Document ID: SEC-2009-1566-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify the Definition of "Narrow-Based Index"
Posted Date: 2009-11-05T05:00Z

[Federal Register: November 5, 2009 (Volume 74, Number 213)]
[Notices]               
[Page 57371-57372]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05no09-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60902; File No. SR-ISE-2009-83]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Clarify the Definition of ``Narrow-Based Index''

October 29, 2009.
    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 October 19, 2009, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') 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 has filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(iii).
    \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 ISE Rule 2001(i) by clarifying the 
definition of ``industry index'' and ``narrow-based index'' to include 
indices having component securities that are all headquartered within a 
single country. 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
    This proposed rule change is based on a filing previously submitted 
by NASDAQ OMX PHLX, Inc (``PHLX'') that was effective on filing.\5\
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    \5\ See Exchange Act Release No. 60150 (June 19, 2009), 74 FR 
30658 (June 26, 2009) (SR-Phlx -2009-35).
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    ISE proposes to amend Rule 2001, which defines the terms ``industry 
index'' and ``narrow-based index'' to mean ``an index designed to 
representative of a particular industry or a group of related 
industries,'' to also accommodate an index having component securities 
that are all headquartered within a single country to be listed as a 
narrow-based index pursuant to Exchange rules. This would enable 
options based on an index, including companies all headquartered within 
a single country, to be rightfully considered as a generic narrow-based 
index for purposes of listing on the Exchange and trading.
    The listing and trading of index options on the Exchange is 
generally conditioned on the ability to meet the rule requirements for 
narrow-based and broad-based indexes.\6\ More particularly regarding 
narrow-based indexes, Rule 2002(b) states that the Exchange may trade 
options on an underlying index pursuant to Rule 19b-4(e) of the Act \7\ 
where all of the noted conditions noted are satisfied.\8\ Indeed, the 
Exchange has, and continues to, list and trade options on narrow-based 
indexes based on industries or a group of related industries that are 
located within various countries. These options are traded pursuant to 
the Exchange's index option trading rules.\9\
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    \6\ A ``broad-based index'' or ``market index'' is defined in 
ISE Rule 2001(j) as an index designed to be representative of a 
stock market as a whole or of a range of companies in unrelated 
industries.
    \7\ The Chicago Board Options Exchange and PHLX have the same 
ability pursuant to their own rules.
    \8\ These include the index is capitalization-weighted, price-
weighted, modified capitalization-weighted or equal dollar-weighted, 
and consists of ten or more component securities; each component 
security has a market capitalization of at least $75 million, except 
that for each of the lowest weighted component securities in the 
index that in the aggregate account for no more than 10% of the 
weight of the index; the market capitalization is at least $50 
million; and trading volume of each component security has been at 
least one million shares for each of the last six months, except 
that for each of the lowest weighted component securities in the 
index that in the aggregate account for no more than 10% of the 
weight of the index, trading volume has been at least 500,000 shares 
for each of the last six months. See Rule 2002(b)(1)--(12) for all 
of the conditions [sic].
    \9\ See Chapter 20 (index options trading rules). See also 
Chapters 1 through 19 (general options trading rules).
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    With the Exchange's interpretation of Rule 2001(i) as discussed 
herein, the Exchange proposes to list and trade options, pursuant to 
Rule 2002(b), on an index(es) that has component securities, which are 
all headquartered within a single country. The Exchange represents 
that, in all other material aspects, options on the underlying narrow-
based index would be required to satisfy all other requirements for 
generic listing and trading pursuant to Rule 2002(b) and options on 
such indexes would be traded pursuant to the Exchange's trading 
rules.\10\ The proposed rule

[[Page 57372]]

change simply seeks to clarify that the generic listing and trading 
standards would cover an index that otherwise qualifies as a ``narrow-
based index,'' with the exception that the component securities of the 
index are all headquartered within a single country.
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    \10\ See id. The trading rules include, among other things, 
position limits, exercise limits and terms of options contracts 
(Rules 2005, 2007 and 2009). See also Securities Exchange Act 
Release No. 48405 (August 25, 2003), 68 FR 52257 (September 2, 2003) 
(Order Approving Proposed Rule Change and Amendment No. 1 by the 
International Securities Exchange, Inc. Relating to the 
Establishment of Trading Rules for Index Options and Generic Listing 
and Maintenance Standards for Narrow-Based Index Options).
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    The Exchange represents that its existing surveillance procedures 
applicable to trading in options will be adequate to properly monitor 
the trading in options on these narrow-based indexes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \11\ and the rules 
and regulations thereunder and, in particular, the requirements of 
Section 6(b) of the Act.\12\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \13\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, to remove impediments to and to perfect the 
mechanism for a free and open market and a national market system, and 
in general, to protect investors and the public interest by clarifying 
the term ``narrow-based index'' also accommodates an index having 
component securities that are all headquartered within a single 
country.
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    \11\ 15 U.S.C. 78s(b)(1). [sic]
    \12\ 15U.S.C. 78(f)(b). [sic]
    \13\ 15 U.S.C. 78(f)(b)(5).
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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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, 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, it has become 
effective pursuant to Section 19(b)(3)(A) \14\ of the Act and Rule 19b-
4(f)(6) \15\ thereunder. The Exchange provided the Commission with 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing the proposed rule 
change.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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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-2009-83 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-2009-83. 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. 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-2009-83 and should be 
submitted on or before November 27, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-26588 Filed 11-4-09; 8:45 am]

BILLING CODE 8011-01-P