Document ID: SEC-2011-2004-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2011-12-22T05:00Z

[Federal Register Volume 76, Number 246 (Thursday, December 22, 2011)]
[Notices]
[Pages 79723-79725]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32748]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65968; File No. SR-ISE-2011-83]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Extend the Penny Pilot Program

December 15, 2011.
    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 December 2, 2011, International Securities Exchange, LLC (the 
``Exchange'' or ``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 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.
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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 its rules relating to a pilot program to 
quote and to trade certain options in pennies (``Penny Pilot 
Program''). The text of the proposed rule change is as follows, with 
deletions in [brackets] and additions are underlined:

Rule 710. Minimum Trading Increments

    (a) The Board may establish minimum trading increments for 
options traded on the Exchange. Such changes by the Board will be 
designated as a stated policy, practice, or interpretation with 
respect to the administration of this Rule 710 within the meaning of 
subparagraph (3)(A) of Section 19(b) of the Exchange Act and will be 
filed with the SEC as a rule change for effectiveness upon filing. 
Until such time as the Board makes a change in the increments, the 
following principles shall apply:
    (1) If the options contract is trading at less than $3.00 per 
option, $.05; and
    (2) If the options contract is trading at $3.00 per option or 
higher, $.10.
    (b) Minimum trading increments for dealings in options contracts 
other than those specified in paragraph (a) may be fixed by the 
Exchange from time to time for options contracts of a particular 
series.
    (c) Notwithstanding the above, the Exchange may trade in the 
minimum variation of the primary market in the underlying security.

Supplementary Material to Rule 710

    .01 Notwithstanding any other provision of this Rule 710, the 
Exchange will operate

[[Page 79724]]

a pilot program, scheduled to expire on June 30, 2012, to permit 
options classes to be quoted and traded in increments as low as 
$.01. The Exchange will specify which options trade in such pilot, 
and in what increments, in Regulatory Information Circulars filed 
with the Commission pursuant to Rule 19b-4 under the Exchange Act 
and distributed to Members.
    The Exchange may replace [, on a semi-annual basis,] any penny 
pilot issues that have been delisted with the next most actively 
traded multiply listed options classes that are not yet included in 
the penny pilot, based on trading activity in the previous six 
months. The replacement issues may be added to the penny pilot on 
the second trading day following January 1, 2012 [2011 and July 1, 
2011].
    .02 No Change.
* * * * *

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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    Under the Penny Pilot Program, the minimum price variation for all 
participating options classes, except for the Nasdaq-100 Index Tracking 
Stock (``QQQQ''), the SPDR S&P 500 Exchange Traded Fund (``SPY'') and 
the iShares Russell 2000 Index Fund (``IWM''), is $0.01 for all 
quotations in options series that are quoted at less than $3 per 
contract and $0.05 for all quotations in options series that are quoted 
at $3 per contract or greater. QQQQ, SPY and IWM are quoted in $0.01 
increments for all options series. The Penny Pilot Program is currently 
scheduled to expire on December 31, 2011.\3\ The Exchange proposes to 
extend the time period of the Penny Pilot Program through June 30, 
2012, and to provide revised dates for adding replacement issues to the 
Penny Pilot program. The Exchange proposes that any Penny Pilot Program 
issues that have been delisted may be replaced on the second trading 
day following January 1, 2012. The replacement issues will be selected 
based on trading activity for the six month period beginning June 1, 
2011, and ending November 30, 2011. This filing does not propose any 
substantive changes to the Penny Pilot Program: All classes currently 
participating will remain the same and all minimum increments will 
remain unchanged. The Exchange believes the benefits to public 
customers and other market participants who will be able to express 
their true prices to buy and sell options have been demonstrated to 
outweigh the increase in quote traffic.
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    \3\ See Exchange Act Release No. 63437 (December 6, 2010), 75 FR 
77032 (December 10, 2010).
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    The Exchange agrees to submit reports to the Commission that will 
analyze the impact of the Penny Pilot Program on market quality and 
options systems capacity. These reports will include, but are not 
limited to: (1) Data and analysis on the number of quotations generated 
for options included in the report; (2) an assessment of the quotation 
spreads for the options included in the report; (3) an assessment of 
the impact of the Penny Pilot Program on the capacity of the ISE's 
automated systems; (4) data reflecting the size and depth of markets; 
and (5) any capacity problems or other problems that arose related to 
the operation of the Penny Pilot Program and how the Exchange addressed 
them.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is found in Section 6(b)(5), in 
that the proposed rule change is designed to promote just and equitable 
principles of trade, 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. In particular, the 
proposed rule change, which extends the Penny Pilot Program for an 
additional six months, will enable public customers and other market 
participants to express their true prices to buy and sell options for 
the benefit of all market participants.

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 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: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
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) of the Act \4\ and Rule 19b-
4(f)(6)(iii) thereunder.\5\ 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 
as required by Rule 19b-4(f)(6).\6\
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    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
    \6\ 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 summarily may temporarily suspend 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 email to rule-comments@sec.gov. Please include 
File No. SR-ISE-2011-83 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 No. SR-ISE-2011-83. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 79725]]

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 Web site viewing and printing 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 No. SR-ISE-2011-83 and should be submitted on or 
before January 12, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32748 Filed 12-21-11; 8:45 am]
BILLING CODE 8011-01-P