Document ID: SEC-2010-0746-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-05-20T04:00Z

[Federal Register: May 20, 2010 (Volume 75, Number 97)]
[Notices]               
[Page 28314-28315]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20my10-5196]                         

[[Page 28314]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62101; File No. SR-ISE-2010-40]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend ISE Rule 502(k)

May 13, 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 May 3, 2010, 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 Exchange has filed the proposal as a ``non-controversial'' proposed 
rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to revise ISE Rule 502(k) to amend the 
definition of Futures-Linked Securities for the trading of options on 
Index-Linked Securities. 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
    ISE Rule 502(k) designates the listing and trading of options on 
equity index-linked securities (``Equity Index-Linked Securities''), 
commodity-linked securities (``Commodity-Linked Securities''), 
currency-linked securities (``Currency-Linked Securities''), fixed 
income index-linked securities (``Fixed Income Index-Linked 
Securities''), futures-linked securities (``Futures-Linked 
Securities'') and multifactor index-linked securities (``Multifactor 
Index-Linked Securities''), collectively known as ``Index-Linked 
Securities'' that are principally traded on a national securities 
exchange and an ``NMS Stock'' (as defined in Rule 600 of Regulation NMS 
under the Securities and Exchange Act of 1934). The Exchange proposes 
to amend the definition of Futures-Linked Securities for the trading of 
options on Index-Linked Securities to include products linked to CBOE 
Volatility Index (``VIX'') Futures. Specifically, the Exchange proposes 
to add the VIX Futures to the definition of a Futures Reference Asset 
in ISE Rule 502(k)(1)(v).
    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or market indexes of the foregoing (``Underlying 
Index'' or ``Underlying Indexes''). Index-Linked Securities are the 
non-convertible debt of an issuer that have a term of at least one (1) 
year but not greater than thirty (30) years. Despite the fact that 
Index-Linked Securities are linked to an underlying index, each trade 
as a single, exchange-listed security. Accordingly, rules pertaining to 
the listing and trading of standard equity options apply to Index-
Linked Securities.
    Currently, the Exchange will consider listing and trading options 
on Index-Linked Securities provided the Index-Linked Securities meet 
the criteria for underlying securities set forth in ISE Rule 502(a)-(b) 
or the criteria set forth in ISE Rule 502(k)(3)(ii).
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in ISE Rule 502(b); or the Index-Linked 
Securities must be redeemable at the option of the holder at least on a 
weekly basis through the issuer at a price related to the applicable 
underlying Reference Asset.\5\ In addition, the issuing company is 
obligated to issue or repurchase the securities in aggregation units 
for cash or cash equivalents satisfactory to the issuer of Index-Linked 
Securities which underlie the option as described in the Index-Linked 
Securities prospectus.
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    \5\ For the purposes of Rule 502(k), Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets, Futures Reference Assets and Multifactor Reference 
Assets, will be collectively referred to as ``Reference Assets.'' 
See Rule 502(k)(2).
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    Options on Index-Linked Securities will continue to be subject to 
all Exchange rules governing the trading of equity options. The current 
continuing or maintenance listing standards for options traded on ISE 
will continue to apply.
The VIX
    The information in this filing relating to the VIX was taken from 
the Web site of the Chicago Board Options Exchange (the ``CBOE'').
    The VIX was originally developed by the CBOE in 1993 and was 
calculated using S&P 100[reg] Index options. The current methodology 
for the VIX was introduced by the CBOE in September 2003 and it is now 
an index that uses the quotes of certain S&P 500[reg] Index (``SPX'') 
option series to derive a measure of the volatility of the U.S. equity 
market. The VIX measures market expectations of near term volatility 
conveyed by the prices of options on the SPX. It provides investors 
with up-to-the-minute market estimates of expected stock market 
volatility over the next 30 calendar days by extracting implied 
volatilities from real-time index option bid/ask quotes.
VIX Futures
    Information regarding VIX Futures can be found on the Web site of 
the CBOE Futures Exchange (the ``CFE'').
    The CFE began listing and trading VIX Futures since March 26, 2004 
under the ticker symbol VX. VIX Futures trade between the hours of 8:30 
a.m.-3:15 p.m. Central Time (Chicago Time).
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) 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

[[Page 28315]]

Exchange believes that the proposed rules applicable to trading 
pursuant to generic listing and trading criteria, together with the 
Exchange's surveillance procedures applicable to trading in the 
securities covered by the proposed rules, serve to foster investor 
protection.

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

    The proposed rule change does 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: (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 after the date of 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 \6\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 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 fulfilled this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change as operative 
upon filing. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The proposed rule change is substantially similar to those of 
other options exchanges that have been previously approved by the 
Commission \8\ and does not appear to present any novel regulatory 
issues. Therefore, the Commission designates the proposal operative 
upon filing to enable the Exchange to list and trade options on index-
linked securities without delay.\9\
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    \8\ See Securities Exchange Act Release Nos. 60822 (October 14, 
2009), 74 FR 54114 (October 21, 2009) (SR-NYSEArca-2009-77); 60823 
(October 14, 2009), 74 FR 54112 (October 21, 2009) (SR-NYSEAmex-
2009-59); and 60857 (October 21, 2009), 74 FR 55611 (October 28, 
2009) (SR-CBOE-2009-74).
    \9\ For purposes only of waiving the operative delay of this 
proposal, 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 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 the 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-2010-40 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-2010-40. 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 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 Number SR-ISE-2010-40 and should be 
submitted on or before June 10, 2010.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12068 Filed 5-19-10; 8:45 am]
BILLING CODE 8010-01-P