Document ID: SEC-2006-0371-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: International Securities Exchange, Inc.
Posted Date: 2006-03-21T05:00Z

[Federal Register: March 21, 2006 (Volume 71, Number 54)]
[Notices]               
[Page 14268-14272]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr06-129]                         

[[Page 14268]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53484; File No. SR-ISE-2005-25]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Order Granting Accelerated Approval to a 
Proposed Rule Change and Amendment No. 1 Thereto Relating to Trading 
Options on Full and Reduced Values of the FTSE 100 Index and the FTSE 
250 Index, Including Long-Term Options

March 14, 2006.
    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 May 16, 2005, the International Securities Exchange, Inc. (the 
``Exchange'' or the ``ISE'') 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 ISE. On 
February 22, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons. In addition, the Commission is granting accelerated approval 
of the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated February 22, 2006. (``Amendment No. 
1''). In Amendment No. 1, which replaced the original filing in its 
entirety, the Exchange: (1) Expanded the ``purpose'' section to 
include additional information about the components, and calculation 
and maintenance of the FTSE Indexes; and (2) obtained a 
representation by the FTSE regarding FTSE's insider trading and non-
disclosure policies as they pertain to broker-dealer members of the 
FTSE committees that determine the composition of the indexes.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to amend its rules to trade options on full 
and reduced values of the FTSE 100 Index and the FTSE 250 Index. The 
Exchange also proposes to list and trade long-term options on full and 
reduced values of the FTSE 100 Index and the FTSE 250 Index. Options on 
these indexes will be a.m. cash-settled and will have European-style 
exercise provisions. The text of this proposed rule change is available 
on the Exchange's Web site at http://www.iseoptions.com/legal/proposed_rule_changes.asp
, the Exchange's principal office, and in 

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 ISE 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 III below. The Exchange 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 Exchange proposes to amend its Rules 2001, 2004 and 2009 to 
provide for the listing and trading on the Exchange of a.m. cash-
settled, European-style, index options on the FTSE 100 Index and the 
FTSE 250 Index (collectively, the ``FTSE Indexes''). Specifically, the 
Exchange proposes to list options based upon (i) full value of the FTSE 
Indexes, (ii) one-tenth of the value of the FTSE Indexes (``Mini FTSE 
Indexes''), and (iii) one one-hundredth of the value of the FTSE 
Indexes (``Micro FTSE Indexes''). In addition to regular options on the 
FTSE Indexes, the Exchange may list long-term options on the FTSE 
Indexes, the Mini FTSE Indexes, and the Micro FTSE Indexes (``FTSE 
LEAPS'').\4\
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    \4\ Under ISE Rule 2009(b), ``Long-Term Index Options Series,'' 
the Exchange may list long-term options that expire from 12 to 60 
months from the date of issuance.
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    The Exchange states that the FTSE 100 Index and the FTSE 250 Index 
are internationally recognized, capitalization-weighted indexes based 
on the prices of the most highly capitalized British stocks traded on 
the London Stock Exchange (``LSE''), a Recognized Investment Exchange 
under the Financial Services and Markets Act 2000 of the U.K and 
regulated by the Financial Services Authority (``FSA'') of the U.K. The 
LSE's Stock Exchange Electronic Trading Service (``SETS'') is a fully 
electronic order book trading service. SETS is the central price 
formation and trading service for the securities comprising the FTSE 
100 Index, the most liquid FTSE 250 securities, and equities that 
underlie Euronext.LIFFE (``LIFFE'') traded equity options. SETS market 
maker (``SETSmm'') is the LSE's trading service for, among others, the 
FTSE 250 securities that are not traded on SETS.
    Currently, LIFFE lists equity options on the FTSE 100 Index and 
futures and futures options on the FTSE 250 Index. The Exchange notes 
that the Commission previously approved for the Chicago Board Options 
Exchange (``CBOE'') to list reduced-value options on the FTSE 100 
Index, and for the American Stock Exchange (``Amex''), the CBOE, the 
Midwest Stock Exchange (``MSE'') n/k/a the Chicago Stock Exchange, the 
New York Stock Exchange (``NYSE''), and the Pacific Stock Exchange 
(``PSE'') to trade warrants on the FTSE 100 Index.\5\
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    \5\  See Securities Exchange Act Release Nos. 29722 (September 
23, 1991), 56 FR 49807 (October 1, 1991) (order approving File No. 
SR-CBOE-91-07); 27769 (March 6, 1990), 55 FR 9380 (March 13, 1990) 
(order approving File No. SR-Amex-90-03); 28634 (November 20, 1990), 
55 FR 49729 (November 30, 1990) (order approving File No. SR-MSE-90-
12); 28399 (August 30, 1990), 55 FR 37390 (September 11, 1990) 
(order approving File No. SR-NYSE-90-37); and 28106 (June 12, 1990), 
55 FR 24955 (June 19, 1990) (order approving File No. SR-PSE-90-15).
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Index Design and Composition

