[Federal Register Volume 68, Number 53 (Wednesday, March 19, 2003)]
[Notices]
[Pages 13352-13354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6497]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47483; File No. SR-ISE-2003-04]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange, Inc. To Amend the Price Criteria for Securities That Underlie 
Options Traded on the Exchange

March 11, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and rule 19b-4 \2\ thereunder, notice is hereby given 
that on February 27, 2002, 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 
Exchange. 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 Exchange proposes to amend its initial listing standards to 
allow options to be listed on ``covered securities'' when, among other 
things, the trading price of the underlying security was at least $3 
for the five business days prior to certification with The Options 
Clearing Corporation.
    The text of the proposed rule change appears below. New text is in 
italics. Deleted text is in brackets.

Rule 502. Criteria for Underlying Securities

* * * * *
    (b) No change.
    (1)-(4) No change.
    (5) Either:
    (i) If the underlying security is a ``covered security'' as defined 
under Section 18(b)(1)(A) of the Securities Act of 1933, the market 
price per share of the underlying security has been at least $3.00 for 
the previous five consecutive business days preceding the date on which 
the Exchange submits a certificate to the Clearing Corporation for 
listing and trading, as measured by the closing price reported in the 
primary market in which the underlying security is traded; or
    [(i)] (ii) If the underlying security is not a ``covered 
security,'' [T]the market

[[Page 13353]]

price per share of the underlying security has been at least $7.50 for 
the majority of business days during the three calendar months 
preceding the date of selection, as measured by the lowest closing 
price reported in any market in which the underlying security traded on 
each of the subject days: or
    [ii] (iii) The underlying security meets the guidelines for 
continued approval in Rule 503; options on such underlying security are 
traded on at least one other registered national securities exchange; 
and the average daily trading volume for such options over the last 
three calendar months preceding the date of selection has been at least 
5,000 contracts.
    (c) Securities of Restructured Companies.
    (1)-(3) No change.
    (4) ``Market Price'' Guideline. In determining whether a 
Restructure Security satisfies the market price history guidelines set 
forth in Rule 502(b)5) (the Market Price Guideline''), the Exchange may 
consider the market price history of the Original Equity Security prior 
to the ``ex-date'' of the Restructuring Transaction if:
    (i) the Restructure security satisfies the ``Substantiality Test'' 
set forth in subparagraph (c)(5) below; and
    (ii) in the case of the application of the Market Price Guideline 
to a Restructure Security that is distributed pursuant to a public 
offering or a rights distribution:
    (A) the Restructure Security trades ``regular way'' on an exchange 
or automatic quotation system for at least the five trading days 
immediately preceding the date of selection; and
    (B) at the close of trading on each trading day on which the 
Restructure Security trades ``regular way'' prior to the date of 
selection, and the opening of trading on the date of selection, the 
market price of the Restructure Security was at least $7.50, or, if the 
Restructure Security is a ``covered security,'' as defined in Rule 
502(b)(5)(i), the market price of the Restructure Security was at least 
$3.00.

