Document ID: SEC-2009-0994-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permanently Establish the Quarterly Options Series Pilot Program
Posted Date: 2009-07-17T04:00Z

[Federal Register: July 17, 2009 (Volume 74, Number 136)]
[Notices]               
[Page 34809-34811]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jy09-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60275; File No. SR-ISE-2009-50]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Permanently Establish the Quarterly Options Series Pilot 
Program

July 9, 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 July 8, 2009, 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 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 is proposing to make permanent its quarterly options series 
pilot program and make minor changes to conform the program to that of 
other exchanges. The text of the proposed rule change is available on 
the Exchange's Web site http://www.ise.com, at the Exchange's Office of 
the Secretary, and at the Commission.

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 is proposing to make permanent an ISE pilot program to 
list options series that would expire at the close of business on the 
last business day of a calendar quarter (``Quarterly Options Series 
Program''). On May 2, 2006, the Exchange filed with the Securities and 
Exchange Commission (``Commission'') SR-ISE-2006-24 to establish the 
Quarterly Options Series Program that was subsequently approved by the 
Commission on July 7, 2006.\3\ Under the Quarterly Options Series Pilot 
Program, the Exchange is allowed to open up to five (5) currently 
listed options classes that are either index options or options on 
exchange traded funds (``ETFs''). The Exchange is also allowed to list 
Quarterly Options Series on any options class that is selected by other 
securities exchanges that employ a similar pilot program under their 
respective rules.
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    \3\ See Securities Exchange Act Release No. 54113 (July 7, 
2006); 71 FR 39694 (July 13, 2006) (SR-ISE-2006-24) (the ``Quarterly 
Options Series Pilot Program Approval Order''). The Quarterly 
Options Series Program has since been extended and is currently 
scheduled to expire on July 10, 2009. See Securities Exchange Act 
Release Nos. 56031 (July 9, 2007), 72 FR 38637 (July 13, 2007) (SR-
ISE-2007-53); 58019 (June 25, 2008), 73 FR 38014 (July 2, 2008) (SR-
ISE-2008-49).
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    The Exchange may list series that expire at the end of the next 
consecutive four (4) calendar quarters, as well as the fourth quarter 
of the next calendar year. For example, if the Exchange is trading 
Quarterly Options Series in the month of May 2009, it may list series 
that expire at the end of the second, third, and fourth quarters of 
2009, as well as the first and fourth quarters of 2010. Following the 
second quarter 2009 expiration, the Exchange could add series that 
expire at the end of the second quarter of 2010.

Quarterly Option Series in ETF Options

    If an ETF option is selected for participation in the Quarterly 
Options Series Program, the strike price of each Quarterly Option 
Series is fixed at a price per share, with at least two strike prices 
above and two strike prices below the approximate value of the 
underlying security at about the time the Quarterly Options Series is 
opened for trading on the Exchange. ISE shall list strikes prices for a 
Quarterly Option series that are within $5 from the closing price of 
the underlying on the preceding day.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems is necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. To the extent that any additional strike 
prices are listed by the Exchange, such additional strike prices shall 
be within thirty percent (30%) above or below the closing price of the 
underlying ETF (or ``Exchange-Traded Fund Shares'') as defined in Rule 
502(h) on the preceding day.\4\ The Exchange may also open additional 
strike prices of Quarterly Option Series in ETF options that are more 
than 30% above or below the current price of the underlying ETF 
provided that demonstrated customer interest exists for such series, as 
expressed by institutional, corporate or individual customers or their 
brokers. Market-Makers trading for their own account shall not be 
considered when determining customer interest under this provision. The 
opening of the new Quarterly Options Series shall not affect the series 
of options of the same class previously opened. In addition to the 
initial listed series, the Exchange may list up to sixty (60) 
additional series per expiration month for each Quarterly Options 
Series in ETF options.
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    \4\ See Securities Exchange Act Release No. 57425 (March 4, 
2008), 73 FR 12783 (March 10, 2008) (SR-ISE-2008-19).
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    The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle.
    The Exchange has adopted a delisting policy with respect to 
Quarterly Options Series in ETF options.\5\ On a monthly basis, the 
Exchange reviews series that are outside a range of five (5) strikes 
above and five (5) strikes below the current price of the underlying 
ETF, and delists series with no open interest in both the put and the 
call series having

[[Page 34810]]

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.
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    \5\ Id.
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    Notwithstanding the delisting policy, customer requests to add 
strikes and/or maintain strikes in Quarterly Options Series in ETF 
options in series eligible for delisting shall be granted.
    Further, in connection with the 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.
    During the last quarter of 2008 (and for the new expiration month 
added after December Quarterly Option Series expiration), the Exchange 
was permitted to list up to one hundred (100) additional series per 
expiration month for each Quarterly Options Series in ETF options.\6\
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    \6\ See Securities Exchange Act Release No. 58926 (November 10, 
2008), 73 FR 69701 (November 19, 2008) (SR-ISE-2008-82).
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Quarterly Option Series in Index Options

