Document ID: SEC-2010-1040-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-07-09T04:00Z

[Federal Register: July 9, 2010 (Volume 75, Number 131)]
[Notices]               
[Page 39595-39597]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy10-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62444; File No. SR-ISE-2010-72]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the International Securities 
Exchange, LLC To Expand and Permanently Establish Its Short Term Option 
Series Program

July 2, 2010.
    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 July 1, 2010, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II 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 its rules to regarding the Short 
Term Option Series Program. 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, on the Commission's Web site at 
http://www.sec.gov, 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
    On July 12, 2005, the Commission approved the Short Term Option 
Series Program (the ``Program'') on a pilot basis that allows ISE to 
list and trade Short Term Option Series.\5\ The Program was 
subsequently extended \6\ and the current Program is set to expire on 
July 12, 2010.\7\ The Commission has also approved permanent 
establishment of the Program in 2009 on behalf of the Chicago Board 
Options Exchange (``CBOE'').\8\ Thereafter, CBOE amended its rules to 
permit opening Short Term Options Series not just on Friday but also on 
Thursday.\9\
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    \5\ See Securities Exchange Act Release No. 52012 (July 12, 
2005), 70 FR 41246 (July 18, 2005).
    \6\ See Securities Exchange Act Release Nos. 54117 (July 12, 
2006), 71 FR 40564 (July 17, 2006); 56047 (July 11, 2007), 72 FR 
39106 (July 17, 2007); and 58020 (June 25, 2008), 73 FR 38000 (July 
2, 2008).
    \7\ See Securities Exchange Act Release No. 60281 (July 10, 
2009), 74 FR 34811 (July 17, 2009).
    \8\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009).
    \9\ See Securities Exchange Act Release No. 62170 (May 25, 
2010), 75 FR 30889 (June 2, 2010).
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    The Purpose of this proposed rule change is to amend ISE rules to 
(1) make the Program permanent, (2) increase to twenty the number of 
series the Exchange may open for each expiration date in a class, and 
(3) permit the Exchange to open a Short Term Options Series for trading 
on any Thursday or Friday. The Exchange's proposal is based on the 
short term options program currently in place at the CBOE.\10\ The 
Exchange also proposes to make non-substantive changes to reorganize 
the rule text related to the Program so that applicable terms are 
located within a single section. These non-substantive changes do not 
change the substance of the Program.
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    \10\ See CBOE Rules 5.5 and 24.9.
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    Under the terms of the Program currently in place, after an option 
class has been approved for listing and trading on the Exchange, ISE 
may open for trading on any Friday that is a business day (``Short Term 
Option Opening Date'') series of options on that class that expire on 
the next Friday that is a business day (``Short Term Option Expiration 
Date''). If the Exchange is not open for business on a Friday, the 
Short Term Option Opening Date is the first business day immediately 
prior to that Friday. Similarly, if the Exchange is not open for 
business on a Friday, the Short Term Option Expiration Date is the 
first business day immediately prior to that Friday. Further, the 
Exchange can select up to five options classes on which Short Term 
Option Series may be opened on any Short Term Option Series Opening 
Date. The Exchange is also allowed to list Short Term Option Series on 
any option class that is selected by other securities exchanges that 
employ a similar program under their respective rules. Further, for 
each option class eligible for participation in the Program, the 
Exchange may open up to five Short Term Option Series for each 
expiration date in that class. The strike price of each Short Term 
Option Series is fixed at a price per share, with at least two strike 
prices above and two strike prices below the value of the underlying 
security at about the time that Short Term Option Series is opened for 
trading on the Exchange.
    As noted above, pursuant to Commission approval, CBOE has made its 
short term options program permanent. On the basis of the CBOE's 
approval, the Exchange proposes to also make permanent its short term 
options series program.
    Additionally, the Exchange also proposes to amend its rules such 
that after an options class has been approved for listing and trading 
on the Exchange, the Exchange may open for trading on any Thursday or 
Friday that is a business day series of options on that