    The FTSE 100 and 250 Indexes were created in the 1980's by the 
International Stock Exchange of the United Kingdom and the Republic of 
Ireland (the predecessor to the LSE) in conjunction with the Financial 
Times and a committee of U.K. financial institutions, including LIFFE. 
The Indexes are administered and maintained by FTSE International 
Limited (``FTSE'').\6\ To qualify for inclusion in a FTSE Index, a 
company must satisfy, among others, the following conditions: (1) It 
must have a full listing on the London Stock Exchange; (2) it must not 
be a subsidiary of another FTSE Index constituent; and (3) it must be 
sufficiently liquid to be traded.\7\ The FTSE 100 Index consists of the 
largest 100 UK companies ranked by unadjusted market value, and the 
FTSE 250 consists of the next 250 UK companies ranked by unadjusted 
market value.\8\ The FTSE EMEA Committee

[[Page 14269]]

conducts a quarterly review of the FTSE Indexes to ensure that its 
component stocks are representative of the state of the equity market 
for the largest U.K. companies.
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    \6\ The FTSE Europe, Middle East and Africa ( ``EMEA'') 
Committee is responsible for, among other things, establishing rules 
to determine, review, and modify the composition of the FTSE 
Indexes, as well as how the FTSE Indexes are calculated. The FTSE 
EMEA Committee is comprised of representatives from various 
financial institutions including, among others, FTSE, Barclays 
Global Investors, Goldman Sachs, and LIFFE.
    \7\ See ``Ground Rules for the Management of the UK Series of 
the FTSE Actuaries Share Indices,'' at http://www.ftse.com for 

