note 12 and accompanying text 

(discussing the use of rate modifiers). 

49See Proposed ISE Rule 2207. The Exchange will 

also disseminate FCO quotes and trades over OPRA. 

50For example, Web sites such as 

Bloomberg.com, Reuters.com, Yahoo! Finance, 

CNBC.com, OANDA.com, and Nasdaq.com provide 

free currency data. In addition, Investors Business 

Daily, Wall Street Journal, and the New York Times 

all provide currency data as part of their daily 

coverage. 

by adopting a provision for FCOs that is 

substantially similar to the Phlx’s 

margin rules for foreign currency 

options.40 Accordingly, FCOs would 

have the same customer margin 

requirements as are provided in Phlx 

Rule 722, ‘‘Margin Accounts,’’

Commentary .16.41 The Exchange would 

inform Members and the public of the 

margin levels for each currency option 

immediately following the quarterly 

reviews described in the proposed rule. 

D. Customer Protection and 

Surveillance 

The Exchange’s existing rules 

designed to protect public customer 

trading would apply to trading in FCOs. 

Specifically, ISE Rules 608(a) and (b) 

prohibit Members from accepting a 

customer order to purchase or write an 

option unless such customer’s account 

has been approved in writing by a 

designated Options Principal of the 

Member. Additionally, ISE Rule 610 

regarding suitability provides that 

options should only be sold to 

customers capable of evaluating and 

bearing the risks associated with trading 

in this instrument. Further, ISE Rule 

611 permits members to exercise 

discretionary power with respect to 

trading options in a customer’s account 

only if the Member has received prior 

written authorization from the customer 

and the account had been accepted in 

writing by a designated Options 

Principal. ISE Rule 611 also requires 

designated Options Principals or 

Representatives of a Member to approve 

and initial each discretionary order on 

the day the discretionary order is 

entered. These customer protection 

rules, as well as ISE Rule 609, 

‘‘Supervision of Accounts,’’ ISE Rule 

612, ‘‘Confirmation to Customers,’’ and 

ISE Rule 616, ‘‘Delivery of Current 

Options Disclosure Documents and 

Prospectus,’’ 42 would apply to trading 

in FCOs. 

FCOs would be covered under the 

ISE’s existing surveillance program. 

Specifically, the Exchange has 

represented that it has an adequate 

surveillance program in place for FCOs, 

and intends to apply the same program 

procedures that it applies to the 

Exchange’s index options.43 The 

Exchange has also noted that it is a 

member of the Intermarket Surveillance 

Group (‘‘ISG’’) and may obtain trading 

information via the ISG from other 

exchanges who are members or affiliates 

of the ISG.44

III. Discussion 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange and, in 

particular, with Section 6(b)(5) of the 

Act,45 which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest.46

The Commission believes that FCOs 

may provide investors with additional 

strategic investment and hedging tools. 

As such, the Commission believes that 

the availability of FCOs may provide 

investors with greater flexibility in 

meeting their investment objectives. The 

Commission notes that, while ISE’s 

FCOs differ in some respects from other 

foreign currency option products, the 

Commission has recently approved the 

trading of cash-settled foreign currency 

options on another national securities 

exchange.47 As discussed further below, 

the Commission believes that ISE’s 

proposed rules adequately address any 

concerns raised by the listing and 

trading of FCOs (e.g., transparency, 

customer protection, surveillance) and 

provide for adequate and proper 

regulation of the listing and trading of 

FCOs on ISE. 

A. Dissemination of Information 

The Commission notes that the 

underlying value of ISE’s proposed 

FCOs are intended to ‘‘look and feel’’

like index options. To achieve this, ISE 

will base each FCO on a modified 

exchange rate (i.e., ISE will multiply the 

Reuters Composite Currency Rate by a 

pre-determined, fixed amount of 1, 10, 

or 100).48 The purpose of the modifier 

is to bring the underlying value of an 

FCO up to a level that more closely 

resembles the value an investor would 

customarily see for an index option. 

