[Federal Register Volume 71, Number 9 (Friday, January 13, 2006)]
[Notices]
[Pages 2279-2281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-255]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53055; File No. SR-ISE-2005-58]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 700 With 
Respect to the Hours of Trading in Equity Options and Narrow-Based 
Index Options

January 5, 2006
    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 December 27, 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, II, and III below, which Items have been prepared by the ISE. 
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 proposes to amend its rules governing the hours of trading 
in equity options and narrow-based index

[[Page 2280]]

options. The Exchange proposes that these changes be implemented on 
February 1, 2006. The text of the proposed rule change is available on 
the ISE's Web site (http://www.iseoptions.com), at the ISE's Office of 
the Secretary, 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 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 purpose of this rule change is to amend ISE Rule 700 governing 
the hours of trading in equity options and narrow-based index options. 
Specifically, the ISE proposes to amend its rule to change the close of 
the normal trading hours in options on individual stocks and narrow-
based indexes from 4:02 p.m. to 4 p.m. (New York time). After the 
change, the time of the close of trading in these ISE options will 
correspond to the normal time set for the close of trading on the 
primary exchanges listing the stocks underlying the ISE options. The 
primary exchanges generally close at 4 p.m. (New York time).
    The Exchange notes that in 1997 the closing time for options on 
individual stocks and narrow-based index was changed from 4:10 p.m. to 
4:02 p.m. (New York time). The rationale to continue trading options 
for some limited period of time after the close of trading on the 
primary markets for the underlying securities was that the extended 
period allowed options traders to respond to late reports of closing 
prices over the consolidated tape. If the price of a late reported 
trade on an underlying security was substantially different from the 
previous reported price, the extended trading session would give 
options traders the opportunity to bring options quotes in line with 
the closing price of the underlying security.
    However, because of improvements in the processing and reporting of 
transactions, the ISE believes that there often are no longer 
significant delays in the reporting of closing prices, and, therefore, 
a two minute session is no longer needed to trade options after the 
underlying securities close trading. Additionally, the Exchange 
believes that pricing aberrations can occur if an option is traded when 
the underlying stock is no longer trading, since there is a close 
relationship in the price of the underlying stock and the overlying 
option. As a result, the ISE believes that it is difficult for the 
market to price options accurately when the underlying security is not 
trading.
    As noted above, the Exchange also proposes to change the closing 
time for options on narrow-based indexes, as defined in ISE Rule 2001, 
because these indexes are subject to the same pricing problems as 
options on individual stocks. According to the ISE, a significant news 
announcement on one component of a narrow-based index could have a 
significant effect on that index. However, the Exchange is not at this 
time proposing to change the closing time of 4:15 p.m. for options on a 
broad-based index, as defined in ISE Rule 2001, because the ISE 
believes that it is unlikely that a significant news announcement by 
the issuer on one component stock of a broad-based index is likely to 
have a significant effect on the price of that broad-based index. 
Accordingly, the Exchange is also proposing to codify a 4:15 p.m. 
closing time for options on a broad-based index.
    The Exchange notes that if it were to unilaterally modify its 
closing time, the existence of dissimilar closing times applicable to 
the different options exchanges would likely lead to confusion for 
options investors and broker-dealers. It is the ISE's understanding 
that all of the options exchanges have determined to change their 
respective rules to adjust the closing time in options on individual 
stocks and narrow-based indexes from 4:02 p.m. to 4 p.m. (New York 
time). The ISE further understands that the options exchanges 
collectively have determined that they would implement this new closing 
time on February 1, 2006.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \3\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \4\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove and 
perfect the mechanisms 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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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE does not believe that the proposed rule change will 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 at (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-ISE-2005-58 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-ISE-2005-58. This file

[[Page 2281]]

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 Section. Copies of such 
filing also will 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 Number SR-ISE-2005-58 and should be submitted on or before January 
30, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-255 Filed 1-12-06; 8:45 am]
BILLING CODE 8010-01-P