complete eligibility criteria.
    \8\ Unadjusted market capitalization (as opposed to a ``free-
float'' index methodology) refers to the total number of shares 
outstanding multiplied by the share price. A ``free-float'' index 
methodology usually excludes shares held by strategic investors by 
way of cross ownership, government ownership, private ownership, and 
restricted share ownership. Telephone conversation between Samir 
Patel, Assistant General Counsel, ISE, and Raymond Lombardo, Special 
Counsel, Division, Commission, on February 27, 2006.
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    As of February 14, 2005, following are the characteristics of the 
FTSE 100 Index: (i) The total capitalization of all of the components 
in the Index is [pound]1.23 trillion; (ii) regarding component 
capitalization, (a) the highest capitalization of a component is 
[pound]119.14 billion (BP Plc), (b) the lowest capitalization of a 
component is [pound]516.80 million (Schroders NV), (c) the mean 
capitalization of the components is [pound]12.07 billion, and (d) the 
median capitalization of the components is [pound]5.20 billion; (iii) 
regarding component price per share, (a) the highest price per share of 
a component is [pound]31.56 (Carnival), (b) the lowest price per share 
of a component is 60 pence (Corus Group), (c) the mean price per share 
of a component is [pound]6.91, and (d) the median price per share of a 
component is [pound]6.06; (iv) regarding component weightings, (a) the 
highest weighting of a component is 9.82% (BP Plc), (b) the lowest 
weighting of a component is 0.04% (Schroders NV), (c) the mean 
weighting of the components is 0.98%, (d) the median weighting of the 
components is 0.43%, and (e) the total weighting of the top five 
highest weighted components is 36.52% (BP Plc, HSBC Holdings, Vodafone 
Group, GlaxoSmithKline, Royal Bank of Scotland); (v) regarding 
component available shares, (a) the most available shares of a 
component is 65.28 billion (Vodafone Group), (b) the least available 
shares of a component is 70.94 million (Schroders NV), (c) the mean 
available shares of the components is 2.72 billion, and (d) the median 
available shares of the components is 1.11 billion; (vi) regarding the 
six month average daily volumes of the components, (a) the highest six 
month average daily volume of a component is 224.20 million (Vodafone 
Group), (b) the lowest six month average daily volume of a component is 
117,669 (Schroders NV), (c) the mean six month average daily volume of 
the components is 13.69 million, (d) the median six month average daily 
volume of the components is 7.56 million, (e) the average of six month 
average daily volumes of the five most heavily traded components is 
441.02 million (Vodafone Group, BP Plc, Corus Group, BT Group, Shell 
Transport and Trading Co.), and (f) 100% of the components had a six 
month average daily volume of at least 50,000.
    As of February 14, 2005, following are the characteristics of the 
FTSE 250 Index: (i) The total capitalization of all of the components 
in the Index is [pound]220.24 billion; (ii) regarding component 
capitalization, (a) the highest capitalization of a component is 
[pound]2.69 billion (BPB), (b) the lowest capitalization of a component 
is [pound]212.30 million (PZ Cussons PLC), (c) the mean capitalization 
of the components is [pound]877.46 million, and (d) the median 
capitalization of the components is [pound]693.41 million; (iii) 
regarding component price per share, (a) the highest price per share of 
a component is [pound]43.72 (Greggs PLC), (b) the lowest price per 
share of a component is 20 pence (Invensys), (c) the mean price per 
share of a component is [pound]4.91, and (d) the median price per share 
of a component is [pound]3.47; (iv) regarding component weightings, (a) 
the highest weighting of a component is 1.30% (BPB), (b) the lowest 
weighting of a component is 0.06% (Euromoney Institutional Investor 
PLC), (c) the mean weighting of the components is 0.40%, (d) the median 
weighting of the components is 0.31%, and (e) the total weighting of 
the top five highest weighted components is 6.04% (BPB, International 
Power, Hammerson PLC, Kelda Group, Peninsular & Oriental Steam PLC); 
(v) regarding component available shares, (a) the most available shares 
of a component is 5.69 billion (Invensys), (b) the least available 
shares of a component is 12.14 million (Greggs PLC), (c) the mean 
available shares of the components is 345.10 million, and (d) the 
median available shares of the components is 201.60 million; (vi) 
regarding the six month average daily volumes of the components, (a) 
the highest six month average daily volume of a component is 40.89 
million (Invensys), (b) the lowest six month average daily volume of a 
component is 4,139 (PZ Cussons PLC), (c) the mean six month average 
daily volume of the components is 1.95 million, (d) the median six 
month average daily volume of the components is 702,801, (e) the 
average of six month average daily volumes of the five most heavily 
traded components is 104.75 million (Invensys, ARM Holdings PLC, 
Cookson Group, Woolworths Group, EMI Group), and (f) 97% of the 
components had a six month average daily volume of at least 50,000.