Accordingly, dissemination of the 

modified exchange rates by ISE is 

essential to inform investors’ trading of 

FCOs. In this respect, ISE will 

disseminate current modified exchange 

rates for each FCO at least once every 

fifteen seconds over OPRA or one or 

more major market data vendors for all 

the currency rates on which it intends 

to list options.49

With respect to the underlying 

components that make up an FCO, the 

Commission notes that an investor can 

access a list of the modifiers that are 

used in creating each of the modified 

exchange rates upon which the FCOs 

are based by consulting ISE’s Web site. 

Further, the Commission believes that 

sufficient venues exist for obtaining 

reliable information on the Currencies 

so that investors in FCOs can monitor 

the underlying spot market in the 

Currencies. These foreign exchange 

rates are widely available via public 

Web sites, broker Web sites, as well as 

in print publications.50


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51See Proposed ISE Rule 2212. As noted above, 

in the event that the Federal Reserve Bank of New 

York does not maintain or publish a Noon Buying 

Rate for an underlying Currency, the Exchange will 

apply the WM/Reuters Closing Spot rate to 

determine the closing settlement value for a 

particular FCO. 

52 If the Noon Buying Rate is not announced by 

2 p.m. Eastern Time, the closing settlement value 

would be the most recently announced Noon 

Buying Rate, as modified by the applicable 

modifier, unless the Exchange determines to apply 

an alternative closing settlement value as a result 

of extraordinary circumstances. The WM/Reuters 

Closing Spot rate would be one of the alternative 

closing settlement values available to ISE for use in 

such a situation. 

53See supra Section II.D (Customer Protection 

and Surveillance). 

54The members of the ISG include all of the U.S. 

registered stock and options markets. 

55See Proposed ISE Rules 2208 and 2209. 

56See supra notes 40 and 41 and accompanying 

text (discussing the proposed margin requirements). 

57See Notice, supra note 5. 

58See Proposed ISE Rule 2213(f)(2). 

59See Proposed ISE rule 2213(f)(4). 

60See Proposed ISE Rule 2213(g). 

61 Id. 

62See Proposal ISE Rule 2213(f). 

63See Letter from Michael Simon, General 

Counsel, ISE, to John Roeser, Assistant Director, 

Commission, dated February 23, 2007. 

The Commission also notes that 

investors can readily obtain information 

regarding futures trading on the 

Currencies, as the Exchange proposes to 

trade FCOs only on those Currencies 

whose futures contracts, and options on 

such futures contracts, are currently 

traded on the CME. 

B. Settlement Value 

An FCO’s closing settlement value 

will be the Noon Buying Rate or the 

WM/Reuters Closing Spot rate, as 

applicable,51 on the trading day prior to 

expiration,52 as modified by the 

applicable modifier. Settlement values 

will be posted on the Exchange’s Web 

site, and will be publicly available to all 

visitors to the ISE’s Web site. The 

Commission believes that the 

Exchange’s procedures and the 

competitive nature of the spot market 

for the Currencies should help to ensure 

that the settlement values for FCO 

contracts will accurately reflect the spot 

price for foreign currencies. 

C. Customer Protection 

The Commission believes that a 

regulatory system designed to protect 

public customers must be in place 

before the trading of sophisticated 

financial instruments, such as ISE’s 

proposed FCOs, can commence trading 

on a national securities exchange. The 

Commission believes that this goal has 

been satisfied by the application of ISE’s 

existing customer protection rules to 

FCOs.53 As noted above, the Exchange’s 

customer protection rules regarding 

customer suitability, discretionary 

accounts, supervision of accounts, 

confirmation to customers, and delivery 

of the ODD, among others, will extend 

to the trading of FCOs. The Commission 

also notes that the ODD is being 

amended to include characteristics and 

trading examples of the Exchange’s 

FCOs and that the Exchange plans to 

deliver a circular to its members 

describing the specific risks associated 

with FCOs. Accordingly, the 

Commission believes that ISE has 

provided adequate safeguards to help 

ensure the protection of investors in 

FCOs. 

