Document ID: SEC-2009-0927-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to an Extension of the Penny Pilot Program
Posted Date: 2009-07-09T04:00Z

[Federal Register: July 9, 2009 (Volume 74, Number 130)]
[Notices]               
[Page 32994-32996]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy09-127]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60222; File No. SR-ISE-2009-37]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to an Extension of the Penny Pilot Program

July 1, 2009.
    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 June 30, 2009, 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 substantially 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 is proposing to extend, until October 31, 2009, a pilot 
program to quote and to trade certain options in pennies. The text of 
the proposed rule amendment is available at the Exchange and at the 
Commission's Public Reference Room.\3\
---------------------------------------------------------------------------

    \3\ The Commission notes that as of July 1, 2009, the proposed 
rule change is also available on the Exchange's Web site at https://
www.ise.com.
---------------------------------------------------------------------------

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

[[Page 32995]]

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
    On January 24, 2007, the SEC approved ISE's rule filing, SR-ISE-
2006-62, which initiated a pilot program to quote and to trade certain 
options in penny increments (the ``Penny Pilot Program'').\4\ Under the 
Penny Pilot Program, the minimum price variation for all participating 
options classes, except for the Nasdaq-100 Index Tracking Stock 
(``QQQQ''), 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. The QQQQs 
are quoted in $0.01 increments for all options series. Through 
subsequent expansions, the Penny Pilot now consists of 63 underlying 
securities.\5\ The Penny Pilot Program is scheduled to expire on July 
3, 2009.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 55161 (January 24, 
2007), 72 FR 4754 (February 1, 2007) (the ``Initial Filing''). The 
Penny Pilot Program was subsequently extended for an additional two 
month period, until September 27, 2007. See Securities Exchange Act 
Release No. 56151 (July 26, 2007), 72 FR 42452 (August 2, 2007).
    \5\ See Securities Exchange Act Release Nos. 56564 (September 
27, 2007), 72 FR 56412 (October 3, 2007) and 57508 (March 17, 2008), 
73 FR 15243 (March 21, 2008).
---------------------------------------------------------------------------

    The Exchange recently submitted a proposal to extend and expand the 
Penny Pilot Program, which the Commission recently published for 
comment.\6\ The Commission also recently published for comment two 
alternative proposals.\7\ In order to give the Commission and market 
participants time to evaluate the varying proposals, ISE proposes to 
extend the Penny Pilot Program in its current pilot until October 31, 
2009.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 60146 (June 19, 
2009) (SR-ISE-2009-32).
    \7\ See Securities Exchange Act Release Nos. 60018 (June 1, 
2009), 74 FR 27211 (June 18, 2009) (Notice of Filing of Proposed 
Rule Change by the Chicago Board Options Exchange To Expand the 
Penny Pilot Program); 59944 (May 20, 2009), 74 FR 25294 (May 27, 
2009) (Notice of Filing of Proposed Rule Change by NYSE Arca To 
Expand the Penny Pilot Program).
---------------------------------------------------------------------------

    As proposed in the Initial Filing, ISE represents that options 
trading in penny increments will not be eligible for split pricing, as 
permitted under ISE Rule 716. In the Initial Filing, the Exchange also 
made references to quote mitigation strategies that are currently in 
place and proposed to apply them to the Penny Pilot Program. The 
Exchange proposes to continue applying those quote mitigation 
strategies during the extension of the Penny Pilot Program, as 
contemplated by this rule filing. Specifically, as proposed in Rule 
804, ISE will continue to utilize a holdback timer that delays 
quotation updates for up to, but not longer than, one second. The 
Exchange's monitoring and delisting policies, as proposed in the 
Initial Filing, shall also continue to apply.
    Finally, ISE intends to submit an additional report to the 
Commission analyzing the Penny Pilot Program for the following time 
period: May 1, 2009-July 31, 2009.
    The Exchange anticipates its report will analyze the impact of 
penny pricing on market quality and options system capacity. The 
Exchange will submit the report no later than August 31, 2009.
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 will allow the Exchange to continue the Penny 
Pilot Program uninterrupted.

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 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) \8\ of the Act and subparagraph (f)(6) of Rule 19b-
4 thereunder.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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. The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \10\ normally 
does not become operative for 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \11\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 30-day operative delay so that the proposal may 
become operative immediately upon filing. The Exchange states that 
waiver of the 30-day operative delay will allow the Penny Pilot Program 
to continue uninterrupted.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver will allow the Penny Pilot Program to continue 
without interruption through October 31, 2009.\12\ Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.
---------------------------------------------------------------------------

    \12\ For the 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. 
78(c)(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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

[[Page 32996]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2009-37 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-2009-37. 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 inspection and 
copying 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 such 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 No. SR-ISE-2009-37 and should be 
submitted on or before July 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16184 Filed 7-8-09; 8:45 am]

BILLING CODE 8010-01-P