    If an index option is selected for participation in the Quarterly 
Options Series Program, the strike price of each Quarterly Option 
Series will be fixed at a price per share, with at least two, but no 
more than five, strike prices above and at least two, but no more than 
five, strike prices below the value of the underlying index at about 
the time that a Quarterly Options Series is opened for trading on the 
Exchange. The Exchange shall list strike prices for Quarterly Options 
Series that are reasonably related to the current index value of the 
underlying index to which such series relates at about the time such 
series of options is first opened for trading on the Exchange. The term 
``reasonably related to the current index value of the underlying 
index'' means that the exercise price is within thirty percent (30%) of 
the current index value.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. The Exchange may also open for trading 
additional Quarterly Options Series that are more than thirty percent 
(30%) of the current index value, provided that demonstrated customer 
interest exists for such series, as expressed by institutional, 
corporate, or individual customers or their brokers. Market-Makers 
trading for their own account shall not be considered when determining 
customer interest under this provision.
    The Exchange may open additional strike prices of a Quarterly 
Option Series that are above the value of the underlying index provided 
that the total number of strike prices above the value of the 
underlying index is no greater than five. The Exchange may open 
additional strike prices of a Quarterly Option Series that are below 
the value of the underlying index provided that the total number of 
strike prices below the value of the underlying index is no greater 
than five. The opening of any new Quarterly Option Series shall not 
affect the series of options of the same class previously opened.
    By definition, Quarterly Option Series on an option class can never 
expire in the same week in which monthly option series on the same 
class expires. The same, however, is not the case with regards to Short 
Term Option Series. Quarterly Option Series and Short Term Option 
Series on the same options class may expire concurrently. However, to 
avoid any confusion in the market place, the Exchange will not list a 
Short Term Option Series on an options class whose expiration coincides 
with that of a Quarterly Option Series on the same options class. In 
other words, the Exchange will not list a Short Term Options Series on 
an ETF or an index if a Quarterly Option Series on that ETF or index 
were to expire on a Friday, the only day of the week during which both 
Quarterly Option Series and a P.M.-settled Short Term Option Series can 
potentially expire concurrently.
    There being one exception to this rule. The Exchange may list a 
P.M.-settled Quarterly Option Series on an options class concurrent 
with an A.M.-settled Short Term Options Series on that same options 
class, both of which may expire on a Friday. In other words, the 
Exchange may list a P.M.-settled Quarterly Option Series on an ETF on 
an index concurrent with an A.M.-settled Short Term Option Series on 
that ETF or index and both of which expire on a Friday. The Exchange 
believes that the concurrent listing of an A.M.-settled Short Term 
Option Series and a P.M.-settled Quarterly Option Series on the same 
underlying ETF or index will provide investors with yet another hedging 
mechanism. Finally, the interval between strike prices on Quarterly 
Option Series shall be the same as the interval for strike prices for 
series in the same options class that expires in accordance with the 
normal monthly expiration cycles.
    The Exchange has selected the following five options classes to 
participate in the Quarterly Options Series Pilot Program: The Standard 
& Poor's Depositary Receipts[supreg] (SPY), Nasdaq-100[supreg] Shares 
(QQQQ), Diamonds[supreg] Trust Series 1 (DIA), iShares Russell 
2000[supreg] Index Fund (IWM), and Select Sector SPDR[supreg]--Energy 
(XLE). ISE believes the Quarterly Options Series Program has been 
successful and well received by its members and the investing public 
for the nearly three years that it has been in operation as a pilot.
    ISE is now proposing to make the Quarterly Options Series Program 
permanent. In support of this proposed rule change, and as required by 
the Quarterly Options Series Pilot Program Approval Order, the Exchange 
has submitted to the Commission a report (the ``Quarterly Options 
Series Program Report'') detailing the Exchange's experience with the 
Quarterly Options Series Program. Specifically, the Quarterly Options 
Series Pilot Program Report contains data and written analysis 
regarding the five options classes included in the Quarterly Options 
Series Program. The Report was submitted under separate cover and seeks 
confidential treatment under the Freedom of Information Act.
    The Exchange believes there is sufficient investor interest and 
demand in the Quarterly Options Series Program to warrant its permanent 
approval. The Exchange further believes that the Quarterly Options 
Series Program has provided investors with a flexible and valuable tool 
to manage risk exposure, minimize capital outlays, and the ability to 
more closely tailor their investment strategies and decisions to the 
movement of the underlying security. Furthermore, the Exchange notes 
that it has not detected any material proliferation of illiquid options 
series resulting from the introduction of the Quarterly Options Series 
Program nor has it experienced any capacity-related problems with 
respect to Quarterly Options Series. The Exchange also represents that 
it has the necessary systems capacity to continue to support the 
options series listed under Quarterly Options Series Program.
2. Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the

[[Page 34811]]

``Act'') and the rules and regulations thereunder and, in particular, 
the requirements of section 6(b) of the Act. Specifically, the Exchange 
believes the proposed rule change is consistent with Section 6(b)(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 permanent approval of the Quarterly Options Series 
Program will result in a continuing benefit to investors, by allowing 
them to more closely tailor their investment decisions.

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

    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 the filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) 
thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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    The Exchange requests that the Commission waive the 30-day 
operative delay so that the Exchange can permanently establish a 
Quarterly Options Series Program that is consistent with those of other 
options exchanges.\9\ In addition, the Commission notes that the 
Exchange's QOS Program currently is scheduled to expire on July 10, 
2009. The Commission therefore has determined that waiving the 30-day 
operative delay of the Exchange's proposal is consistent with the 
protection of investors and the public interest because such waiver 
will enable the Exchange to permanently establish the QOS program 
without disruption.\10\ Therefore, the Commission designates the 
proposal operative upon filing.
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    \9\ See Securities Exchange Act Release No. 60164 (June 23, 
2009), 74 FR 31333 (June 30, 2009) (SR-CBOE-2009-029) (approving the 
quarterly options series program on a permanent basis).
    \10\ For 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. 
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-2009-50 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-2009-50. 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 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-2009-50 and should be 
submitted on or before August 7, 2009.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-17004 Filed 7-16-09; 8:45 am]

BILLING CODE 8010-01-P