Document ID: SEC-2009-0443-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2009-04-02T04:00Z

[Federal Register: April 2, 2009 (Volume 74, Number 62)]
[Notices]               
[Page 15018-15019]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap09-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59633; File No. SR-ISE-2009-14]

 
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

March 26, 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 March 24, 2009, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. The Exchange 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 ISE is proposing to extend, until July 3, 2009, a pilot program 
to quote and to trade certain options in pennies. The text of the 
proposed rule change is available at 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
    On January 24, 2007, the Commission approved ISE's rule filing, SR-
ISE-2006-62, which permits 13 option classes to quote in penny 
increments in connection with the implementation of an industry wide, 
six month pilot program (the ``Penny Pilot Program'').\5\ Under the 
Penny Pilot Program, the minimum price variation for all 13 option 
classes, except for the Nasdaq-100 Index Tracking Stock (``QQQQ''), is 
$0.01 for all quotations in option 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.
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    \5\ 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).
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    Subsequent ISE rule filings initiated a two-phase expansion of the 
Penny Pilot Program. SR-ISE-2007-74 initiated Phase I of the expansion 
and added 22 option classes to the Penny Pilot Program that are among 
the most actively traded, multiply-listed option classes based on 
national average daily volume, and together with the original 13 option 
classes, represent approximately 35% of the total industry volume.\6\
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    \6\ See Securities Exchange Act Release No. 56564 (September 27, 
2007), 72 FR 56412 (October 3, 2007).
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    SR-ISE-2008-27 implemented Phase II of the expansion, which added 
an additional 28 option classes to the Penny Pilot Program.\7\ The 
total number of option classes in the Penny Pilot Program currently 
stands at 63. A Regulatory Information Circular, attached as Exhibit 5 
to this proposed rule change, identifies all 63 underlying securities. 
Phase II of the Penny Pilot Program is set to expire on March 27, 2009. 
ISE now proposes to extend the current Penny Pilot Program until July 
3, 2009.
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    \7\ See Securities Exchange Act Release No. 57508 (March 17, 
2008), 73 FR 15243 (March 21, 2008).
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    ISE believes extending the Penny Pilot Program as proposed by this 
rule filing will allow the Exchange and the Commission additional time 
to continue its analysis of the impact of quoting and trading option 
classes in penny increments and the impact of the Penny

[[Page 15019]]

Pilot Program on liquidity, market structure and quote traffic.
    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: February 1, 2009-April 30, 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 within one 
month following the end of the period being analyzed.
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 Exchange 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 rule 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 from the date on which it was filed, 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 \8\ and Rule 19b-4(f)(6) 
thereunder.\9\
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    \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 the Exchange to give the Commission written notice of the 
Exchange's 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 the pre-filing requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay so that the proposed rule change may become operative 
upon filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act \10\ and Rule 19b-4(f)(6) \11\ thereunder. The Commission believes 
that 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 July 3, 2009.\12\ Accordingly, the Commission designates the 
proposed rule change operative upon filing with the Commission.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \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).
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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 Exchange 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-2009-14 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-2009-14. 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-2009-14 and should be 
submitted on or before April 23, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7352 Filed 4-1-09; 8:45 am]

BILLING CODE 8010-01-P