Document ID: SEC-2010-0173-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow All SPY and IWM Options Series To Quote in Penny Increments
Posted Date: 2010-02-02T05:00Z

[Federal Register: February 2, 2010 (Volume 75, Number 21)]
[Notices]               
[Page 5365-5366]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02fe10-115]                         

[[Page 5365]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61430; File No. SR-ISE-2010-08]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Allow All SPY and IWM Options Series To Quote in Penny 
Increments

January 27, 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 January 21, 2010, the International Securities Exchange, LLC 
(the ``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I and II 
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 quote all series of options on the SPDR S&P 500 
Exchange Traded Fund and options on the iShares Russell 2000 Index Fund 
in penny increments pursuant to the pilot program to quote and to trade 
certain options in pennies (``Penny Pilot'').

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 the 
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 the Penny Pilot.\3\ Under the Penny Pilot, the 
minimum price variation for all participating options classes, except 
for the PowerShares QQQ (``QQQQ'') \4\ (formerly known as the Nasdaq-
100 Index Tracking Stock), 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. Thus, the current minimum quoting increment for bids and 
offers in options on the SPDR S&P 500 Exchange Traded Fund (``SPY'') 
and in options on the iShares Russell 2000 Index Fund (``IWM'') is 
$0.01 for all options series below $3.00 and $0.05 for all options 
series $3.00 and above.
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    \3\ See Securities Exchange Act Release No. 55161 (January 24, 
2007), 72 FR 4754 (February 1, 2007). The Penny Pilot was 
subsequently extended a number of times and is currently scheduled 
to expire on December 31, 2010. See Securities Exchange Act Release 
Nos. 56151 (July 26, 2007), 72 FR 42452 (August 2, 2007) (SR-ISE-
2007-68); 56564 (September 27, 2007), 72 FR 56412 (October 3, 2007) 
(SR-ISE-2007-74); 57508 (March 17, 2008), 73 FR 15243 (March 21, 
2008) (SR-ISE-2008-27); 59633 (March 26, 2009), 74 FR 15018 (April 
2, 2009) (SR-ISE-2009-14); 60222 (July 1, 2009), 74 FR 32994 (July 
9, 2009) (SR-ISE-2009-37); 60865 (October 22, 2009), 74 FR 55880 
(October 29, 2009 (SR-ISE-2009-82).
    \4\ Options on QQQQ are quoted in $0.01 increments for all 
series.
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    The Exchange now proposes to eliminate the $3.00 breakpoint that 
exists for SPY and IWM and designate all options series in SPY and IWM 
as eligible to quote in $0.01 increments, regardless of premium value. 
The Exchange will communicate the proposed change to its membership via 
a Regulatory Information Circular (``RIC'') which shall also be posted 
on the Exchange's Web site.
    The Exchange notes that although the Penny Pilot has contributed to 
some increase in quote message traffic, it has been manageable by the 
Exchange and the Options Price Reporting Authority (``OPRA''), with no 
significant disruption in the dissemination of pricing information. The 
Exchange believes that the benefits to public customers and other 
market participants who are able to express their true prices to buy 
and sell options have been demonstrated to outweigh the increase in 
quote traffic. Moreover, the Exchange's rule change proposal is 
sufficiently limited such that it is unlikely to increase quotation 
message traffic beyond the capacity of the Exchange's or OPRA's 
systems, or to disrupt the timely dissemination of information.
    The Exchange believes that its proposal to eliminate the breakpoint 
for penny quoting of all SPY and IWM option series should facilitate 
the continuing narrowing of spreads, thereby lowering costs to the 
benefit of investors.
    This proposal is based on a recent Commission-approved proposal of 
the NYSEArca exchange.\5\ The Exchange proposes to designate SPY and 
IWM as eligible to quote and trade all options contracts in one cent 
increments as of February 1, 2010. This date corresponds with the 
second phase-in date for additional classes in the Penny Pilot.
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    \5\ See Securities Exchange Act Release No. 61061 (November 24, 
2009), 74 FR 62857 (December 1, 2009) (SR-NYSEArca-2009-44).
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 2. Statutory Basis
    The Exchange believes that this proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Exchange Act'') \6\ in general, and furthers the objectives of 
Section 6(b)(5) of the Exchange Act \7\ in particular, in that it 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, by allowing all SPY and IWM options series to quote in 
penny intervals.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate if consistent

[[Page 5366]]

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 \10\ and Rule 19b-4(f)(6)(iii) thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\11\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requested that the Commission waive 
the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii),\12\ 
which would make the rule change effective and operative upon filing.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission 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. ISE has satisfied this requirement.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposal is based on a recent Commission-approved proposal 
submitted by another options exchange \13\ and therefore does not raise 
any novel regulatory issues. Further, waiving the operative delay will 
allow the Exchange to commence quoting all series of IWM and SPY in 
increments of $0.01 effective February 1, 2010, contemporaneously with 
other options exchanges. Accordingly, the Commission designates the 
proposed rule change as operative upon filing with the Commission.\14\
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    \13\ See supra note 5.
    \14\ For purposes only of waiving the operative delay for 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 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-2010-08 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-2010-08. 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 the filing also will be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-
2010-08 and should be submitted on or before February 23, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2093 Filed 2-1-10; 8:45 am]
BILLING CODE 8011-01-P