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 Exchange 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 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
    The Exchange proposes to amend its pricing requirement for 
securities underlying options traded on the Exchange (``underlying 
securities''). ISE Rule 502(b)(5) currently provides that options can 
be listed on underlying securities if (i) the market price per share of 
the underlying security has been at least $7.50 for the majority of 
business days during the three calendar months preceding the date of 
selection, or (ii) options on the underlying security are traded on at 
least one other registered national securities exchange and have a 
average daily trading volume of at least 5,000 contracts.
    The Exchange now proposes to amend ISE Rule 502(b)(5) to allow the 
listing of options on underlying securities that are ``covered 
securities'' under section 18(b)(1)(A) of the Securities Act of 1933 
\3\ (``1933 Act'') so long as the market price per share of the 
underlying security has been at least $3.00 for the previous five 
consecutive business days preceding the date on which the Exchange 
submits a certificate to The Options Clearing Corporation for listing 
and trading. For purposes of this provision, the market price of an 
underlying security will be measured by the closing price reported in 
the primary market in which the underlying security is traded.
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    \3\ Section 18(b)(1)(A) of the 1933 Act provides that ``[a] 
security is a covered security if such security is--listed, or 
authorized for listing, on the New York Stock Exchange or the 
American Stock Exchange, or listed, or authorized for listing, on 
the National Market System of the Nasdaq Stock Market (or any 
successor to such entities) * * *'' 15 U.S.C. 77r(b)(1)(A). The term 
``covered security,'' for operation of the proposed amendment to ISE 
Rule 502(b)(5), would not include those securities defined under 
section 18(b)(1)(B) of the 1933 Act. 15 U.S.C. 77r(b)(1)(B).
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    For the purposes of consistency within the ISE Rules, the Exchange 
proposes to amend ISE Rule 502(c)(4)((ii)(B), which provides a method 
to certify that the market price of a Restructure Security satisfies 
the pricing requirement of ISE Rule 502(b)(5) and specifically 
references the $7.50 market price per share requirement. The amendment 
would reflect that the market price standard for Restructure Securities 
also is reduced from $7.50 to $3.00 as long as the Restructure Security 
is a ``covered security'' as defined in ISE Rule 502(b)(5).
    This proposed rule change is identical to a change by the Chicago 
Board Options Exchange, Inc. (``CBOE'') to its initial listing 
standards that became effective January 15, 2003.\4\ The ISE seeks to 
amend its initial listing standards to be consistent with those of the 
CBOE so that the ISE is not at a competitive disadvantage with respect 
to the options classes it may list. In addition, changing the pricing 
standard to the proposed $3.00 market price per share requirement would 
allow the Exchange to evaluate whether to list options on a greater 
number of classes without compromising investor protection. In 
determining to list any number of new option classes, the Exchange must 
ensure that its own systems and those of the Options Price Reporting 
Authority (``OPRA'') have the capacity to handle the potential 
increased capacity requirements.
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    \4\ See Securities Exchange Act Release No. 47190 (January 15, 
2003), 68 FR 3072 (January 22, 2003).
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    The Exchange believes that the proposed $3.00 market price per 
share standard is consistent with the guideline contained in ISE Rule 
503(b)(4) related to the withdrawal of approval of underlying 
securities, which sets a $3.00 market price per share as the threshold 
for determining whether the Exchange may continue listing and trading 
options on an underlying security. In addition, the Exchange believes 
that a ``look back'' period of five consecutive days would provide a 
sufficient measure of protection from any attempts to manipulate the 
market price of the underlying security. The proposed $3 price standard 
and the five-day look-back period would provide a reliable test for 
stability and, at the same time, presents a more reasonable time period 
for qualifying the price of an underlying security. The Exchange 
further believes that this proposed abbreviated qualification period, 
in combination with the Exchange's existing quarterly delisting 
program,\5\ would contribute to reducing unnecessary quote traffic.
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    \5\ The Exchange states that it maintains an active delisting 
program that requires the quarterly delisting of multiply listed 
option classes that do not trade more than 20 contracts per day on 
the Exchange.
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(2) Statutory Basis
    The Exchange's basis for the proposed rule change is the 
requirement under Section 6(b)(5) of the Act \6\ that an exchange have 
rules to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transaction in

[[Page 13354]]

securities, 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.
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    \6\ 15 U.S.C. 78f(b)(4).
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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 
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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of rule 19b-4 \8\ 
thereunder because it does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate; and the Exchange has given the Commission written notice of 
its intention to file the proposed rule change at least five business 
days prior to filing. At any time within 60 days of the filing of such 
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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    Under rule 19b-4(f)(6)(iii) of the Act,\9\ the proposal does not 
become operative for 30 days after the date of its filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest and the Exchange is 
required to give the Commission written notice of its intention to file 
the proposed rule change at least five business days prior to filing. 
The Exchange has requested that the Commission waive the 30-day 
operative date in order for it to implement the proposed rule change as 
quickly as possible. The Exchange contends that this proposed rule is 
substantially similar to comparable rules the Commission approved for 
the CBOE, which was published for public notice and comment.\10\ As a 
result, the Exchange believes that the proposed rule change does not 
raise any new regulatory issues, significantly affect the protection of 
investors or the public interest, or impose any significant burden on 
competition. The Commission, consistent with the protection of 
investors and the public interest, has determined to waive the 30-day 
operative period,\11\ and, therefore, the proposal is effective and 
operative upon filing with the Commission.
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ See Securities Exchange Act Release No. 47190 (January 15, 
2003), 68 FR 3072 (January 22, 2003) (approving SR-CBOE-2002-62).
    \11\ For purposes only of waiving the 30-day operative period 
for this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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 Section. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-ISE-2003-04 and 
should be submitted by April 9, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6497 Filed 3-18-03; 8:45 am]
BILLING CODE 8010-01-P