Document ID: SEC-2009-0341-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2009-03-16T04:00Z

[Federal Register: March 16, 2009 (Volume 74, Number 49)]
[Notices]               
[Page 11149-11151]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16mr09-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59553; File No. SR-ISE-2009-11]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Enable the Listing and Trading of Options on Managed Fund 
Shares

March 10, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 3, 2009, 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 prepared by the Exchange. The 
Exchange filed the proposal pursuant to Section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 502(h) to enable the listing 
and trading of options on Managed Fund Shares. The text of the proposed 
rule change is available on the Exchange's Web site http://www.ise.com, 
at the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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 IV below. The self-regulatory organization 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 the proposed rule change is to revise ISE Rule 502 
to enable the listing and trading of options on managed fund shares 
(``Managed Fund Shares'') that are listed and traded on a national 
securities exchange and are considered to be an ``NMS Stock'' (as 
defined in Rule 600 of Regulation NMS under the Securities and Exchange 
Act of 1934 (the ``Act'')).
    Managed Fund Shares represent an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity. Unlike traditional 
exchange traded funds Managed Fund Shares are actively managed. Managed 
Fund Shares, although, based upon a publicly disclosed portfolio of 
securities, each trade as a single exchange-listed equity security.
    Accordingly, the rules pertaining to the listing and trading of 
standardized equity options will apply to Managed Fund Shares.

Listing Criteria

    The Exchange will consider listing and trading options on Managed 
Fund Shares provided the Managed Fund Shares meet (1) the criteria for 
underlying securities set forth in ISE Rule 502(a) and (b) \5\, or the 
Managed Fund Shares are available for creation and redemption each 
business day as set forth in ISE Rule 502(h)(A)(ii).
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    \5\ See ISE Rule 502(a) and (b), which collectively require 
minimum requirements for the underlying security that include, but 
are not limited to: (1) The security be registered and be an ``NMS 
stock'' as defined in Rule 600 of Regulation NMS under the Exchange 
Act; (2) the security be characterized by a substantial number of 
outstanding shares that are widely held and actively traded; (3) 
7,000,000 underlying shares, (4) 2,000 shareholders; and (4) trading 
volume of 2,400,000 shares in the preceding 12 months.
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    The Exchange proposes that Managed Fund Shares deemed appropriate 
for options trading represent an interest in an open-end management 
investment company or similar entity, as described below:
     Managed Fund Shares are securities that represents an 
interest in a registered investment company (``Investment Company'') 
organized as an open-end management investment company or similar 
entity, that invests in a portfolio of securities selected by the 
Investment Company's investment adviser consistent with the Investment 
Company's investment objectives and

[[Page 11150]]

policies, which is issued in a specified aggregate minimum number in 
return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset value 
(``NAV''), and when aggregated in the same specified minimum number, 
may be redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to the 
next determined NAV.

Continued Listing Requirements

    Options on Managed Fund Shares will be subject to all Exchange 
rules governing the trading of equity options and furthermore, the 
rules pertaining to position and exercise limits \6\ or margin \7\ 
shall apply. The current continuing or maintenance listing standards 
for options traded on ISE will continue to apply.
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    \6\ Pursuant to ISE Rule 412(a)(1) and 412(d), Managed Fund 
Shares are subject to the same position limits applicable to options 
on stocks and Exchange-Traded Fund Shares. ISE Rule 414 stipulates 
that exercise limits for options on stocks and other securities, 
including Managed Fund Shares shall be the same as the position 
limits applicable under ISE Rule 412.
    \7\ See ISE Rules 1200--1204, the Exchange's rules governing 
margin.
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    The Exchange will utilize its existing surveillance procedures 
applicable to options on exchange traded funds (which will include 
Managed Fund Shares) to monitor trading. In addition, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on Managed Fund Shares, 
including adequate comprehensive surveillance sharing agreements 
(``CSSA'') with markets trading in non-U.S. components,\8\ as 
applicable. Also, the Exchange may obtain trading information via the 
Intermarket Surveillance Group (``ISG'') \9\ from other exchanges who 
are members or affiliates of the ISG. ISE represents that these 
procedures will be adequate to properly monitor Exchange trading of 
options on these the securities and to deter and detect violations of 
Exchange rules.
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    \8\ See ISE Rule 502(h)(B), the Exchange's rule governing the 
applicable CSSA requirements for options on exchange-traded funds. 
The Exchange notes that any non-U.S. component securities (including 
fixed-income) in an index or portfolio of securities on which the 
Fund Shares are based that are not subject to comprehensive 
surveillance agreements may in the aggregate represent an amount 
equal to 50% of the weight of the index or portfolio.
    \9\ A complete list of the current members of the ISG is 
available at http://www.isgportal.org.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) that an exchange have rules that are 
designed to promote just and equitable principles of trade, and to 
remove impediments to and perfect the mechanism for a free and open 
market and a national market system, and in general, to protect 
investors and the public interest. The Exchange believes that proposed 
rules applicable to trading pursuant to generic listing and trading 
criteria, together with the Exchange's surveillance procedures 
applicable to trading in the securities covered by the proposed rules, 
serve to foster investor protection.

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

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that: 
(i) Does not significantly affect the protection of investors or the 
public interest; (ii) does not impose any significant burden on 
competition; and (iii) by its terms, does not become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest. Additionally, the Exchange provided the 
Commission with written notice of its intention to file the proposed 
rule change at least five business days before its filing. Therefore, 
the foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ The 
proposed rule change will permit the Exchange to trade options on 
Managed Fund Shares thus providing investors additional opportunities 
to hedge their positions. Further, this proposed rule change is 
identical to one recently approved by the Commission.\12\ For the 
foregoing reasons, this rule filing qualifies for immediate 
effectiveness as a ``non-controversial'' rule change under paragraph 
(f)(6) of Rule 19b-4 of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ See Securities Exchange Act Release Nos. 59004 (November 
24, 2008), 73 FR 72882 (December 1, 2008) (SR-NYSEArca-2008-108); 
59006 (November 24, 2008), 73 FR 72879 (SR-NYSEALTR-2008-08).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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 rule-comments@sec.gov. Please include 
File Number SR-ISE-2009-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2009-11. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m.

[[Page 11151]]

Copies of such 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-2009-11 and should be submitted on 
or before April 6, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-5594 Filed 3-13-09; 8:45 am]

BILLING CODE 8011-01-P