[Federal Register Volume 70, Number 108 (Tuesday, June 7, 2005)]
[Notices]
[Pages 33232-33233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2899]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51769; File No. SR-ISE-2005-22]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Extend Until June 5, 2006, a Pilot Program for Listing 
Options on Selected Stocks Trading Below $20 at One-Point Intervals

May 31, 2005.
    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 May 10, 2005, the International Securities Exchange, Inc. (``ISE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the ISE. The ISE filed the 
proposal pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission.\5\ 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).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The ISE has asked the Commission to waive the five-day pre-
filing notice requirement and the 30-day operative delay. See Rule 
19b-4(f)(6)(iii), 17 CFR 240.19b-4(f)(6)(iii).
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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 Supplementary Material .01 to ISE Rule 
504, ``Series of Options Contracts Open for Tracing,'' to extend until 
June 5, 2006, its pilot program for listing options series on selected 
stocks trading below $20 at one-point intervals (``Pilot Program''). 
The text of the proposed rule change is available on the ISE's Web site 
(http://www.iseoptions.com), at the ISE's principal office, 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 ISE 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 ISE 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 June 16, 2003, the Commission approved the ISE's Pilot Program, 
which allows the ISE to list series with $1 strike price intervals on 
equity option classes that overlie up to five individual stocks, 
provided that the strike prices are $20 or less, but not less than $3, 
subject to the terms of the Pilot Program.\6\ Although the ISE may 
select only up to five individual stocks to be included in the Pilot 
Program, the ISE is also permitted to list options on other individual 
stocks at $1 strike price intervals if other options exchanges listed 
those series pursuant to their respective rules. The ISE selected the 
following five options classes to participate in the Pilot Program: AMR 
Corp. [AMR], Clapine Corp. [CPN], EMC Corp. [EMC], El Paso Corp. [EP], 
and Sun Microsystems Inc. [SUNW]. The Pilot Program, after being 
extended on two prior occasions,\7\ is set to expire on June 5, 
2005.\8\ The ISE believes the Pilot Program has been successful. Thus, 
the ISE proposes to extend the Pilot Program until June 5, 2006. In 
support of this proposed rule change, and as required by the Pilot 
Program Approval Order and the Pilot Extension Notices, the Exchange is 
submitting to the Commission a report (the ``Pilot Program Report''), 
attached as Exhibit 3 to the proposal, that details the Exchange's 
experience with the Pilot Program. Specifically, the Pilot Program 
Report contains data and written analysis regarding the five options 
classes included in the Pilot Program for the period between May 1, 
2004, and February 28, 2005.
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    \6\ See Securities Exchange Act Release No. 48033 (June 13, 
2003), 68 FR 37036 June 20, 2003) (order approving File No. SR-ISE-
2003-17) (``Pilot Program Approval Order'').
    \7\ See Securities Exchange Act Release Nos. 49827 (June 8, 
2004), 69 FR 33966 (June 17, 2004) (notice of filing and immediate 
effectiveness of File No. SR-ISE-2004-21) (extending the $1 Strike 
Pilot Program until August 5, 2004); and 50060 (July 22, 2004), 69 
FR 45864 (July 30, 2004) (notice of filing and immediate 
effectiveness of File No. SR-ISE-2004-26) (extending the $1 Strike 
Pilot Program until June 5, 2005) (collectively, the ``Pilot 
Extension Notices'').
    \8\ See Securities Exchange Act Release No. 50060, supra note 7.
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    The Exchange believes there is sufficient investor interest and 
demand to extend the Pilot Program for another year. The Exchange 
continues to believe that the Pilot Program has provided investors with 
greater trading opportunities and flexibility and the ability to more 
closely tailor their investment strategies and decisions to the 
movement of the underlying security. Furthermore, the Exchange has not 
detected any material proliferation of illiquid options series 
resulting from the narrower strike price intervals.
2. Statutory Basis
    The ISE believes the proposed rule change is consistent with the 
Act and the rules and regulations thereunder and, in particular, the 
requirements of Section 6(b) of the Act.\9\ Specifically, the ISE 
believes the proposed rule change is consistent with the requirements 
under Section 6(b)(5) of the Act that the rules of a national 
securities exchange be designed to

[[Page 33233]]

promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The ISE 
believes that extension of the Pilot Program until June 5, 2006, will 
result in a continuing benefit to investors by allowing them to more 
closely tailor their investment decisions, and will allow the ISE to 
further study investor interest in $1 strike price intervals.
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    \9\ 15 U.S.C. 78f(b).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE believes that the proposed rule change does not impose any 
burden on competition that is not necessary or appropriate in the 
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 ISE has not solicited, and does not intend to solicit, comments 
on this proposed rule change. The ISE has not received any unsolicited 
written comments from members or other interested persons.

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

    The ISE has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ Because the foregoing proposed rule change: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, 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 and Rule 19b-4(f)(6) thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 for 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. In addition, Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to provide the Commission with 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, 
or such shorter time as designated by the Commission. The ISE has asked 
the Commission to waive the five-day pre-filing notice requirement and 
the 30-day operative delay to prevent a lapse in the operation of the 
Pilot Program.
    The Commission waives the five-day pre-filing notice requirement. 
In addition, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because it will allow the Pilot Program to continue without 
interruption through June 5, 2006.\12\ For this reason, the Commission 
designates that the proposal become operative on June 5, 2005.\13\
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    \12\ 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. 15 U.S.C. 78c(f).
    \13\ As set forth in the Commission's initial approval of the 
Pilot Program, if the ISE proposes to: (1) extend the Pilot Program; 
(2) expand the number of options eligible for inclusion in the Pilot 
Program; or (3) seek permanent approval of the Pilot Program, it 
must submit a Pilot Program report to the Commission along with the 
filing of its proposal to extend, expand, or seek permanent approval 
of the Pilot Program. The ISE must file any such proposal and the 
Pilot Program report with the Commission at least 60 days prior to 
the expiration of the Pilot Program. The Pilot Program report must 
cover the entire time the Pilot Program was in effect and must 
include: (1) data and written analysis on the open interest and 
trading volume for options (at all strike price intervals) selected 
for the Pilot Program; (2) delisted options series (for all strike 
price intervals) for all options selected for the Pilot Program; (3) 
an assessment of the appropriateness of $1 strike price intervals 
for the options the ISE selected for the Pilot Program; (4) an 
assessment of the impact of the Pilot Program on the capacity of the 
ISE's, the Options Price Reporting Authority's, and vendors' 
automated systems; (5) any capacity problems or other problems that 
arose during the operation of the Pilot Program and how the ISE 
addressed them; (6) any complaints that the ISE received during the 
operation of the Pilot Program and how the ISE addressed them; and 
(7) any additional information that would help to assess the 
operation of the Pilot Program. See Pilot Program Approval Order, 
supra note 6.
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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 [email protected]. Please include 
File No. SR-ISE-2005-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File No. SR-ISE-2005-22. 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, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the ISE. 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-2005-22 and should be 
submitted on or before June 28, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2899 Filed 6-6-05; 8:45 am]
BILLING CODE 8010-01-P