D. Surveillance 

The Commission notes that ISE will 

integrate FCOs into its existing market 

surveillance program and that it intends 

to apply the same program procedures 

to FCOs that it applies to the Exchange’s 

index options. Further, ISE will have 

the ability to obtain trading information 

via the ISG from other exchanges who 

are members or affiliates of the ISG.54 In 

addition, the major futures exchanges 

are affiliate members of the ISG, which 

will allow ISE to obtain surveillance 

information regarding potential 

intermarket trading abuses from futures 

exchanges (such as the CME). Therefore, 

the Commission believes that ISE 

should have the tools necessary to allow 

it to adequately surveil trading in FCOs. 

E. Position and Exercise Limits and 

Margin Requirements 

The Commission believes that the 

position and exercise limits proposed by 

the Exchange for FCOs are reasonably 

designed to protect the options and 

related markets from disruptions or 

manipulation.55 At the same time, the 

Commission believes that such position 

and exercise limits should not hamper 

the depth and liquidity of the market for 

FCOs. The Commission also notes that 

the margin requirements that ISE 

proposes to adopt for FCOs are 

substantially similar to Phlx’s margin 

requirements for foreign currency 

options, which has been approved by 

the Commission.56 Accordingly, the 

Commission believes that the proposed 

position and exercise limits and margin 

requirements are appropriate and 

consistent with the Act. 

F. Market Maker Trading Licenses 

The Commission believes that the 

provisions governing the two new 

classes of market makers that will be 

permitted to trade FCOs on the 

Exchange, FXPMMs and FXCMMs, are 

consistent with the Act. The 

Commission notes that FXPMMs and 

FXCMMs will be bound by similar 

obligations as the PMMs and CMMs of 

the Exchange’s equity markets.57 In 

addition, the Commission notes that, in 

order to obtain a trading license, 

FXPMMs will be required provide the 

Exchange with market quality 

commitments along with a bid.58 If an 

FXPMM continuously fails to meet its 

stated market quality comments, it will 

have its trading license terminated by 

the Exchange.59

The Commission believes that the 

procedures under which the Exchange 

proposes to offer market maker trading 

licenses are reasonably calculated to 

provide fair access to the Exchange. 

Specifically, the Commission believes 

that the provisions governing the Dutch 

auction, by which FXCMM trading 

licenses will be sold, are designed to 

ensure that market maker trading 

licenses are widely available.60 For 

example, the proposed rule permits the 

Exchange to increase the number of 

FXCMM trading licenses available at the 

next regularly scheduled auction based 

on market demand; specifies a 

reasonable minimum Reserve Price; 

limits the number of market maker 

trading licenses that may be bid by a 

single Member; and gives the Exchange 

the ability to sell additional unsold 

market maker trading licenses during 

the year at a 10% premium.61 In 

addition, the Commission believes that 

the proposed sealed bid auction for 

FXPMM trading licenses is reasonably 

calculated to award trading licenses in 

a fair and reasonable manner and 

provide fair access to the Exchange.62

The requirement that bidders provide a 

quality market commitment in addition 

to their bid will allow the Exchange to 

grant FXPMM trading licenses in an 

objective manner without awarding a 

trading license solely based on the 

highest bid. 

G. Other Rules 

The Commission believes that the 

other rule changes proposed by ISE to 

accommodate the trading of FCOs also 

are consistent with the Act. Further, the 

Commission notes that the Exchange 

has represented that it has the necessary 

systems capacity to support the 

additional quotations and messages that 

will result from listing and trading of 

FCOs.63

In particular, the Commission 

believes that it is reasonable and 

consistent with the Act for the Exchange 

to apply its current minimum trading 

increment requirements to FCOs, so that 

the minimum trading increment for an 

FCO trading at less than $3.00 will be 

$0.05 and the minimum trading 


cprice-sewell on PROD1PC66 with NOTICES
Federal Register / Vol. 72, No. 68 / Tuesday, April 10, 2007 / Notices 17967 

64See ISE Rule 710. 

