Document ID: SEC-2007-1444-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: International Securities Exchange, LLC
Posted Date: 2007-10-16T04:00Z

[Federal Register: October 16, 2007 (Volume 72, Number 199)]
[Notices]               
[Page 58702-58704]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16oc07-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56647; File No. SR-ISE-2007-80]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change and Amendment No. 1 Thereto Relating to Options 
Listing Criteria for Underlying Securities

October 11, 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 September 4, 2007, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change, as 
described in Items I, II, and III below, which items have been 
substantially prepared by the Exchange. On October 5, 2007, the 
Exchange filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend ISE Rule 502(b)(5) and add subparagraph 
(6) to ISE Rule 502(b) for the purpose of permitting the Exchange to 
list and trade individual equity options that are otherwise ineligible 
for listing and trading if such option is listed and traded on another 
national securities exchange. The text of the proposed rule change is 
available at the Exchange, the Commission's Public Reference Room, and 
http://www.ise.com/webform/homeDefault.aspx.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to revise the 
Exchange's options listing standards so that, as long as the options 
maintenance listing standards set forth in ISE Rule 503 are met and the 
option is listed and traded on another national securities exchange, 
the ISE would be able to list and trade the option. ISE Rule 502 sets 
forth the requirements that an underlying equity security must meet 
before the Exchange may initially list options on that security. The 
ISE notes that these requirements are uniform among the options 
exchanges.
    ISE Rule 502(b)(5) relates to the minimum market price that an 
underlying security must trade at for an option to be listed on it and 
applies to the listing of individual equity options on both ``covered'' 
and ``uncovered'' underlying securities.\3\ In the case of an 
underlying security that is a ``covered security,'' as defined under 
section 18(b)(1)(A) of the 1933 Act, the closing market price of the 
underlying security must be at least $3 per share for the five (5) 
previous consecutive business days prior to the date on which the ISE 
submits an option class certification to The Options Clearing 
Corporation. In connection with underlying securities deemed to be 
``uncovered,'' Exchange rules require that such underlying security be 
at least $7.50 for the majority of business days during the three (3) 
calendar months preceding the date of selection for such listing. In 
addition, an

[[Page 58703]]

