Document ID: SEC-2011-0207-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2011-02-15T05:00Z

[Federal Register Volume 76, Number 31 (Tuesday, February 15, 2011)]
[Notices]
[Pages 8796-8798]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3316]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63878; File No. SR-ISE-2011-08]

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

February 9, 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 February 1, 2011, the International Securities Exchange, LLC 
(``ISE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II 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 Exchange proposes to amend its rules to expand 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
    The purpose of this proposed rule change is to amend ISE Rules 504 
and 2009 to expand the Short Term Option Series Program (``STOS 
Program'') \3\ so that the Exchange may select fifteen option classes 
on which Short Term Option Series may be opened.
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    \3\ Short Term Option Series are series in an option class that 
is approved for listing and trading on the Exchange in which the 
series is opened for trading on any Thursday or Friday that is a 
business day and that expires on the Friday of the next business 
week. If a Thursday or Friday is not a business day, the series may 
be opened (or shall expire) on the first business day immediately 
prior to that Thursday or Friday, respectively. Rules 100(a)(47), 
2001(n), Supplementary Material .02 to Rule 504 and Supplementary 
Material .01 to Rule 2009.
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    The STOS Program is codified in Supplementary Material .02 to ISE 
Rule 504 and Supplementary Material .01 to ISE Rule 2009. These rules 
state that after an option 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 no more 
than five option classes that expire on the Friday of the following 
business week that is a business day. In addition to the five-option 
class limitation, there is also a limitation that no more than twenty 
series for each expiration date in those classes that may be opened for 
trading.\4\ Furthermore, the strike price of each short term option has 
to be fixed with approximately the same number of strike prices being 
opened above and below the value of the underlying security at about 
the time that the short term options are initially opened for trading 
on the Exchange, and with strike prices being within thirty percent 
(30%) above or below the closing price of the underlying security from 
the preceding day. The Exchange does not propose any changes to these 
additional STOS Program limitations. The Exchange proposes only to 
increase from five to fifteen the number of option classes that may be 
opened pursuant to the STOS Program.
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    \4\ However, if the Exchange opens less than twenty (20) short 
term options for a Short Term Option 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 market price of the underlying security moves 
substantially from the exercise price or prices of the series 
already opened. Any additional strike prices listed by the Exchange 
shall be within thirty percent (30%) above or below the current 
price of the underlying security. The Exchange may also open 
additional strike prices of Short Term Option Series that are more 
than 30% above or below the current price of the underlying security 
provided that demonstrated customer interest exists for such series, 
as expressed by institutional, corporate or individual customers or 
their brokers (market-makers trading for their own account shall not 
be considered when determining customer interest under this 
provision). Supplementary Material .02(d) to Rule 504 and 
Supplementary Material .01(d) to Rule 2009.
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    The principal reason for the proposed expansion is customer demand 
for

[[Page 8797]]

adding, or not removing, short term option classes from the STOS 
Program. In order that the Exchange not exceed the five-option class 
restriction, from time to time the Exchange has had to discontinue 
trading one short term option class before it could begin trading other 
option classes within the STOS Program. This has negatively impacted 
investors and traders, particularly retail public customers. The 
Exchange feels that it is essential that such negative, potentially 
very costly impacts on market participants are eliminated by modestly 
expanding the STOS Program to enable additional classes to be traded.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with 
trading of an expanded number of classes in the STOS Program.
    The Exchange believes that the STOS Program has provided investors 
with greater trading opportunities and flexibility and the ability to 
more closely tailor their investment and risk management strategies and 
decisions. The Exchange further believes than an expansion of the 
current STOS Program will provide investors with additional short term 
option classes for investment, trading, and risk management purposes.
    Finally, 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 STOS Program (the ``Report''). The Report 
will cover the period from July 2, 2010, the date the Exchange first 
began to list and trade short term options, through December 31, 2010. 
The Report will describe the Exchange's experience with the STOS 
Program in respect of the option classes included by the Exchange in 
the STOS Program. The Report will be submitted to the Commission on a 
confidential basis under separate cover.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 \5\ (the ``Act'') in 
general, and furthers the objectives of Section 6(b)(5) of the Act \6\ 
in particular, in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in general 
to protect investors and the public interest. The Exchange believes 
that expanding the current STOS Program will result in a continuing 
benefit to investors by giving them more flexibility to closely tailor 
their investment decisions and hedging decisions in greater number of 
securities. The Exchange believes that expanding the current STOS 
Program would provide the investing public and other market 
participants increased opportunities because an expanded STOS Program 
would provide market participants additional opportunities to hedge 
their investment thus allowing these investors to better manage their 
risk exposure. Moreover, the Exchange believes the proposed rule change 
would benefit investors by giving them more flexibility to closely 
tailor their investment decisions in a greater number of securities.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(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) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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 
Exchange has satisfied this requirement.
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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 has been approved by the Commission.\9\ 
Therefore, the Commission designates the proposal operative upon 
filing.\10\
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    \9\ See Securities Exchange Act Release No. 63875 (February 9, 
2011) (SR-Phlx-2010-183) (order approving expansion of Short Term 
Option Program).
    \10\ 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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    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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2011-08 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-2011-08. 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

[[Page 8798]]

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-2011-08 and should be 
submitted on or before March 8, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3316 Filed 2-14-11; 8:45 am]
BILLING CODE 8011-01-P