Index Calculation and Index Maintenance

    The base index value of the FTSE 100 Index and the FTSE 250 Index, 
was 1000, as of December 31, 1983, and 1412.60, as of December 31, 
1985, respectively. On February 14, 2005, the index value of the FTSE 
100 Index and the FTSE 250 Index was 5041.80 and 7370.10, respectively. 
The Exchange believes that these levels are too high for successful 
options trading. As a result, the premiums for options on the full 
values of the FTSE Indexes are high, which may deter retail investors. 
Accordingly, the Exchange proposes to base trading in options on both 
full size FTSE Indexes and on fractions of full size FTSE Indexes. In 
particular, the Exchange proposes to list (i) Mini FTSE Index options 
that are based on one-tenth of the value of each of the FTSE Indexes, 
and (ii) Micro FTSE Index options that are based on one one-hundredth 
of each of the FTSE Indexes.\9\ The Exchange believes that listing 
options on reduced values will attract a greater source of customer 
business than if options were based only on the full value of the FTSE 
Indexes. The Exchange further believes that listing options on reduced 
values will provide an opportunity for investors to hedge, or speculate 
on, the market risk associated with the stocks comprising the FTSE 
Indexes. Additionally, by reducing the values of the FTSE Indexes, 
investors will be able to use this trading vehicle while extending a 
smaller outlay of capital. The Exchange believes that this should 
attract additional investors, and, in turn, create a more active and 
liquid trading environment.\10\
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    \9\ As noted above, the Exchange also proposes to list LEAPS on 
all FTSE Indexes.
    \10\ The concept of listing reduced value options on an index is 
not a novel one. For example, the Commission has previously approved 
the listing of reduced value options on the S&P 500 Index, the 
Nasdaq 100 Index, and the NYSE Composite Index. See Securities 
Exchange Act Release Nos. 32893 (September 14, 1993), 58 FR 49070 
(September 21, 1993) (S&P 500 Index); 43000 (June 30, 2000), 65 FR 
42409 (July 10, 2000) (Nasdaq 100 Index); 48681 (October 22, 2003), 
68 FR 62337 (November 3, 2003) (NYSE Composite Index).
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    Index levels for options on the full size FTSE Indexes, the Mini 
FTSE Indexes and the Micro FTSE Indexes shall each be calculated by 
FTSE, and shall be disseminated by ISE every 15 seconds during the 
Exchange's regular trading hours to market information vendors via the 
Options Price Reporting Authority (``OPRA'').\11\ The methodology used 
to calculate the value of the FTSE Indexes is similar to the 
methodology used to calculate the value of other well-known market-
capitalization weighted indexes. The level of each FTSE Index reflects 
the total market value of the component

[[Page 14270]]

stocks relative to a particular base period and is computed by dividing 
the total market value of the companies in each index by its respective 
index divisor.\12\
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    \11\ The Exchange shall also disseminate these values to its 
members. The FTSE Indexes will be published daily through major 
quotation vendors, such as Reuters.
    \12\ A divisor is an arbitrary number chosen at the starting 
date of an index to fix the index starting value. The divisor is 
adjusted periodically when capitalization amendments are made to the 
constituents of the index in order to allow the index value to 
remain comparable over time. Without a divisor the index value would 
change when corporate actions took place and would not reflect the 
true value of an underlying portfolio based upon the index.
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    The FTSE Indexes are updated on a real-time basis from 8 a.m. to 
4:30 p.m. (London time), which corresponds to 3 a.m. to 11:30 a.m. (New 
York time). After 11:30 a.m. (New York time), the Exchange will 
disseminate a static value of the FTSE Indexes via OPRA until the close 
of trading each day. The FTSE Indexes are calculated using the last 
traded price of the component securities. If a component security does 
not open for trading, the price of that security at the close or the 
index on the previous day is used in the calculation.\13\
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    \13\ The FTSE Indexes are published daily in the Financial Times 
and are available real-time on Reuters, Bloomberg, and other market 
information systems which disseminate information on a real-time 
basis.
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    The FTSE Indexes will be monitored and maintained by FTSE. FTSE 
will be responsible for making all necessary adjustments to the indexes 
to reflect component deletions, share changes, stock splits, stock 
dividends (other than an ordinary cash dividend), and stock price 
adjustments due to restructuring, mergers, or spin-offs involving the 
underlying components. Some corporate actions, such as stock splits and 
stock dividends, require simple changes to the available shares 
outstanding and the stock prices of the underlying components. Other 
corporate actions, such as share issuances, that change the market 
value would require changing the index divisor to effect adjustments.
    The FTSE Indexes are reviewed each quarter in March, June, 
September, and December based on market capitalization. Based on 
information submitted by FTSE, the FTSE EMEA Committee approves the new 
index components and a reserve list of six companies for the FTSE 100 
Index. If a company is deleted from the FTSE 100 Index between reviews 
as a result of a merger, takeover, or other corporate action, the 
highest ranking company from the reserve list will replace it in the 
index.
    Although the Exchange is not involved in the maintenance of any of 
the FTSE Indexes, the Exchange represents that it will monitor each 
FTSE Index on a quarterly basis, at which point the Exchange will 
notify the staff of the Market Regulation Division of the Commission by 
filing a proposed rule change pursuant to Rule 19b-4, if, with respect 
to any FTSE Index: (i) The number of securities in a FTSE Index drops 
by \1/3\rd or more; (ii) 10% or more of the weight of a FTSE Index is 
represented by component securities having a market value of less than 
50 million; (iii) 10% or more of the weight of a FTSE Index is 
represented by component securities trading less than 20,000 shares per 
day; or (iv) the largest component security accounts for more than 15% 
of the weight of a FTSE Index or the largest five components in the 
aggregate account for more than 50% of the weight of a FTSE Index.
    The Exchange will also notify the staff of the Market Regulation 
Division of the Commission immediately in the event FTSE ceases to 
maintain and calculate the FTSE Indexes, or in the event values of the 
FTSE Indexes are not disseminated every 15 seconds by a widely 
available source. In the event the FTSE Indexes cease to be maintained 
or calculated, or its values are not disseminated every 15 seconds by a 
widely available source, the Exchange will not list any additional 
series for trading and will limit all transactions in such options to 
closing transactions only for the purpose of maintaining a fair and 
orderly market and protecting investors.