[[Page 39596]]

class that expire on the Friday of the following business week that is 
a business day. If the Exchange is not open for business on the 
respective Thursday or Friday, the Exchange may open for a Short Term 
Option Series for trading on the business day immediately prior to that 
respective Thursday or Friday. Similarly, if the Exchange is not open 
for business on the Friday of the following week, the Short Term Option 
Series will expire on the business day immediately prior to that 
Friday.
    Finally, the Exchange proposes to modify the terms of the Program 
to provide that up to twenty (as opposed to five) Short Term Option 
Series may be opened for each expiration date. The strike price of each 
Short Term Option Series will be fixed at a price per share, with 
approximately the same number of strike prices above and below the 
value of the underlying security or calculated index at about the time 
that the Short Term Option Series is opened. If the Exchange opens less 
than twenty Short Term Option Series for a given expiration date, 
additional series may be opened for trading on the Exchange when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand or when the current value of the underlying security or 
index moves substantially from the exercise price or prices of the 
series already opened. In any event, the total number of series for a 
given expiration date will not exceed twenty series. The Exchange 
believes this increase in the number of series would provide investors 
with greater flexibility in the trading of Short Term Option Series by 
allowing investors to establish options positions that are better 
tailored to meet their investment objectives. ISE also believes that 
allowing for the increased number of series would allow the Exchange to 
better maintain an orderly market, meet customer demand and respond to 
scenarios when the market price of the underlying moves substantially 
from the exercise price or prices of the series already opened.
    The Exchange believes that Short Term Option Series provides 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and be more responsive to the timing of 
events affecting the securities that underlie option contracts. The 
Exchange also believes providing the flexibility to list as many as 
twenty series for each expiration date and to list all Short Term 
Option Series on any Thursday or Friday will help the Exchange to 
institute its Program more effectively without causing investor 
confusion.
    The Commission has requested, and the Exchange has agreed for the 
purposes of this filing, to submit one report to the Commission 
providing an analysis of the Exchange's Program (``Program 
Report'').\11\ The Program Report will cover the period from the date 
the Exchange first begins to list a short term option series class 
through the first quarter of 2011, and will describe the experience of 
the Exchange with respect to the options classes included by the 
Exchange in its Program.\12\ The Program Report will be submitted no 
later than May 1, 2011, under separate cover and will seek confidential 
treatment under the Freedom of Information Act.
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    \11\ The Commission made a similar request in a recent filing by 
NASDAQ OMX PHLX, Inc. to establish a short term option series 
program at that exchange. See Securities Exchange Act Release No. 
62296 (June 15, 2010), 75 FR 35115 (June 21, 2010).
    \12\ The Program Report would include the following: (1) Data 
and written analysis on the open interest and trading volume in the 
classes for which Short Term Option Series were opened; (2) an 
assessment of the appropriateness of the option classes selected for 
the Program; (3) an assessment of the impact of the Program on the 
capacity of the Exchange, OPRA, and market data vendors (to the 
extent data from market data vendors is available); (4) any capacity 
problems or other problems that arose during the operation of the 
Program and how the Exchange addressed such problems; (5) any 
complaints that the Exchange received during the operation of the 
Program and how the Exchange addressed them; and (6) any additional 
information that would assist in assessing the operation of the 
Program.
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    Finally, the Exchange represents that it has the necessary systems 
capacity to support the listing of Short Term Options Series under the 
Program.
2. Statutory Basis
    The Exchange believes that Short Term Option Series increases the 
variety of listed options available to investors and provides investors 
with a valuable tool to manage risk exposure, minimize capital outlays 
and be more responsive to the timing of events affecting the securities 
that underlie options contracts. For these reasons, the Exchange 
believes the proposed rule change is consistent with Section 6(b) of 
the Act. Specifically, the Exchange believes the proposed rule change 
is consistent with Section 6(b)(5) requirements that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
serve 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. Further, the Exchange believes that 
permanent approval of the Program will result in an ongoing benefit to 
investors in carrying out their investment objectives.

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 filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the 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 prior to 
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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6)(iii) thereunder.\16\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). 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 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 
Commission has waived the five-day pre-filing requirement in this 
case.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that was approved by the Commission.\17\ Therefore, 
the Commission designates the proposal operative upon filing.\18\
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    \17\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

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[[Page 39597]]

    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-2010-72 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-2010-72. 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 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 the 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-2010-72 and should be 
submitted on or before July 30, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-16749 Filed 7-8-10; 8:45 am]
BILLING CODE 8010-01-P