Document ID: SEC-2014-1965-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-11-24T05:00Z

[Federal Register Volume 79, Number 226 (Monday, November 24, 2014)]
[Notices]
[Pages 69974-69976]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27709]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73633; File No. SR-ISE-2014-52]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Regarding the Short Term 
Option Series Program

November 18, 2014.
    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 November 6, 2014 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, 
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 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 amend its rules governing the Short Term Option 
Series Program to extend current $0.50 strike price intervals in non-
index options to short term options with strike prices less than $100. 
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 Exchange proposes to amend its rules governing the Short Term 
Option Series Program to introduce finer strike price intervals for 
certain short term options. In particular, the Exchange proposes to 
amend Supplementary Material .12 to Rule 504 to extend $0.50 strike 
price intervals in non-index options to short term options with strike 
prices less than $100 instead of the current $75. This proposed change 
is intended to eliminate gapped strikes between $75 and $100 that 
result from conflicting strike price parameters under the Short Term 
Option Series and $2.50 Strike Price Programs as described in more 
detail below.
    Under the ISE's rules, the Exchange may list short term options in 
up to fifty option classes in addition to option classes that are 
selected by other securities exchanges that employ a similar program 
under their respective rules.\3\ On any Thursday or Friday that is a 
business day, the Exchange may list short term option series in 
designated option classes that expire at the close of business on each 
of the next five Fridays that are business days and are not Fridays in 
which monthly or quarterly options expire.\4\ These short term option 
series trade in $0.50, $1, or $2.50 strike price intervals depending on 
the strike price and whether the option trades in dollar increments in 
the related monthly expiration.\5\ Specifically, short term options in 
non-index option classes admitted to the Short Term Options Series 
Program currently trade in: (1) $0.50 intervals [sic] for strike prices 
less than $75, or for option classes that trade in one dollar 
increments in the related monthly expiration option; (2) $1 intervals 
[sic] for strike prices that are between $75 and $150; and (3) $2.50 
intervals [sic] for strike prices above $150.\6\
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    \3\ See Supplementary Material .02(a) to Rule 504.
    \4\ See Supplementary Material .02 to Rule 504.
    \5\ See Supplementary Material .12 to Rule 504.
    \6\ Id.
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    The ISE also operates a $2.50 Strike Price Program that permits the 
Exchange to select up to sixty options classes on individual stocks to 
trade in $2.50 strike price intervals, in addition to option classes 
selected by other securities exchanges that employ a similar program 
under their respective rules.\7\ Monthly expiration options in classes 
admitted to the $2.50 Strike Price Program trade in $2.50 intervals 
where the strike price is (1) greater than $25 but less than $50; or 
(2) between $50 and $100 if the strikes are no more than $10 from the 
closing price of the underlying stock in its primary market on the 
preceding day.\8\ These strike price parameters conflict with strike 
prices allowed for short term options as dollar strikes between $75 and 
$100 otherwise allowed under the Short Term Option Series Program may 
be within $0.50 of strikes listed pursuant to the $2.50 Strike Price 
Program. In order to remedy this conflict, the Exchange proposes to 
extend the $0.50 strike price intervals currently allowed for short 
term options with strike prices less than $75 to short term options 
with strike prices less than $100. With this proposed change, short 
term options in non-index option classes will trade in: (1) $0.50 
intervals [sic] for strike prices less than $100, or for option classes 
that trade in one dollar increments in the related monthly expiration 
option; (2) $1 intervals [sic] for strike prices that are between $100 
and $150; and (3) $2.50 intervals [sic] for strike prices above $150.
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    \7\ See Rule 504(g).
    \8\ Id. The term ``primary market'' is defined in ISE Rule 
100(a)(37) as the principal market in which an underlying security 
is traded.

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[[Page 69975]]

 2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\9\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\10\ because 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    During the month prior to expiration, the Exchange is permitted to 
list related monthly option contracts in the narrower strike price 
intervals available for short term option series.\11\ After 
transitioning to short term strike price intervals, however, monthly 
options that trade in $2.50 intervals between $50 and $100 under the 
$2.50 Strike Price Program, trade with dollar strikes between $75 and 
$150. Due the overlap of $1 and $2.50 intervals, the Exchange cannot 
list certain dollar strikes between $75 and $100 that conflict with the 
prior $2.50 strikes. For example, if the Exchange initially listed 
monthly options on ABC with $75, $77.50, and $80 strikes, the Exchange 
could list the $76 and $79 strikes when these transition to short term 
intervals. The Exchange would not be permitted to list the $77 and $78 
strikes, however, as these are $0.50 away from the $77.50 strike 
already listed on the Exchange. This creates gapped strikes between $75 
and $100, where investors are not able to trade otherwise allowable 
dollar strikes on the Exchange. Similarly, these conflicting strike 
price parameters create issues for investors who want to roll their 
positions from monthly to weekly expirations. In the example above, for 
instance, an investor that purchased a monthly ABC option with a $77.50 
strike price would not be able to roll that position into a later short 
term expiration with the same strike price as that strike is 
unavailable under current Short Term Option Series Program rules. 
Permitting $0.50 intervals for short term options up to $100 would 
remedy both of these issues as strikes allowed under the $2.50 Strike 
Price Program would not conflict with the finer $0.50 strike price 
interval.
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    \11\ See Supplementary Material .02(e) to Rule 504.
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    The Short Term Option Series Program has been well-received by 
market participants and the Exchange believes that introducing finer 
strike price intervals for short term options with strike prices 
between $75 and $100, and thereby eliminating the gapped strikes 
described above, will benefit these market participants by giving them 
more flexibility to closely tailor their investment and hedging 
decisions.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposed rule change. The Exchange believes that its members will 
not have a capacity issue as a result of this proposal. The Exchange 
also represents that it does not believe this expansion will cause 
fragmentation of liquidity.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes that the proposed rule change will result in 
additional investment options and opportunities to achieve the 
investment objectives of market participants seeking efficient trading 
and hedging vehicles, to the benefit of investors, market participants, 
and the marketplace in general.

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 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2014-52 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2014-52. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2014-52 and should be 
submitted on or before December 15, 2014.

[[Page 69976]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27709 Filed 11-21-14; 8:45 am]
BILLING CODE 8011-01-P