Document ID: SEC-2009-1560-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the International Securities Exchange, LLC Related to Market Maker Guidelines
Posted Date: 2009-11-04T05:00Z

[Federal Register: November 4, 2009 (Volume 74, Number 212)]
[Notices]               
[Page 57217-57219]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04no09-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60897; File No. SR-ISE-2009-85]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange, LLC Related to Market Maker Guidelines

October 28, 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 22, 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).
    \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 803 to eliminate the provision 
providing for bids (offers) to be no more than $1 lower (higher) that 
the last preceding transaction plus or minus the aggregate change in 
the last sale price of the underlying, and amend the provision 
pertaining to trades that are more than $0.25 below parity. 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 the Chicago Board Options Exchange (``CBOE'') that was effective on 
filing.\5\
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    \5\ See Securities Exchange Act Release No. 60295 (July 13, 
2009), 74 FR 35215 (July 20, 2009) (SR-CBOE-2009-49).
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    ISE proposes to amend Rule 803 to eliminate the provision providing 
for bids (offers) to be no more than $1 lower (higher) that the last 
preceding transaction plus or minus the aggregate change in the last 
sale price of the

[[Page 57218]]

underlying, and amend the provision pertaining to trades that are more 
than $0.25 below parity. Rule 803, in part, provides that market makers 
are expected ordinarily, except in unusual market conditions, not to 
bid more than $1 lower or offer more than $1 higher that the last 
preceding transaction price for the particular option contract plus or 
minus the aggregate change in the last sale price of the underlying 
security since the time of the last preceding transaction for the 
particular option contract (the ``one point'' rule). In addition, 
market makers are expected ordinarily, except in unusual market 
conditions, to refrain from purchasing a call option or a put option at 
a price more than $0.25 below parity. In the case of call options, 
parity is measured by the bid in the underlying security, and in the 
case of put options, parity is measured by the offer in the underlying 
security (the ``parity'' rule).
    First, the Exchange proposes to eliminate the one point rule. The 
one point rule has been in place at the Exchange since its 
inception.\6\ Since that time, various market changes have rendered the 
rule obsolete and unnecessary. For example, market makers are now 
subject to various quotation requirements, including bid/ask quote 
width requirements contained elsewhere in Rule 803. The Exchange also 
has an obvious error rule that contains provisions on erroneous pricing 
errors (e.g., Rule 720) and has in place certain price check parameters 
that will not permit the automatic execution of certain orders if the 
execution would take place at prices inferior to the national best bid/
offer (e.g., Rules 714(a), 721).
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    \6\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11388 (March 2, 2000).
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    Second, at this time the Exchange is proposing to retain the parity 
rule, which has also been in place at the Exchange since its 
inception,\7\ as a guideline but to modify it to provide that an amount 
larger than $0.25 may be appropriate considering the particular market 
conditions (not just unusual market conditions as the rule currently 
states). The text will also be revised to provide that the $0.25 
guideline may be increased, or the parity rule waived, by the Exchange 
on a series-by-series basis. The Exchange believes that revising the 
$0.25 parity rule in this manner modernizes the guideline to reflect 
market changes (including those discussed above) and will provide more 
flexibility to take into consideration the particular trading in a 
security, including but not limited to the underlying market price, 
market conditions, and applicable minimum bid/ask width requirements 
for a given options series.
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    \7\ Id.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \8\ and the rules and 
regulations thereunder and, in particular, the requirements of Section 
6(b) of the Act.\9\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \10\ 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, because it will eliminate the 
outdated one point rule and update the parity rule to incorporate more 
flexibility and recognize changing market conditions.
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    \8\ 15 U.S.C. 78s(b)(1).
    \9\ 15 U.S.C. 78(f)(b).
    \10\ 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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to Section 19(b)(3)(A) \11\ of the Act 
and Rule 19b-4(f)(6)(iii) \12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's intent to file the proposed rule change 
along with a brief description and the text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied the pre-filing requirement.
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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.\13\
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    \13\ 15 U.S.C. 78s(b)(3)(C).
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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-2009-85 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-2009-85. 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,

[[Page 57219]]

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-2009-85 and should be submitted on 
or before November 25, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-26509 Filed 11-3-09; 8:45 am]

BILLING CODE 8011-01-P