[Federal Register Volume 73, Number 230 (Friday, November 28, 2008)]
[Notices]
[Pages 72538-72540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28221]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58985; File No. SR-ISE-2008-86]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Enable the Listing and Trading of Options on Index-Linked 
Securities

November 20, 2008.
    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 November 14, 2008, the International Securities Exchange, LLC 
(``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 Exchange. 
The Exchange filed the proposed rule change as a ``non-controversial'' 
proposed rule change 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. 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).
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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 ISE Rule 502, Criteria for Underlying 
Securities, and 503, Withdrawal of Approval of Underlying Securities, 
to enable the listing and trading on the Exchange of options on Index-
Linked Securities, as defined below. The text of the proposed rule 
change is available from the principal office of the Exchange, at the 
Commission's Public Reference Room, and on the Exchange's Web site at 
http://www.iseoptions.com.

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 self-regulatory organization 
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 self-regulatory organization 
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
    This proposed rule change is based on recent Chicago Board Options 
Exchange, Incorporated (``CBOE'') and NASDAQ OMX PHLX, Inc. 
(``PHLX'').\5\
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    \5\ See Exchange Act Release Nos. 58204 (July 22, 2008), 73 FR 
43807 (July 28, 2008) (SR-CBOE-2008-64) and 58571 (September 17, 
2008), 73 FR 55188 (September 24, 2008) (SR-PHLX-2008-60). In 
addition, the Exchange is making minor changes to ISE Rule 502(h) to 
conform the Exchange's rules to those of CBOE and PHLX.
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    The purpose of the proposed rule change is to revise ISE Rules 502 
and 503 to enable the listing and trading of options on equity index-
linked securities (``Equity Index-Linked Securities''), commodity-
linked securities (``Commodity-Linked Securities''), currency-linked 
securities (``Currency-Linked Securities''), fixed income index-linked 
securities (``Fixed Income Index-Linked Securities''), futures-linked 
securities (``Futures-Linked Securities'') and multifactor index-linked 
securities (``Multifactor Index-Linked Securities'') (the six types of 
index-linked securities are collectively known as ``Index-Linked 
Securities'') that are principally traded on a national securities 
exchange and are ``NMS Stock'' (as defined in Rule 600 of Regulation 
NMS under the Act).
    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or market indexes of the foregoing (``Underlying 
Index'' or ``Underlying Indexes''). Index-Linked Securities are the 
non-convertible debt of an issuer that have a term of at least one (1) 
year but not greater than thirty (30) years. Despite the fact that 
Index-Linked Securities are linked to an underlying index, each trades 
as a single, exchange-listed security. Accordingly, rules pertaining to 
the listing and trading of standard equity options will apply to Index-
Linked Securities. The Exchange does not propose any changes to rules 
pertaining to Index Options.

Listing Criteria

    The Exchange will consider listing and trading options on Index-
Linked Securities provided the Index-Linked Securities meet the 
criteria for underlying securities set forth in ISE Rules 502(a) and 
(b).
    The Exchange proposes that Index-Linked Securities deemed 
appropriate for options trading represent ownership of a security that 
provides for the payment at maturity, as described below:

--Equity Index-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of an 
underlying index or indexes of equity securities (``Equity Reference 
Asset'');
--Commodity-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more physical commodities or commodity futures, options or other 
commodity derivatives or Commodity-Based Trust Shares or a basket or 
index of any of the foregoing (``Commodity Reference Asset'');
--Currency-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more currencies, or options or currency futures or other currency 
derivatives or Currency Trust Shares \6\ or a basket or index of any of 
the foregoing (``Currency Reference Asset'');
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    \6\ See proposed ISE Rule 502(h). The term ``Currency Trust 
Shares'' is defined as a security that (a) holds a specified non-
U.S. currency deposited with the trust or similar entity; (b) when 
aggregated in some specified minimum number may be surrendered to 
the trust by the beneficial owner to receive the specified non-U.S. 
currency or currencies; and (c) pays the beneficial owner interest 
and other distributions on deposited non-U.S. currency or 
currencies, if any, declared and paid by the trust.
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--Fixed Income Index-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more notes, bonds, debentures or evidence of indebtedness that 
include, but are not limited to, U.S. Department of Treasury securities 
(``Treasury Securities''), government sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred securities,

