[Federal Register Volume 66, Number 232 (Monday, December 3, 2001)]
[Notices]
[Pages 60232-60233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29829]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45087; File No. SR-ISE-2001-29]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange LLC Relating to Changes to the Exchange's Delisting Criteria

November 20, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 19, 2001, the International Securities Exchange LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the ISE. 
The proposed rule change has been filed by the ISE as a ``non-
controversial'' rule change under Rule 19b-4(f)(6) under the Act.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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 proposes to amend ISE Rule 503, Withdrawal of Approval of 
Underlying Securities, governing the circumstances under which the 
Exchange may not continue to add new options series for underlying 
securities.
    The text of the proposed rule change is available at the ISE 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 ISE included statements 
concerning the purpose of and statutory 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 Exchange 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
    ISE Rule 503, Withdrawal of Approval of Underlying Securities, 
contains certain criteria with respect to the securities underlying 
options classes traded on the Exchange. The rule restricts the Exchange 
from adding additional series of an options class in the event that the 
underlying security fails to meet these criteria. These criteria 
currently are uniform across all of the options exchanges. However, due 
to the complexity of the requirements, it has become apparent that the 
options exchanges do not always interpret and apply these rules in a 
consistent manner.
    ISE Rule 503 currently provides that the Exchange may not list 
additional series if, among other things, the underlying security has 
not closed above $5 for the majority of business days during the 
preceding six calendar months as measured by the highest closing price 
reported in any market in which the underlying security traded. ISE 
Rule 503 further provides that new series may not be added unless the 
closing price from the preceding day was at least $5. However, there is 
an exception to these two $5 criteria that permits the Exchange to add 
additional series, so long as the underlying security has closed above 
$3 for the majority of business days during the preceding six calendar 
months and the underlying price is at least $3 at the time the new 
series are authorized, in addition to certain other criteria being 
satisfied, provided that if this exception were relied upon to add any 
new series during the preceding calendar months, each of the $3 
requirements becomes a $4 requirement.
    The ISE represents that the application of the current requirements 
and exceptions in ISE Rule 503 creates unnecessary confusion and 
administrative burdens on the Exchange, and often results in disputes 
between the exchanges, as inconsistent application of the criteria can 
competitively disadvantage an exchange that interprets the requirements 
differently. Accordingly, the ISE proposes to amend ISE Rule 503 to 
simplify the criteria used to determine whether new options series may 
be added with respect to particular options classes, and to clarify 
when new options series may not be added by the Exchange. The Exchange 
believes its proposal is consistent with a similar proposal by the 
Chicago Board Options Exchange (``CBOE'').\4\
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    \4\ See Securities Exchange Act Release No. 44964 (October 19, 
2001), 66 FR 54559 (October 29, 2001) (order approving File No. SR-
CBOE-2001-29).
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    Under the ISE proposal, the $5 criteria described above, as well as 
the $3 and $4 exceptions, would be replaced by a single $3 requirement. 
None of the other requirements currently contained in Rule 503 (such as 
the number of shares that must be held by non-insiders, number of 
holders and trading volume) would be changed. The new proposed 
requirement specifies the following: (1) New series may not be added 
for the next day unless, in addition to satisfying the other 
requirements of the rule, the underlying security closed at or above $3 
on the previous trading day; and (2) new series may not be added intra-
day unless, in addition to satisfying the other requirements of the 
rule, including that the underlying security

[[Page 60233]]

closed at or above $3 on the previous trading day, the last reported 
trade in the underlying security at the time the Exchange determines to 
add the new series is at or above $3. When determining the closing 
price and last reported trade for an underlying security, the Exchange 
will look to the primary market in which the underlying security 
trades.
    The Exchange believes this proposal is reasonably designed to 
assure that options are not listed on securities that lack sufficient 
liquidity needed to maintain fair and orderly markets, while removing 
unnecessarily complex requirements. In addition, the ISE does not 
believe that it is necessary or desirable to restrict the ability of 
investors to trade options on securities trading between $3 and $5. In 
determining to list any number of new options series under the new less 
restrictive standard, the Exchange will ensure that its own systems and 
those of the Options Price Reporting Authority can handle any increased 
capacity requirements.
2. Statutory Basis
    The ISE believes that the proposed rule change is consistent with 
section 6 of the Act,\5\ general, and with section 6(b)(5) of the 
Act,\6\ specifically, in that is designated to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, and, in general, to protect investors and the public 
interest.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
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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.

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, as amended: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days after the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written 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,\7\ or such shorter time as designated by the Commission, the 
proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6)\9\ thereunder.
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    \7\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division 
of Market Regulation, Commission, dated October 8, 2001.
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
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 ISE seeks to have the proposed 
rule change, as amended, become operative immediately. The Commission, 
consistent with the protection of investors and the public interest, 
has determined to make the proposed rule change, as amended, operative 
as of November 19, 2001.\10\ The Commission notes that the proposed 
rule change, as amended, is substantially similar in all material 
respects to the rule of another exchange that the Commission has 
already noticed for public comment and approved \11\ and, therefore, 
the proposed rule change raises no new issues of regulatory concern.
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    \10\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \11\ See supra note 4.
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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.\12\
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    \12\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78(b)(3)(C).
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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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
ISE.
    All submissions should refer to File No. SR-ISE-2001-29 and should 
be submitted by December 24, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-29829 Filed 11-30-01; 8:45 am]
BILLING CODE 8010-01-M