[Federal Register Volume 72, Number 134 (Friday, July 13, 2007)]
[Notices]
[Pages 38637-38639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-13601]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56031; File No. SR-ISE-2007-53]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change to Extend the Quarterly Options Series Pilot Program

July 9, 2007.
    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 June 27, 2007, the International Securities Exchange, LLC 
(``Exchange'' or ``ISE'') 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. The Exchange has designated this proposal as non-
controversial under Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
effective upon filing with the Commission. 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)(iii).
    \4\ 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 Exchange is proposing to extend, until July 10, 2008, its 
quarterly options pilot program (``Pilot Program''). The text of the 
proposed rule change is available on the Exchange's Web site (http://www.ise.com), at the Exchange'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 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 is proposing to extend, until July 10, 2008, an ISE 
pilot program (``Pilot Program'') to list options series that would 
expire at the close of business on the last business day of a calendar 
quarter (``Quarterly Options Series'').\5\ The Pilot Program is 
currently set to expire on July 10, 2007. Under the Pilot Program, the 
Exchange is allowed to open Quarterly Options Series on up to five (5) 
currently listed options classes that are either index options or 
options on ETFs. The Exchange also is allowed to list Quarterly Options 
Series on any options class that is selected by other securities 
exchanges that employ a similar pilot program under their respective 
rules. The Exchange has selected the following five options classes to 
participate in the Pilot Program: the Standard & Poor's Depositary 
Receipts[reg] (SPY); Nasdaq-100[reg] Shares (QQQQ); Diamonds[reg] Trust 
Series 1 (DIA); iShares Russell 2000[reg]

[[Page 38638]]

Index Fund (IWM); and Select Sector SPDR[reg]--Energy (XLE). The ISE 
believes the Pilot Program has been successful and well received by its 
members and the investing public. Thus, the ISE proposes to extend the 
Pilot Program until July 10, 2008.
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    \5\ See Exchange Act Release No. 54113 (July 7, 2006), 71 FR 
39694 (July 13, 2006) (File No. SR-ISE-2006-24) (``Approval 
Order'').
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    In support of this proposed rule change, and as required by the 
Approval Order, the Exchange is submitting to the Commission a report 
(``Pilot Program Report''), attached as Exhibit 3 to the Form 19b-4 
filed with the Commission, detailing 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 
Quarterly Options Pilot Program for the period from July 10, 2006 
through December 29, 2006. The Exchange believes there is sufficient 
investor interest and demand to extend the Pilot Program for another 
year. The Exchange further believes that the Pilot Program has provided 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and the ability to more closely tailor their 
investment strategies and decisions to the movement of the underlying 
security. Finally, the Exchange has not detected any material 
proliferation of illiquid options series resulting from the 
introduction of the Pilot Program.
    Additionally, the Exchange proposes to amend ISE Rule 2009, 
Supplementary Material .02 to: (1) Limit the number of strike prices 
that the Exchange may initially open for Quarterly Options Series to 
five strike prices above or below the value of the underlying index; 
(2) clarify that the Exchange may open for trading additional Quarterly 
Options Series of the same class when the Exchange deems such action 
necessary to maintain an orderly market or meet customer demand, 
provided that the additional series priced above (below) the value of 
the underlying index do not cause there to be more than five strike 
prices above (below) the value of the underlying index; and (3) clarify 
that the opening of any new Quarterly Options Series will not affect 
the previously opened series of options of the same class.\6\
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    \6\ The Commission recently approved a similar change to the 
rules of the Chicago Board Options Exchange and the Philadelphia 
Stock Exchange. See Securities Exchange Act Releases No. 54762 
(November 16, 2006), 71 FR 67663 (November 22, 2006) (Notice of 
Filing and Order Granting Accelerated Approval of File No. SR-CBOE-
2006-93) and 55301 (February 15, 2007), 72 FR 8238 (February 23, 
2007) (Notice of Filing and Immediate Effectiveness of File No. SR-
Phlx-2007-08).
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    Finally, the Exchange represents that it has the necessary systems 
capacity to support new options series that result from the continued 
listing and trading of Quarterly Options Series.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \8\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
prevent fraudulent and manipulative acts, 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. 
The Exchange believes that extension of the Pilot Program will result 
in a continuing benefit to investors, by allowing them to more closely 
tailor their investment decisions, and will allow the Exchange to 
further study investor interest in quarterly options.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does 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 Exchange has designated the proposed rule change as one that: 
(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 from the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
Therefore, the foregoing rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \9\ and subparagraph (f)(6) of Rule 19b-
4 thereunder.\10\ The Exchange has asked the Commission to waive the 
operative delay to permit the Pilot Program extension to become 
effective prior to the 30th day after filing.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days before doing 
so.
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    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 benefits of the Pilot Program to continue 
without interruption.\12\ Therefore, the Commission designates the 
proposal operative upon filing.\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. See 15 U.S.C. 
78c(f).
    \13\ As set forth in the Approval Order, if the Exchange were to 
propose an extension, an expansion, or permanent approval of the 
Pilot Program, the Exchange would submit, along with any filing 
proposing such amendments to the program, a report that would 
provide an analysis of the Pilot Program covering the entire period 
during which the Pilot Program was in effect. The report would 
include, at a minimum: (1) Data and written analysis on the open 
interest and trading volume in the classes for which Quarterly 
Option Series were opened; (2) an assessment of the appropriateness 
of the option classes selected for the Pilot Program; (3) an 
assessment of the impact of the Pilot Program on the capacity of the 
Exchange, OPRA, and market data vendors (to the extent data from 
market data vendors is available); (4) any capacity problems or 
other problems that arose during the operation of the Pilot Program 
and how the Exchange addressed such problems; (5) any complaints 
that the Exchange received during the operation of the Pilot Program 
and how the Exchange addressed them; and (6) any additional 
information that would assist in assessing the operation of the 
Pilot Program. The report must be submitted to the Commission at 
least sixty (60) days prior to the expiration date of the Pilot 
Program. See Approval Order, supra note 5.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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-2007-53 on the subject line.

[[Page 38639]]

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2007-53. 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 Commissions 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, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. 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-2007-53 and should be submitted on 
or before August 3, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Florence E. Harmon,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E7-13601 Filed 7-12-07; 8:45 am]
BILLING CODE 8010-01-P