alternative listing procedure permits the listing of such options so 
long as: (1) The underlying security meets the guidelines for continued 
approval contained in ISE Rule 503; (2) options on such underlying 
security are traded on at least one other registered national 
securities exchange; and (3) the average daily trading volume 
(``ADTV'') for such options over the last three calendar months 
preceding the date of selection has been at least 5,000 contracts. 
Subparagraphs (1) through (4) of ISE Rule 502(b) further sets forth 
minimum requirements for an underlying security, such as shares 
outstanding, number of holders, and trading volume.
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    \3\ Section 18(b)(1)(A) of the Securities Act of 1933 (``1933 
Act'') provides that, ``[a] security is a covered security if such 
security is listed, or authorized for listing, on the New York Stock 
Exchange or the American Stock Exchange, or listed, or authorized 
for listing, on the National Market System of the Nasdaq Stock 
Market (or any successor to such entities).'' See 15 U.S.C. 
77r(b)(1)(A).
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    When the ISE first commenced operations, if an option failed to 
meet the original listing requirements, the ISE could not list that 
option, even if the option met the continued listing requirements of 
one or more other exchanges and traded on those exchanges. In order to 
somewhat remedy this situation, in 2001, the Exchange proposed, and the 
Commission approved, amendments to the ISE's original listing criteria, 
which permitted the ISE to list options that (i) met the ISE's 
continued listing criteria, (ii) were traded on at least one other 
exchange, and (iii) had ADTV across all exchanges of at least 5,000 
contracts.\4\ The Exchange notes that the 2001 Filing, while permitting 
the ISE to list some of the more actively traded options, does not 
permit the listing of less active options that are currently trading at 
other options exchanges. The options exchange (or exchanges) that may 
be fortunate enough to list an option that at first met the original 
listing criteria, but subsequently fails to do so, is provided a 
trading monopoly inconsistent with the multiple trading of options, 
fostering competition, and the maintenance of a national market system. 
Under this proposed rule change, an option may be multiply listed and 
traded as long as one other options exchange is trading the particular 
option and such underlying security of the option meets the Exchange's 
continued listing requirements.
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    \4\ See Securities Exchange Act Release No. 45220 (December 31, 
2001), 67 FR 760 (January 7, 2002) (order approving a proposed rule 
change revising the original listing criteria for underlying 
securities in ISE Rule 502) (the ``2001 Filing'').
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    The ISE notes that the requirements for listing additional series 
of an existing listed option (i.e., continued listing guidelines) are 
less stringent, largely because in total the Exchange's guidelines 
assure that options will be listed and traded on securities of 
companies that are financially sound and subject to adequate minimum 
standards.
    The ISE believes that, although the continued listing requirements 
are uniform among the options exchanges, the application of both the 
original and continued listing standards in the current market 
environment have had an anti-competitive effect. Specifically, the 
Exchange notes that on several occasions it has been unable to list and 
trade options classes that trade elsewhere because the underlying 
security of such option did not at that time meet original listing 
standards. However, the other options exchange(s) may continue to trade 
such options (and list additional series) based on the lower 
maintenance listing standards, while the ISE may not list any options 
on such underlying security. The Exchange believes this clearly is 
anti-competitive and inconsistent with the aims and goals of a national 
market system in options.
    To address this situation, the Exchange proposes to add new ISE 
Rule 502(b)(6) and amend the current listing requirement adopted by the 
2001 Filing. Specifically, proposed ISE Rule 502(b)(6) provides that, 
notwithstanding that a particular underlying security may not meet the 
requirements set forth in ISE Rule 502(b)(1), (2), (4), and (5), the 
Exchange nonetheless could list and trade an option on such underlying 
security if (i) the underlying security meets continued listing 
requirements under ISE Rule 503 and (ii) options on such underlying 
security are listed and traded on at least one other registered 
national securities exchange. ISE Rule 502(b)(5)(iii), which references 
an alternative original listing requirement, would be deleted. In 
connection with the proposed changes, the Exchange represents that the 
procedures currently employed to determine whether a particular 
underlying security meets the initial listing criteria will similarly 
be applied to the continued listing criteria.
    The Exchange believes that this proposal is narrowly tailored to 
address the circumstances where an options class is currently 
ineligible for listing on the ISE, while at the same time such option 
is trading on another options exchange(s). The Exchange notes that when 
an underlying security meets the maintenance listing requirements, and 
at least one other exchange lists and trades options on the underlying 
security, the option is available to the investing public. Therefore, 
the ISE notes that the current proposal will not introduce any 
inappropriate additional listed options classes. The Exchange submits 
that the adoption of the proposal is essential for competitive purposes 
and to promote a free and open market for the benefit of investors.
2. Statutory Basis
    The basis under the Act for this proposed rule change is found in 
section 6(b)(5), in that the proposed change will serve to remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

II. 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 rule-comments@sec.gov. Please include 

File No. SR-ISE-2007-80 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-2007-80. 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

[[Page 58704]]

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, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the ISE. 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-2007-80 and should be submitted on or before 
November 7, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange,\5 \ and, in particular, with the requirements of section 6(b) 
of the Act \6\ and the rules and regulations thereunder. The Commission 
finds that the Exchange's proposal is consistent with section 6(b)(5) 
of the Act,\7\ which requires that the rules of an 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. 
The proposal addresses circumstances where an equity option class is 
ineligible for initial listing on the Exchange, even though it meets 
the Exchange's continued listing requirements and is trading on another 
options exchange. Therefore, the proposed rule change should help 
promote competition among the exchanges that list and trade options. 
The Commission notes, and the Exchange represents, that the procedures 
currently employed to determine whether a particular underlying 
security meets the initial equity option listing criteria will 
similarly be applied by the Exchange when determining whether an 
underlying security meets the its continued listing criteria.
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    \5\ In approving this rule, the Commission notes that it has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    The Commission finds good cause, pursuant to Section 19(b)(2)(B) of 
the Act,\8\ for approving the proposed rule change prior to the 30th 
day after the date of publication of the notice of the filing thereof 
in the Federal Register. The Commission notes that the proposed rule 
change is substantially identical to the proposed rule change submitted 
by the American Stock Exchange LLC,\9\ which was previously approved by 
the Commission after notice and comment, and therefore does not raise 
any new regulatory issues.
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    \8\ 15 U.S.C. 78s(b)(2)(B).
    \9\ See Securities Exchange Act Release No. 56598 (October 2, 
2007) (SR-Amex-2007-48).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\10\ that the proposed rule change (SR-ISE-2007-80), as modified by 
Amendment No. 1, is hereby approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-20461 Filed 10-15-07; 8:45 am]

BILLING CODE 8011-01-P