Exercise and Settlement Value

    Options on the FTSE Indexes will expire on the Saturday following 
the third Friday of the expiration month. Trading in the FTSE Indexes 
will normally cease at 4:15 p.m. (New York time) on the Thursday 
preceding an expiration Saturday. The index value for exercise of the 
FTSE Index options will be calculated based on the LSE's Exchange 
Delivery Settlement Price (``EDSP'') intra-day auction, which was 
introduced by LSE in November of 2004. The EDSP is a settlement value 
calculated by Euronext-LIFFE for FTSE index futures and options 
contracts traded on its exchange. The EDSP value is calculated using an 
intra-day auction process administered by the LSE for all the component 
stocks of the FTSE 100 Index and the FTSE 250 Index. The intra-day 
auction occurs between 10:10 a.m. and 10:29 a.m. (London time) for the 
FTSE 100 Index, and between 10:10 a.m. and 10:31 a.m. (London time) for 
the FTSE 250 Index on the third Friday of the expiration month. 
Therefore, because trading in the expiring contract months will 
normally cease on a Thursday at 4:15 p.m. (New York time), the EDSP for 
exercise will be determined the day after trading has ceased, i.e., 
during the Friday morning LSE trading session, by 5:31 a.m. (New York 
time). The last automated traded price prior to the EDSP auction or the 
previous day's closing price will be used to calculate the final EDSP 
if a security did not participate in the auction. During the auction 
process, indications of the settlement price for each index are widely 
disseminated every 15 seconds via special indexes called Expiry 
Indexes. The purpose of the Expiry Indexes is to disseminate expected 
settlement values as the auction progresses. When the auction is 
finished, the final values of the Expiry Indexes are disseminated as 
the EDSP values. The Expiry Indexes and subsequent EDSP values are 
widely disseminated through major market data vendors including 
Reuters, Bloomberg, and Thomson.
    If the LSE is closed on the Friday before expiration, but the ISE 
remains open, then the last trading day for expiring FTSE Index options 
will be moved earlier to Wednesday as if the ISE had had a Friday 
holiday. The settlement index value used for exercise will be 
calculated during LSE's EDSP intra-day auction on Thursday morning.

