Document ID: SEC-2011-0600-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2011-05-02T04:00Z

[Federal Register Volume 76, Number 84 (Monday, May 2, 2011)]
[Notices]
[Pages 24546-24548]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10468]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64343; File No. SR-ISE-2011-26]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Option Expiration Months Open for Trading on the 
Exchange

April 26, 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 April 20, 2011, 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 its rules to permit the Exchange to 
list additional expiration months if such expiration months are listed 
on another exchange. 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, 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 the proposed rule change is to amend ISE Rules to 
permit the Exchange to list additional expiration months if such 
expiration months are listed on another exchange. This filing is based 
on a filing previously submitted by NASDAQ OMX PHLX, Inc. 
(``PHLX'').\3\
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    \3\ See Securities Exchange Act Release No. 63700 (January 11, 
2011) 76 FR 2931 (January 18, 2011) (SR-PHLX-2011-04). In its 
filing, PHLX cites to the Commission's approval of the NASDAQ 
Options Market and rules pertaining thereto as the basis for making 
the change to its rules.
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    Under current rule 504(e), ISE usually will open four (4) 
expiration months for each type of option of a class of options open 
for trading on the Exchange: The first two (2) being the two nearest 
months, regardless of the quarterly cycle on which that class trades; 
the third and fourth being the next two months of the quarterly cycle 
previously designated by the Exchange for that specific class. For 
example, if the Exchange listed in late September a new stock option on 
a January-April-July-October quarterly cycle, the Exchange would list 
the two nearest-term months (October and November) and the next two 
expiration months of the cycle (January and April). Further, when the 
October series expire, the Exchange would add the December series as 
the next nearest month. And when the November series expire, the 
Exchange would add the July series as the next month of the cycle.
    In 2010, the Exchange established a pilot program to add up to two 
additional expiration months for each class of options opened for 
trading on the Exchange (the ``Additional Expiration Months 
Pilot'').\4\ Under the Additional Expiration Months Pilot, ISE lists 
expiration months that are considered ``mid-month.'' For example, for 
options classes that have expiration months of October, November, 
January, and April, the Exchange lists the December series. For options 
classes that have expiration months of October, November, February and 
May, the Exchange lists the December and January series. The listing of 
additional expiration months has been well-received by our members and 
has had very limited impact on system resources.
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    \4\ See Securities Exchange Act Release No. 63104 (October 14, 
2010) 75 FR 64773 (October 20, 2011) (SR-ISE-2010-91).
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    PHLX recently submitted a filing to adopt rules pursuant to which 
it can

[[Page 24547]]

open ``at least one expiration month'' for each class of options opened 
for trading on that exchange.\5\ Consequently, while ISE is currently 
restricted to listing a limited number of expiration months that are 
permissible under its rules and the Additional Expiration Months Pilot, 
PHLX has the ability to list an unlimited number of expiration months, 
including those that ISE would not be able to currently list under its 
rules. Indeed, PHLX has listed additional expiration months that no 
other exchange, including ISE, can currently list. For example, in 
February 2011, PHLX listed the October 2011 expiration in Omnicare, 
Inc. (ticker: OCR). PHLX was able to list that expiration month based 
on its amended rule. Meanwhile, ISE could not list the October 2011 
series under Rule 504(e) because the standard expiration months for OCR 
in February are March, April, June, and September. ISE also could not 
list the October 2011 series as part of the Additional Expiration 
Months Pilot because OCR is not one of the classes selected by the 
Exchange to participate in the Additional Expiration Months Pilot (nor 
could ISE select it for the Additional Expiration Months Pilot because 
all 20 available selections have been chosen). As a result, PHLX was 
the only exchange that listed the October 2011 series in OCR and 
continues to trade that series without any competition.
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    \5\ This paragraph was modified at the request of the Exchange 
on April 25, 2011. See e-mail, dated April 25, 2011, from Samir M. 
Patel, Assistant General Counsel, International Securities Exchange, 
to Kathleen J. Gray, Attorney, Division of Trading and Markets, 
Commission.
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    For competitive reasons, ISE now proposes to add new Supplementary 
Material .10 to its Rule 504 and Supplementary Material .04 to ISE Rule 
2009 to permit the Exchange to list additional expiration months on 
options classes opened for trading on the Exchange if such expiration 
months are opened for trading on at least one other national securities 
exchange. This proposed rule change will allow ISE to match the listing 
of expiration months that PHLX or NOM lists in the event ISE is not 
able to list those expiration months because they do not comport to ISE 
Rules or the Additional Expiration Months Pilot.
    The Exchange notes that the proposed rule change affords additional 
flexibility in that it will permit the exchange to list those 
additional expiration months that have an actual demand from market 
participants thereby potentially reducing the proliferation of classes 
and series. The Exchange believes the proposed rule change is proper, 
and indeed necessary, in light of the need to have rules that permit 
the listing of identical expiration months across exchanges for 
products that are multiply-listed and fungible with one another. The 
Exchange believes that the proposed rule change should encourage 
competition and be beneficial to traders and market participants by 
providing them with a means to trade on the Exchange securities that 
are listed and traded on other exchanges.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (``Exchange 
Act'') for this proposed rule change is the requirement under Section 
6(b)(5) \6\ that an exchange have rules that are designed to promote 
just and equitable principles of trade, and 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. In particular, the proposed rule change will permit the 
Exchange to accommodate requests made by its members and other market 
participants to list the additional expiration months and thus 
encourage competition without harming investors or the public interest.
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    \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 
Commission has waived the five-day prefiling 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 should promote competition by allowing 
the Exchange to list and trade option series that are trading on other 
options exchanges. Therefore, the Commission designates the proposal 
operative upon filing.\9\
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    \9\ 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-2011-26 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-2011-26. 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

[[Page 24548]]

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-2011-26 and should be submitted on or before May 23, 
2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10468 Filed 4-29-11; 8:45 am]
BILLING CODE 8011-01-P