[[Page 72539]]

supranational debt and debt of a foreign country or a subdivision 
thereof or a basket or index of any of the foregoing (``Fixed Income 
Reference Asset'');
--Futures-Linked Securities are securities that provide for the payment 
at maturity of a cash amount based on the performance of an index of 
(a) futures on Treasury Securities, GSE Securities, supranational debt 
and debt of a foreign country or a subdivision thereof, or options or 
other derivatives on any of the foregoing; or (b) interest rate futures 
or options or derivatives on the foregoing in this subparagraph (b) 
(``Futures Reference Asset''); and
--Multifactor Index-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
any combination of two or more Equity Reference Assets, Commodity 
Reference Assets, Currency Reference Assets, Fixed Income Reference 
Assets or Futures Reference Assets (``Multifactor Reference Asset'').
    For the purposes of proposed ISE Rule 502(k), Equity Reference 
Assets, Commodity Reference Assets, Currency Reference Assets, Fixed 
Income Reference Assets, Futures Reference Assets and Multifactor 
Reference Assets, will be collectively referred to as ``Reference 
Assets.''
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in ISE Rules 502(a) and (b), or the 
Index-Linked Securities must be redeemable at the option of the holder 
at least on a weekly basis through the issuer at a price related to the 
applicable underlying Reference Asset. In addition, the issuing company 
is obligated to issue or repurchase the securities in aggregation units 
for cash or cash equivalents satisfactory to the issuer of Index-Linked 
Securities which underlie the option as described in the Index-Linked 
Securities prospectus.
    Continued Listing Requirements
    Options on Index-Linked Securities will be subject to all Exchange 
rules governing the trading of equity options. The current continuing 
or maintenance listing standards for options traded on the Exchange 
will continue to apply.
    The Exchange's proposed new rule 503(k) will include criteria 
related to the continued listing of options on Index-Linked Securities.
    Under the applicable continued listing criteria in proposed ISE 
Rule 503(k), options on Index Linked Securities initially approved for 
trading pursuant to proposed ISE Rule 502(k) may be subject to the 
suspension of opening transactions as follows: (1) Non-compliance with 
the terms of ISE Rule 502(k); (2) non-compliance with the terms of ISE 
Rules 503(a) and (b), except in the case of options covering Index 
Linked Securities approved pursuant to proposed ISE Rule 502(k)(3)(ii) 
that are redeemable at the option of the holder at least on a weekly 
basis, then option contracts of the class covering such Securities may 
only continue to be open for trading as long as the Securities are 
listed on a national securities exchange and are an ``NMS stock'' as 
defined in Rule 600 of Regulation NMS; (3) in the case of any Index-
Linked Security trading pursuant to proposed ISE Rule 502(k), the value 
of the Reference Asset is no longer calculated or available; or (4) 
such other event shall occur or condition exist that in the opinion of 
the Exchange makes further dealing in such options on the Exchange 
inadvisable.
    The Exchange represents that the listing and trading of options on 
Index-Linked Securities under proposed ISE Rule 502(k) will not have 
any effect on the rules pertaining to position and exercise limits \7\ 
or margin.\8\
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    \7\ See ISE Rules 412 and 414.
    \8\ See ISE Rules 1200 to 1204.
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    The Exchange will implement surveillance procedures for options on 
Index-Linked Securities, including adequate comprehensive surveillance 
sharing agreements with markets trading in non-U.S. components, as 
applicable. The Exchange represents that these procedures will be 
adequate to properly monitor Exchange trading of options on these the 
securities and to deter and detect violations of Exchange rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\9\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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 Exchange believes that the proposed rules applicable to 
trading pursuant to generic listing and trading criteria, together with 
the Exchange's surveillance procedures applicable to trading in the 
securities covered by the proposed rules, serve to foster investor 
protection.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days after the date of 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 \11\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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. 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. 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. The Exchange 
requests that the Commission waive the 30-day operative delay as well 
as the five business-day pre-filing requirement. The Commission 
believes that waiving the 30-day operative delay \13\ is consistent 
with the protection of investors and the public interest.\14\

[[Page 72540]]

The proposed rule change is substantially similar to those of other 
options exchanges that have been previously approved by the Commission 
\15\ and does not appear to present any novel regulatory issues. 
Therefore, the Commission designates the proposal operative upon filing 
to enable the Exchange to list and trade options on index-linked 
securities without delay.
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    \13\ 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).
    \14\ The Commission is also waiving the five business-day pre-
filing requirement.
    \15\ See e.g., Exchange Act Release Nos. 58203 (July 22, 2008), 
73 FR 43812 (July 28, 2008) (SR-NYSEArca-2008-57); 58204 (July 22, 
2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64); and 58571 
(September 17, 2008), 73 FR 55188 (September 24, 2008) (SR-PHLX-
2008-60).
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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 the 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 Number SR-ISE-2008-86 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2008-86. 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, 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-2008-86 and should be 
submitted on or before December 19, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-28221 Filed 11-26-08; 8:45 am]
BILLING CODE 8011-01-P