[Federal Register Volume 70, Number 136 (Monday, July 18, 2005)]
[Notices]
[Pages 41246-41248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3786]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52012; File No. SR-ISE-2005-17]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Order Granting Accelerated Approval to a 
Proposed Rule Change and Amendment No. 1 Thereto to List and Trade 
Short Term Option Series

July 12, 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 March 7, 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 substantially prepared by the Exchange. 
ISE filed Amendment No. 1 with the Commission on April 25, 2005.\3\ 
This notice and order requests comment on the proposal from interested 
persons and approves the amended proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 revised the settlement times for the 
proposed Short Term Options Series.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to establish a pilot program to list and 
trade option series that expire one week after being opened for trading 
(``Short Term Option Series''). The Exchange proposed that the pilot 
program extend one year from the date of this approval. The text of the 
proposed rule change, as amended, is available on ISE's Web site 
(http://www.iseoptions.com/legal/proposed_rule_changes.asp), at 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, ISE included statements 
concerning the purpose of and basis for the proposal and discussed any 
comments it received on the proposal. The text of these statements may 
be examined at the places specified in Item IV below. 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
    The Exchange proposes to establish a pilot program to list and 
trade Short Term Option Series, which would expire one week after the 
date on which a series is opened. Under the proposal, the Exchange 
could select up to five approved option classes \4\ on which Short Term 
Option Series could be opened. A series could be opened on any Friday 
that is a business day (``Short Term Option Opening Date'') and would 
expire at the close of business on the next Friday that is a business 
day (``Short Term Option Expiration Date''). If a Friday were not a 
business day, the series could be opened (or would expire) on the first 
business day immediately prior to that Friday.
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    \4\ Short Term Option Series could be opened in any option class 
that satisfied the applicable listing criteria under ISE rules 
(i.e., stock options, options on exchange traded funds (as defined 
under ISE Rule 502(h)), or options on indexes).
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    The proposal would allow the Exchange to open up to five Short Term 
Option Series for each Short Term Option Expiration Date. The strike 
price for each series would be 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, or the calculated index 
value in the case of an index class, at about the time that Short Term 
Option Series was opened for trading on the Exchange. No Short Term 
Option Series on an option class would be opened in the same week in 
which a monthly option series on the same class is expiring, because 
the monthly option series in its last week before expiration is 
functionally equivalent to the Short Term Option Series. The intervals 
between strike prices on Short Term Option Series would be the same as 
with the corresponding monthly option series.
    The Exchange believes that Short Term Option Series would provide 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and be more responsive to the timing of 
events affecting the securities that underlie option contracts. At the 
same time, the Exchange is cognizant of the need to be cautious in 
introducing a product that can increase the number of outstanding 
strike prices. For that reason, the Exchange proposes to employ a 
limited pilot program for Short Term Option Series. Under the terms of 
the pilot program, the Exchange could select up to five options classes 
on which Short Term Option Series may be opened on any Short Term 
Option Opening Date. The Exchange also could list and trade any Short 
Term Option Series on an option class that is selected by another 
exchange with a similar pilot program. The Exchange believes that 
limiting the number of option classes on which Short Term Option Series 
may be opened would help ensure that the addition of the new series 
through this pilot program would have only a negligible impact on the 
Exchange's and OPRA's quoting capacity. Also, limiting the term of the 
pilot program to a period of one year would allow the Exchange and the 
Commission to determine whether the Short Term Option Series program 
should be extended, expanded, and/or made permanent.
    As originally proposed, all Short Term Option Series would be p.m.-

[[Page 41247]]

settled. However, in Amendment No. 1, the Exchange revised the proposal 
to provide that Short Term Option Series listed on currently approved 
option classes shall settle, with respect to a.m. or p.m. settlement, 
in the same manner as do the monthly expiration series in the same 
options class.
    The Exchange represents that it has the system capacity to 
adequately handle the new option series contemplated by this proposal. 
The Exchange provided the Commission information in a confidential 
submission to support that representation.
    The Exchange proposed that the pilot program extend one year from 
the date of this approval.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \6\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \5\ 15 U.S.C. 78f(b).
    \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 would 
impose any burden on competition 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Discussion

    After careful review, the Commission finds that the proposal, as 
amended, is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange.\7\ In particular, the Commission believes that the proposal 
is consistent with the requirements of Section 6(b)(5) of the Act,\8\ 
which requires, among other things, that the rules of a national 
securities exchange be designed 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.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital information. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that listing and trading Short Term Option 
Series, under the terms described in the Exchange's proposal, will 
further the public interest by allowing investors new means of managing 
their risk exposures and carrying out their investment objectives. The 
Commission also believes that the pilot program strikes a reasonable 
balance between the Exchange's desire to offer a wider array of 
investment opportunities and the need to avoid unnecessary 
proliferation of option series that could compromise options quotation 
capacity. The Commission expects the Exchange to monitor the trading 
and quotation volume associated with the additional option series 
created under the pilot program and the effect of these additional 
series on the capacity of the Exchange's, the Options Price Reporting 
Authority's, and vendors' systems.
    The Commission finds good cause pursuant to Section 19(b)(2) of the 
Act \9\ for approving the amended proposal prior to the thirtieth day 
after its publication in the Federal Register. The Commission recently 
approved a rule change proposed by the Chicago Board Options Exchange, 
Incorporated (``CBOE'') to list and trade short-term options 
series.\10\ Because the CBOE proposal was open for a full comment 
period and CBOE adequately responded to the issues raised by 
commenters, the Commission does not believe that an additional comment 
period for ISE's substantially identical proposal is necessary. The 
Commission believes that accelerating approval of ISE's proposal will 
benefit investors by furthering competition, without undue delay, among 
the markets that wish to trade these products.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ See Securities Exchange Act Release No. 52011 (July 12, 
2005) (order approving SR-CBOE-2004-63).
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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, as amended, 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 Number SR-ISE-2005-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-ISE-2005-17. 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. 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 Number SR-ISE-2005-17 and should be submitted on or before August 
8, 2005.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change, as amended (SR-ISE-2005-17), is 
hereby approved on an accelerated basis and as a pilot program, through 
July 12, 2006.
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    \11\ 15 U.S.C. 78s(b)(2).


[[Page 41248]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Jill M. Peterson,
Assistant Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E5-3786 Filed 7-15-05; 8:45 am]
BILLING CODE 8010-01-P