65See Proposed ISE Rule 2206(a)(4). 

66See Proposed ISE Rule 2205. 

67See Proposed ISE Rule 2204. 

68See Proposed ISE Rule 2210. 

69See Notice, supra note 5. 70 15 U.S.C. 78s(b)(2). 

71 15 U.S.C. 78s(b)(2). 

72 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(ii). 

4 17 CFR 240.19b–4(f)(2). 

5 ‘‘Premium Products’’ is defined in the Schedule 

of Fees as the products enumerated therein. 

increment for an FCO trading at $3.00 

or higher will be $0.10.64 In addition, 

the Commission believes that it is 

reasonable for the Exchange to list 

exercise prices of series at intervals no 

less than $0.10.65 Further, the Exchange 

believes that it appropriate for the 

Exchange to list FCOs with expirations 

that are the same as the expirations 

currently permitted for index options, 

with the exception that FCO long-term 

series will only have expirations up to 

36 months.66

The Commission also notes that, 

consistent with the Act, the proposed 

rules provide that the Exchange will 

have the ability to withdraw approval of 

the trading of a FCO if advisable in the 

public interest or for the protection of 

investors,67 and an Exchange official 

will have the authority to halt or 

suspend trading in an FCO under 

certain circumstances in the interest of 

a fair and orderly market.68

H. Accelerated Approval 

The Commission finds good cause for 

approving the proposed rule change, as 

amended, prior to the thirtieth day after 

publishing notice of Amendment No. 2 

in the Federal Register. The 

Commission notes that the proposal, as 

modified by Amendment No. 1, was 

published for notice and comment,69

and that the Commission received no 

comment letters on the proposal. 

Amendment No. 2 proposes to amend 

the proposed rules to specify the 47 

cross-rate FCOs that ISE proposes to list 

and trade, as well as specify the position 

and exercise limits and the applicable 

rate modifiers for each proposed crossrate FCO. The Commission notes that 

the Exchange expressed its intention to 

list cross-rate FCOs in its Exhibit 3 to 

the original proposed rule change, and 

that Amendment No. 2 provided the 

additional clarification necessary to 

allow the Exchange to do so. The 

Commission also notes that the 

proposed cross-rate FCOs are based on 

the same Currencies set forth in the 

original proposal, as modified by 

Amendment No. 1 and published in the 

Federal Register, and they are subject to 

the same rules and requirements as 

other FCOs. As such, the Commission 

believes that Amendment No. 2 does not 

raise any new or novel issues. 

Accordingly, the Commission finds 

good cause, consistent with Section 

19(b)(2) of the Act,70 to approve the 

proposal, as modified by Amendment 

Nos. 1 and 2, on an accelerated basis. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–ISE–2006–59 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–ISE–2006–59. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–ISE–2006–59 and should be 

submitted on or before May 1, 2007. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,71 that the 

proposed rule change (SR–ISE–2006–

59), as modified by Amendment Nos. 1 

and 2, be, and hereby is, approved on 

an accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.72

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–6655 Filed 4–9–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55571; File No. SR–ISE–

2007–21] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Fee Changes 

April 3, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 26, 

2007, the International Securities 

Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by the 

ISE. The ISE has designated this 

proposal as one establishing or changing 

a due, fee, or other charge applicable 

only to a member under Section 

19(b)(3)(A)(ii) of the Act,3 and Rule 

19b–4(f)(2) thereunder,4 which renders 

the proposal effective upon filing with 

the Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The ISE is proposing to amend its 

Schedule of Fees to establish fees for 

transactions in options on seven 

Premium Products.5 The text of the 

proposed rule change is available on the 

ISE’s Web site (http:// 


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