[Federal Register Volume 73, Number 17 (Friday, January 25, 2008)]
[Notices]
[Pages 4654-4655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1254]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57169; File No. SR-ISE-2007-110]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Granting Approval of Proposed Rule Change to Expand and Make 
Permanent the $1 Strike Program

 January 18, 2008.

I. Introduction

    On November 14, 2007, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal to amend its rules relating to the $1 Strike 
Pilot Program (``Program''). The proposed rule change was published for 
comment in the Federal Register on December 19, 2007.\3\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56956 (December 13, 
2007), 72 FR 71986 (``Notice'').
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II. Description of the Proposal

    The purpose of the proposed rule change is to expand the Program 
and to request permanent approval of the Program. The Program currently 
allows ISE to select a total of 5 individual stocks on which an option 
series may be listed at $1 strike price intervals. To be eligible for 
selection into the Program, the underlying stock must close below $20 
in its primary market on the previous trading day. If selected for the 
Program, the Exchange may list strike prices at $1 intervals from $3 to 
$20, but no $1 strike price may be listed that is greater than $5 from 
the underlying stock's closing price in its primary market on the 
previous day. The Exchange also may list $1 strikes on any other option 
class designated by other securities exchanges that employ a similar 
Program under their respective rules. The Exchange may not list long-
term option series (LEAPS) at $1 strike price intervals for any class 
selected for the Program. The Exchange also is restricted from listing 
any series that would result in strike prices being $0.50 apart.
    The Exchange proposes to expand the Program to allow ISE to select 
a total of 10 individual stocks on which an option series may be listed 
at $1 strike price intervals. Additionally, ISE proposes to raise the 
upper limit of the price range on which it may list $1 strikes from $20 
to $50. The existing restrictions on listing $1 strikes will continue, 
e.g., no $1 strike price may be listed that is greater than $5 from the 
underlying stock's closing price in its primary market on the previous 
day, and ISE is restricted from listing any series that would result in 
strike prices being $0.50 apart.
    ISE concluded from its analysis of the Program that the impact on 
the automated systems of ISE, OPRA, and market data vendors has been 
minimal.\4\ ISE has represented that it has sufficient capacity to 
handle an expansion of the Program, as proposed.
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    \4\ See Notice, id., at 71987 (providing ISE's Program analysis 
on systems capacity).
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    In its filing with the Commission, ISE stated its belief that $1 
strike price

[[Page 4655]]

intervals provide investors with greater trading opportunities and 
flexibility by allowing investors to establish equity options positions 
that are better tailored to meet their investment objectives and that 
its member firms representing customers have repeatedly requested that 
ISE seek to expand the Program, both in terms of the number of classes 
on which an option series may be listed at $1 strike price intervals 
and the range in which $1 strikes may be listed. The Exchange further 
stated that it has not detected any material proliferation of illiquid 
options series resulting from the narrower strike price intervals. For 
the foregoing reasons, ISE requested that the Program be approved on a 
permanent basis.

III. Commission's Findings and Order Granting Approval of the Proposed 
Rule Change

    After careful review and based on the Exchange's representations, 
the Commission finds that the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\5\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \6\ in that it is designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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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    \5\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Commission believes that the proposed expansion 
to permit the Exchange to select a total of 10 individual underlying 
stocks trading at less than $50 on which option series may be listed at 
$1 strike price intervals, and the request to make the Program 
permanent, should provide investors with added flexibility in the 
trading of equity options and further the public interest by allowing 
investors to establish equity options positions that are better 
tailored to meet their investment objectives. The Commission also 
believes that the proposal strikes a reasonable balance between the 
Exchange's desire to accommodate market participants by offering a 
wider array of investment opportunities and the need to avoid 
unnecessary proliferation of options series and the corresponding 
increase in quotes. The Commission notes that the existing restrictions 
on listing $1 strike price intervals will continue to apply, e.g., no 
$1 strike price may be listed (a) that is greater than $5 from the 
underlying stock's closing price in its primary market on the previous 
day, or (b) that would result in strike prices being $0.50 apart.
    The Commission expects the Exchange to continue to monitor for 
options with little or no open interest and trading activity and to act 
promptly to delist such options. In addition, the Commission expects 
that ISE will continue to monitor the trading volume associated with 
the additional options series listed as a result of this proposal and 
the effect of these additional series on market fragmentation and on 
the capacity of the Exchange's, OPRA's, and vendors' automated systems.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-ISE-2007-110) be, and it 
hereby is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Nancy M. Morris,
Secretary.
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    \8\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-1254 Filed 1-24-08; 8:45 am]
BILLING CODE 8011-01-P