Contract Specifications

    The contract specifications for options on the FTSE 100 Index and 
the FTSE 250 Index are set forth in Exhibits 3-2 and 3-4, respectively, 
to the proposed rule change filed by the Exchange. The FTSE Indexes are 
broad-based indexes, as defined in Exchange Rule 2001(j). Options on 
the FTSE Indexes are European-style and a.m. cash-settled. The 
Exchange's standard trading hours for broad-based index options (9:30 
a.m. to 4:15 p.m., New York time), as set forth in Rule 2008(a), will 
apply to the FTSE Indexes. Exchange rules that are applicable to the 
trading of options on broad-based indexes will apply to both full and 
reduced values of the FTSE Indexes.\14\ Specifically, the trading of 
full and reduced values of the FTSE Indexes will be subject to, among 
others, Exchange rules governing margin requirements and trading halt 
procedures for index options. Options shall be quoted and traded in 
U.S. dollars.
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    \14\ See ISE Rules 2000 through 2012.
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    For options on the full value FTSE Indexes, the Exchange proposes 
to establish aggregate position limits at 25,000 contracts on the same 
side of the market, provided no more than 15,000 of such contracts are 
in the nearest

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expiration month series. Mini FTSE Index option contracts and Micro 
FTSE Index option contracts shall be aggregated with full value FTSE 
Index option contracts, where ten (10) Mini FTSE Index option contracts 
and one-hundred (100) Micro FTSE Index option contracts equal one (1) 
full value FTSE Index option contracts. These limits are identical to 
the limits that were approved for options on the FTSE Indexes 
previously listed for trading at the CBOE.\15\ Additionally, under ISE 
Rule 2006, an index option hedge exemption for public customers may be 
available which may expand the position limit up to an additional 
75,000 contracts.\16\ Furthermore, proprietary accounts of members may 
receive an exemption of up to 50,000 contracts for the purpose of 
facilitating public customer orders.\17\
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    \15\ See supra note 5.
    \16\ The same limits that apply to position limits shall apply 
to exercise limits for these products.
    \17\ See ISE Rule 413(c).
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    The Exchange proposes to apply broad-based index margin 
requirements for the purchase and sale of options on the FTSE Indexes. 
Accordingly, purchases of put or call options with 9 months or less 
until expiration must be paid for in full. Writers of uncovered put or 
call options must deposit/maintain 100% of the option proceeds, plus 
15% of the aggregate contract value (current index level x $100), less 
any out-of-the-money amount, subject to a minimum of the option 
proceeds plus 10% of the aggregate contract value for call options and 
a minimum of the option proceeds plus 10% of the aggregate exercise 
price amount for put options.
    The Exchange proposes to set strike price intervals at least 2\1/2\ 
points for certain near-the-money series in near-term expiration months 
when the index level of the FTSE Indexes is below 200, and 5 point 
strike price intervals for other options series with expirations up to 
one year, and at least 10 point strike price intervals for longer-term 
options. The minimum tick size for series trading below $3 shall be 
$0.05, and for series trading at or above $3 shall be $0.10.
    The Exchange proposes to list options on full and reduced values of 
the FTSE Indexes in the three consecutive near-term expiration months 
plus up to three successive expiration months in the March cycle. For 
example, consecutive expirations of January, February, March, plus 
June, September, and December expirations would be listed.\18\ In 
addition, long-term option series having up to sixty months to 
expiration may be traded.\19\ The trading of long-term FTSE Indexes 
shall be subject to the same rules that govern the trading of all the 
Exchange's index options, including sales practice rules, margin 
requirements, and trading rules.
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    \18\ See Rule 2009(a)(3).
    \19\ See Rule 2009(b)(1). The Exchange is not listing reduced 
value LEAPS on the FTSE Indexes pursuan to Rule 2009(b)(2).
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    Except for the further reduced value given to the FTSE Indexes, all 
of the specifications and calculations for the reduced value FTSE 
Indexes shall be the same as those used for the full value FTSE 
Indexes. The reduced value FTSE Indexes will trade independently of and 
in addition to the full value FTSE Indexes, and all the FTSE Indexes 
shall be subject to the same rules that presently govern the trading of 
Exchange index options, including sales practice rules, margin 
requirements, trading rules, and position and exercise limits.

