Document ID: SEC-2009-0226-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2009-02-19T05:00Z

[Federal Register: February 19, 2009 (Volume 74, Number 32)]
[Notices]               
[Page 7719-7721]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19fe09-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59377; File No. SR-ISE-2009-04]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the $1 Strike 
Program

February 10, 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 January 21, 2009, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change, on 
February 9, 2009, filed Amendment No. 1 to the proposed rule change, 
and on February 10, 2009 filed partial Amendment No. 2 to the proposed 
rule change, as described in Items I, II, and III 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, as amended, 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 ISE proposes to expand the $1 Strike Program. 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 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 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 expand the $1 Strike 
Program (the ``Program'').\3\ The Program

[[Page 7720]]

currently allows ISE to select a total of 10 individual stocks on which 
option series may be listed at $1 strike price intervals. In order to 
be eligible for selection into the Program, the underlying stock must 
close below $50 in its primary market on the previous trading day. If 
selected for the Program, the Exchange may list strike prices at $1 
intervals from $3 to $50, but no $1 strike price may be listed that is 
greater than $5 from the underlying stock's closing price in its 
primary market on the previous day. The Exchange may also list $1 
strikes on any other option class designated by another securities 
exchange that employs a similar Program under their respective rules. 
The Exchange may not list long-term option series (``LEAPS'') at $1 
strike price intervals for any class selected for the Program. The 
Exchange also is restricted from listing any series that would result 
in strike prices being $0.50 apart.
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    \3\ The Commission approved the Program as a pilot on June 16, 
2003. See Exchange Act Release No. 48033 (June 16, 2003), 68 FR 
37036 (June 20, 2003). The pilot was subsequently extended through 
June 5, 2008. See Exchange Act Release Nos. 49827 (June 8, 2004), 69 
FR 33966 (June 17, 2004) (Extending the pilot until August 5, 2004); 
50060 (July 22, 2004), 69 FR 45864 (July 30, 2004) (Extending the 
pilot for 10 months until June 5, 2005); 51769 (May 31, 2005), 70 FR 
33232 (June 7, 2005) (Extending the pilot until June 5, 2006); 53806 
(May 15, 2006), 71 FR 29694 (Extending the pilot until June 5, 
2007); and 55715 (May 7, 2007), 72 FR 26854 (May 11, 2007) 
(Extending the pilot until June 5, 2008). The pilot was subsequently 
expanded and made permanent in 2008. See Exchange Act Release No. 
57169 (January 14, 2008), 73 FR 4654 (January 25, 2008) (Approving 
SR-ISE-2007-110).
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    The Exchange now proposes to expand the Program to allow ISE to 
select a total of 55 individual stocks on which option series may be 
listed at $1 strike price intervals, and to expand slightly the price 
range on which the Exchange may list $1 strikes, i.e., from $1 to $50. 
The existing restrictions on listing $1 strikes would continue, i.e., 
no $1 strike price may be listed that is greater than $5 from the 
underlying stock's closing price in its primary market on the previous 
day, and ISE is restricted from listing any series that would result in 
strike prices being $0.50 apart.
    As stated in the Commission order that initially approved ISE's 
Program and in subsequent extensions and expansions of the Program, ISE 
believes that $1 strike price intervals provide investors with greater 
flexibility in the trading of equity options that overlie lower price 
stocks by allowing investors to establish equity options positions that 
are better tailored to meet their investment objectives. Indeed, member 
firms representing customers have repeatedly requested that ISE seek to 
expand the Program in terms of the number of classes on which option 
series may be listed at $1 strike price intervals. The Exchange notes 
that current market conditions, in which the number of securities 
trading below $50 has increased dramatically, further warrant the 
expansion of the Program.
    The Exchange is also proposing to set forth a delisting policy. 
Specifically, the Exchange would, on a monthly basis, review series 
that were originally listed under the $1 Strike Program with strike 
prices that are more than $5 from the current values of the options 
classes in the Program. The Exchange would delist series with no open 
interest in both the put and the call series having a: (i) Strike 
higher than the highest strike price with open interest in the put and/
or call series for a given expiration month; and (ii) strike lower than 
the lowest strike price with open interest in the put and/or call 
series for a given expiration month.
    Notwithstanding the proposed delisting policy, member requests to 
add strikes and/or maintain strikes in certain options classes in 
series eligible for delisting may be granted.
    Further, in connection with the proposed delisting policy, if the 
Exchange identifies series for delisting, the Exchange shall notify 
other options exchanges with similar delisting policies regarding 
eligible series for listing, and shall work with such other exchanges 
to develop a uniform list of series to be delisted so as to ensure 
uniform series delisting of multiply listed options classes. ISE 
expects that the proposed delisting policy will be adopted by other 
options exchanges that amend their rules to employ a similar expansion 
of the Program.
    With regard to the impact on system capacity, ISE has analyzed its 
capacity and represents that it and the Options Price Reporting 
Authority have the necessary systems capacity to handle the additional 
traffic associated with the listing and trading of an expanded number 
of series as proposed by this filing.
    The Exchange believes that the Program has provided investors with 
greater trading opportunities and flexibility and the ability to more 
closely tailor their investment strategies and decisions to the 
movement of the underlying security. Furthermore, the Exchange has not 
detected any material proliferation of illiquid options series 
resulting from the narrower strike price intervals. For these reasons, 
ISE requests an expansion of the current Program.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder and, in particular, the requirements of Section 
6(b) of the Act.\4\ Specifically, the Exchange believes the proposed 
rule change is consistent with Section 6(b)(5) \5\ requirements that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, 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. The Exchange believes that expanding 
the current Program will result in a continuing benefit to investors by 
giving them more flexibility to closely tailor their investment 
decisions in greater number of securities.
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    \4\ 15 U.S.C 78f.
    \5\ 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change; or
    (b) Institute proceedings to determine whether the proposed rule 
change should be 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

[[Page 7721]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-04 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-2009-04. 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, on business days 
between the hours of 10 a.m. and 3 p.m., located at 100 F Street, NE., 
Washington, DC 20549. 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-2009-04 and should be 
submitted on or before March 12, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-3422 Filed 2-18-09; 8:45 am]

BILLING CODE 8011-01-P