Document ID: SEC-2010-1873-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-12-10T05:00Z

[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Notices]
[Pages 77032-77034]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31050]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63437; File No. SR-ISE-2010-116]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Extend the Penny Pilot Program

December 6, 2010.
    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 2, 2010, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend its rules relating to a pilot program to 
quote and

[[Page 77033]]

to trade certain options in pennies (``Penny Pilot Program''). The text 
of the proposed rule change is as follows, with deletions in [brackets] 
and additions italicized:

Rule 710. Minimum Trading Increments

    (a) The Board may establish minimum trading increments for options 
traded on the Exchange. Such changes by the Board will be designated as 
a stated policy, practice, or interpretation with respect to the 
administration of this Rule 710 within the meaning of subparagraph 
(3)(A) of Section 19(b) of the Exchange Act and will be filed with the 
SEC as a rule change for effectiveness upon filing. Until such time as 
the Board makes a change in the increments, the following principles 
shall apply:
    (1) If the options contract is trading at less than $3.00 per 
option, $.05; and
    (2) If the options contract is trading at $3.00 per option or 
higher, $.10.
    (b) Minimum trading increments for dealings in options contracts 
other than those specified in paragraph (a) may be fixed by the 
Exchange from time to time for options contracts of a particular 
series.
    (c) Notwithstanding the above, the Exchange may trade in the 
minimum variation of the primary market in the underlying security.

Supplementary Material to Rule 710

    .01 Notwithstanding any other provision of this Rule 710, the 
Exchange will operate a pilot program to permit options classes to be 
quoted and traded in increments as low as $.01. The Exchange will 
specify which options trade in such pilot, and in what increments, in 
Regulatory Information Circulars filed with the Commission pursuant to 
Rule 19b-4 under the Exchange Act and distributed to Members.
    The Exchange may replace, on a semi-annual basis, any penny pilot 
issues that have been delisted with the next most actively traded 
multiply listed options classes that are not yet included in the penny 
pilot, based on trading activity in the previous six months. The 
replacement issues may be added to the penny pilot on the second 
trading day following January 1, 2011 [2010] and July 1, 2011 [2010].
    .02 No Change.
* * * * *

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 self-regulatory organization 
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 parts of such statements.

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

1. Purpose
    Under the Penny Pilot Program, the minimum price variation for all 
participating options classes, except for the Nasdaq-100 Index Tracking 
Stock (``QQQQ''), the SPDR S&P 500 Exchange Traded Fund (``SPY'') and 
the iShares Russell 2000 Index Fund (``IWM''), is $0.01 for all 
quotations in options series that are quoted at less than $3 per 
contract and $0.05 for all quotations in options series that are quoted 
at $3 per contract or greater. QQQQ, SPY and IWM are quoted in $0.01 
increments for all options series. The Penny Pilot Program is currently 
scheduled to expire on December 31, 2010.\3\ The Exchange proposes to 
extend the time period of the Penny Pilot Program through December 31, 
2011, and to provide revised dates for adding replacement issues to the 
Penny Pilot program. The Exchange proposes that the semi-annual dates 
to replace issues that have been delisted be revised to the second 
trading day following January 1, 2011 and July 1, 2011. The Exchange 
notes that the replacement issues will be selected based on trading 
activity for the six month period beginning June 1, 2010 and ending 
November 30, 2010 for the January 2011 replacement, and the six month 
period beginning December 1, 2010 and ending May 31, 2011 for the July 
2011 replacements. This filing does not propose any substantive changes 
to the Penny Pilot Program: all classes currently participating will 
remain the same and all minimum increments will remain unchanged. The 
Exchange believes the benefits to public customers and other market 
participants who will be able to express their true prices to buy and 
sell options have been demonstrated to outweigh the increase in quote 
traffic.
---------------------------------------------------------------------------

    \3\ See Exchange Act Release No. 60865 (October 22, 2009), 74 FR 
55880 (October 29, 2009).
---------------------------------------------------------------------------

    The Exchange agrees to submit reports to the Commission that will 
analyze the impact of the Penny Pilot Program on market quality and 
options systems capacity. These reports will include, but are not 
limited to: (1) Data and analysis on the number of quotations generated 
for options included in the report; (2) an assessment of the quotation 
spreads for the options included in the report; (3) an assessment of 
the impact of the Penny Pilot Program on the capacity of the ISE's 
automated systems; (4) data reflecting the size and depth of markets; 
and (5) any capacity problems or other problems that arose related to 
the operation of the Penny Pilot Program and how the Exchange addressed 
them.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is found in Section 6(b)(5), in 
that the proposed rule change is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest. In particular, the 
proposed rule change, which extends the Penny Pilot Program for an 
additional one year, will enable public customers and other market 
participants to express their true prices to buy and sell options for 
the benefit of all market participants.

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 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

[[Page 77034]]

this filing, 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 \4\ and Rule 19b-4(f)(6) thereunder.\5\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its 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. ISE has satisfied this requirement.
---------------------------------------------------------------------------

    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-2010-116 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-2010-116. 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-2010-116 and should be 
submitted on or before January 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31050 Filed 12-9-10; 8:45 am]
BILLING CODE 8011-01-P