Surveillance and Capacity

    The Exchange represents that it has an adequate surveillance 
program in place for options traded on the FTSE Indexes and intends to 
apply those same program procedures that it applies to the Exchange's 
other index options. Additionally, the Exchange has provided the 
Commission, on a confidential basis, a representation made by FTSE to 
the Exchange regarding FTSE's insider trading policies, as they pertain 
to the broker-dealer members of FTSE's EMEA Committee who are charged 
with the selection of component securities that comprise the FTSE 
Indexes. The FTSE EMEA Committee members are also required to maintain 
in confidence, including non-disclosure to another party, any 
information that they may be given by virtue of their membership of the 
FTSE EMEA Committee, unless such information is already in the public 
domain or where disclosure is required by law. The Exchange is also a 
member of the Intermarket Surveillance Group (ISG) under the 
Intermarket Surveillance Group Agreement, dated June 20, 1994. The 
members of the ISG include all of the U.S. registered stock and options 
markets: the American Stock Exchange, the Boston Stock Exchange, the 
Chicago Board Options Exchange, the Chicago Stock Exchange, the 
National Stock Exchange, the National Association of Securities 
Dealers, the New York Stock Exchange, the Pacific Stock Exchange and 
the Philadelphia Stock Exchange. In addition, the LSE and LIFFE are 
affiliate members of ISG.\20\ The ISG members work together to 
coordinate surveillance and investigative information sharing in the 
stock and options markets. In addition, the major futures exchanges are 
affiliated members of the ISG, which allows for the sharing of 
surveillance information for potential intermarket trading abuses. \
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    \20\ Telephone conversation between Samir Patel, Assistant 
General counsel, ISE, and Raymond Lombardo, Special Counsel, 
Division, Commission, on February 28, 2006.
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    The Exchange has the necessary systems capacity to support new 
options series that will result from the introduction of both full and 
reduced values of the FTSE Indexes, including LEAPS. The Exchange has 
provided the Commission system capacity information that supports its 
system capacity representations.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\21\ in general, and furthers the 
objectives of Section 6(b)(5),\22\ 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.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

III. 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 No. SR-ISE-2005-25 on the subject line.

[[Page 14272]]

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2005-25. 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 Commissions 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. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
ISE. 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-
2005-25 and should be submitted by April 11, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\23\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b) of the Act,\24\ in 
general, and furthers the objectives of Section 6(b)(5),\25\ 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.
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    \23\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    Because the FTSE 100 and FTSE 250 Indexes are broad-based indexes 
of actively traded, well-capitalized stocks, the trading of the 
proposed Index options on the Exchange does not raise unique regulatory 
concerns. The options on the FTSE Indexes will be traded under ISE's 
existing regulatory regime for index options, which include, among 
other things, position and exercise limits and margin requirements. 
Additionally, the Exchange has represented that it has adequate systems 
capacity and surveillance for these Index options and that the index 
value will be disseminated at least every 15 seconds.
    Under Section 19(b)(2) of the Act,\26\ the Commission may not 
approve any proposed rule change prior to the thirtieth day after 
publication of the notice of the filing thereof, unless the Commission 
finds good cause for so doing and publishes its reasons for so finding. 
The Commission believes that the proposed rule filing does not raise 
any new, unique or substantive issues from those raised in a filing 
previously approved by the Commission \27\ allowing the CBOE to list 
and trade reduced value index options on the FTSE 100 Index. 
Accordingly, The Commission hereby finds good cause for approving the 
proposed rule change and Amendment No. 1 thereto prior to the thirtieth 
day after the date of publication of notice of filing thereof in the 
Federal Register.
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ See Securities Exchange Act Release No. 29722 (September 
23, 1991), 56 FR 49807 (October 1, 1991) (order approving SR-CBOE-
91-07).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-ISE-2005-25), as amended, 
be, and hereby is, approved on an accelerated basis.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-4056 Filed 3-20-06; 8:45 am]

BILLING CODE 8010-01-P