Document ID: SEC-2013-2145-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2013-12-17T05:00Z

[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76375-76377]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29889]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71033; File No. SR-ISE-2013-68]

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

December 11, 2013.
    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 December 6, 2013, 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 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 Supplementary Material .02 to Rule 
504 and Supplementary Material .01 to Rule 2009 to allow the Exchange 
to list five Short Term Option Series at one time, and to specify that 
new series of Short Term Option Series may be listed up to, and 
including on, the expiration date. The text of the proposed rule change 
is available on the Exchange's Internet Web site at 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.

[[Page 76376]]

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

1. Purpose
    The Exchange is proposing to amend Supplementary Material .02 to 
Rule 504 and Supplementary Material .01 to Rule 2009 consistent with a 
recently approved filing by the Chicago Board Options Exchange, Inc. 
(``CBOE'').\3\
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    \3\ See Securities Exchange Act Release No. 70685 (October 15, 
2013) 78 FR 62858 (October 22, 2013) (SR-CBOE-2013-096) (notice of 
filing; approval citation pending publication by the Commission).
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    Currently the Exchange's Rules allow ISE to list options in the 
Short Term Option (``STO'' or ``weekly'') Program ``on each of the next 
five consecutive Fridays that are business days.'' \4\ The filing which 
gave the Exchange authority to list five STO expirations specifically 
states that ``the total number of consecutive expirations will be five, 
including any existing monthly or quarterly expirations.'' \5\ The 
Exchange is now proposing to amend its rules so that the next five STOs 
may be listed at one time, not including the monthly or quarterly 
options. The Exchange is also proposing to codify an existing practice 
by adding language stating that strikes may be listed up until and on 
the day of expiration.
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    \4\ See Supplementary Material .02 to Rule 504 and Supplementary 
Material .01 to Rule 2009.
    \5\ See Securities Exchange Act Release No. 68318 (November 29, 
2013 [sic]), 77 FR 72426 (December 5, 2012) (SR-ISE-2012-90).
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    As proposed, the Exchange will have the ability to list a total of 
five STO expirations and that count of five would not include monthly 
or quarterly option expirations. The Exchange notes that this proposal 
would restrict the five listed STOs to those closest to the STO opening 
date. For example, if a class of options has five STOs listed with 
expiration dates in July, the other two listed expiration dates may not 
be in December. The Exchange believes that allowing otherwise would 
undermine the purpose of the STO Program.
    As examples of how this would work in practice, consider a 
situation in which a quarterly option expires week 1 and a monthly 
option expires week 3 from now, the proposal would allow the following 
expirations: week 1 quarterly option, week 2 weekly option, week 3 
monthly option, week 4 weekly option, week 5 weekly option, week 6 
weekly option, and week 7 weekly option.\6\ As another example, if a 
quarterly option expires week 3 and a monthly option expires week 5, 
the following expirations would be allowed: week 1 weekly option, week 
2 weekly option, week 3 quarterly option, week 4 weekly option, week 5 
monthly option, week 6 weekly option, week 7 weekly option.
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    \6\ The proposal would not allow, for example, for nothing to be 
listed week 7 but week 8 a weekly option.
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    Next, the Exchange is proposing to add language to Supplementary 
Material .02(d) to Rule 504 and Supplementary Material .01(d) to Rule 
2009 to state that additional STO series may be added up to, and 
including on, the expiration date of the series.\7\ Currently, Exchange 
rules state that the Exchange may open up to 20 initial series, and up 
to 10 additional series, for each option class that participates in the 
STO Program.\8\ The Exchange's rules, however, are silent on when 
series may be added. In practice, however, the Exchange, along with the 
other exchanges, list additional series until the expiration day.\9\ 
The Exchange believes that codifying this practice will clarify 
authority that is not currently explicitly stated in its rules to add 
series up until the day of expiration. Given the short lifespan of 
STOs, the Exchange believes that the ability to list new series of 
options intraday is appropriate.
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    \7\ The Exchange is also proposing to add language stating that 
the proposed provisions in Supplementary Material .02 to Rule 504 
and Supplementary Material .01 to Rule 2009 will not contradict 
current provisions in ISE Rules. More specifically, the proposed 
provisions would not contradict Rules 504(f) and 2009(c)(2) 
respectively. The Exchange believes this addition will eliminate any 
confusion about when additional series may be added in the STO 
Program in comparison to other Exchange listing programs.
    \8\ See Supplementary Material .02(c) and (d) to Rule 504, and 
Supplementary Material .01(c) and (d) to Rule 2009.
    \9\ The Exchange notes that the Options Clearing Corporation 
(``OCC'') has the ability to accommodate series in the STO Program 
added intraday.
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    The Exchange notes that the STO Program has been very well-received 
by market participants, in particular by retail investors. The Exchange 
believes that the current proposed revision to the STO Program will 
permit the Exchange to meet increased customer demand and provide 
market participants with the ability to hedge in a greater number of 
option classes and series. In addition, the proposed changes will 
codify an existing practice in the Exchange's rules.
 2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\10\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \12\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. In particular, the Exchange 
believes that expanding the STO Program will result in a continuing 
benefit to investors by giving them more flexibility to closely tailor 
their investment decisions. The Exchange also believes that expanding 
the STO Program will provide the investing public and other market 
participants with additional opportunities to hedge their investments, 
thus allowing these investors to better manage their risk exposure.
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    \12\ Id.
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    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 any potential additional traffic associated with 
this current amendment to the STO Program. The Exchange believes that 
its members will not have a capacity issue as a result of this 
proposal. The Exchange also represents that it does not believe this 
expansion will cause fragmentation of liquidity.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes the proposal is pro-competitive. The proposed rule 
change is a competitive response to a recently approved filing by the 
CBOE,\13\ which the Exchange believes is necessary to permit fair 
competition among the options exchanges with respect to STO Programs. 
Moreover, the Exchange believes this proposed rule change will benefit 
investors by providing

[[Page 76377]]

additional methods to trade options on liquid securities, and by 
providing greater ability to mitigate risk in managing large 
portfolios. Specifically, the Exchange believes that investors would 
benefit from the introduction and availability of additional series for 
investment, and as an additional tool for hedging risk in highly liquid 
securities. For all the reasons stated, the Exchange does not believe 
that the proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act, and 
believes the proposed change will enhance competition.
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    \13\ See supra note 3.
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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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will 
promote fair competition among the exchanges by allowing the Exchange 
to list additional STO expirations in the same manner as the CBOE, and 
by clarifying that, like the CBOE, the Exchange may list new STO series 
up to, and including on, the expiration date. The Exchange also stated 
that it would be at a competitive disadvantage if it were not allowed 
to adopt the proposed rule changes contemporaneously with other 
exchanges. For these reasons, the Commission believes that the proposed 
rule change presents no novel issues, and waiver will allow the 
Exchange to remain competitive with other exchanges. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 Number SR-ISE-2013-68 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-2013-68. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2013-68 and should be 
submitted on or before January 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29889 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P