[Federal Register Volume 75, Number 131 (Friday, July 9, 2010)]
[Notices]
[Pages 39597-39599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16748]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62442; File No. SR-ISE-2010-64]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Expand Its $1 Strike Program

July 2, 2010.
    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 24, 2010, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to expand the $1 Strike Program. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.ise.com), at the principal office of the Exchange, on the 
Commission's Web site at http://www.sec.gov, 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 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
    The purpose of this proposed rule change is to expand the $1 Strike 
Program.\3\ The $1 Strike Program currently allows ISE to select a 
total of 55 individual stocks on which option series may be listed at 
$1 strike price intervals. In order to be eligible for selection into 
the $1 Strike Program, the underlying stock must close below $50 in its 
primary market on the previous trading day. If selected for the $1 
Strike Program, the Exchange may list strike prices at $1 intervals 
from $1 to $50, 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 may also list $1 strikes on any other 
option class designated by another securities exchange that employs a 
similar $1 Strike Program under their respective rules. The Exchange 
may not list long-term option series (``LEAPS'') \4\ at $1 strike price 
intervals for any class selected for the $1 Strike Program, except as 
specified in subparagraph (c) to Supplementary Material .01 to Rule 
504.\5\ The Exchange is also restricted from listing series with $1 
intervals within $0.50 of an existing strike price in the same series, 
except that strike

[[Page 39598]]

prices of $2, $3, and $4 shall be permitted within $0.50 of an existing 
strike price for classes also selected to participate in the $0.50 
Strike Program.\6\
---------------------------------------------------------------------------

    \3\ The Commission approved the $1 Strike Program as a pilot on 
June 16, 2003. See Securities Exchange Act Release No. 48033 (June 
16, 2003), 68 FR 37036 (June 20, 2003) (SR-ISE-2003-17). The $1 
Strike Program was subsequently extended through June 5, 2008. See 
Exchange Act Release Nos. 49827 (June 8, 2004), 69 FR 33966 (June 
17, 2004) (SR-ISE-2004-21); 50060 (July 22, 2004), 69 FR 45864 (July 
30, 2004) (SR-ISE-2004-26); 51769 (May 31, 2005), 70 FR 33232 (June 
7, 2005) (SR-ISE-2005-22); 53806 (May 15, 2006), 71 FR 29694 (SR-
ISE-2006-20); and 55715 (May 7, 2007), 72 FR 26854 (May 11, 2007) 
(SR-ISE-2007-26). The $1 Strike Program was subsequently expanded 
and permanently approved in 2008. See Securities Exchange Act 
Release No. 57169 (January 18, 2008), 73 FR 4654 (January 25, 2008) 
(SR-ISE-2007-110). The $1 Strike Program was last expanded in 2009. 
See Securities Exchange Act Release No. 59587 (March 17, 2009), 74 
FR 12414 (March 24, 2009) (SR-ISE-2009-04).
    \4\ LEAPS are long-term options that generally have up to 
thirty-nine months from the time they are listed until expiration. 
See Rule 506, Long-Term Options Contracts.
    \5\ Supplementary Material .01(c) to Rule 504 states that the 
Exchange may list $1 strike prices up to $5 in LEAPS in up to 200 
option classes in individual stocks. See Securities Exchange Act 
Release No. 61102 (December 3, 2009), 74 FR 65191 (December 9, 2009) 
(SR-ISE-2009-102).
    \6\ Regarding the $0.50 Strike Program, which allows $0.50 
strike price intervals for options on stocks trading at or below 
$3.00, see Supplementary Material .05 to Rule 504 and Securities 
Exchange Act Release No. 60696 (September 18, 2009), 74 FR 49053 
(September 25, 2009) (SR-ISE-2009-65). See also Securities Exchange 
Act Release No. 61737 (March 18, 2010), 75 FR 14225 (March 24, 2010) 
(SR-ISE-2010-22) (allowing concurrent listing of $3.50 and $4 
strikes for classes that participate in both the $0.50 Strike 
Program and the $1 Strike Program).
---------------------------------------------------------------------------

    The Exchange now proposes to expand the $1 Strike Program to allow 
ISE to select a total of 150 individual stocks on which option series 
may be listed at $1 strike price intervals. The existing restrictions 
on listing $1 strikes would continue, i.e., 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 (unless an option class is selected to participate in both the $1 
Strike Program and the $0.50 Strike Program).
    As stated in the Commission order that initially approved ISE's 
Program and in subsequent extensions and expansions of the $1 Strike 
Program,\7\ ISE believes that $1 strike price intervals provide 
investors with greater flexibility in the trading of equity options 
that overlie lower price stocks by allowing investors to establish 
equity options positions that are better tailored to meet their 
investment objectives.
---------------------------------------------------------------------------

    \7\ See supra note 3.
---------------------------------------------------------------------------

    During the time that the $1 Strike Program was a pilot, the 
Exchange submitted three pilot reports to the Commission in which the 
Exchange discussed, among other things, the strength and efficacy of 
the Program based upon the steady increase in volume and open interest 
of options traded on the Exchange at $1 strike price intervals; and 
that the Program had not and, in the future, should not create capacity 
problems for ISE or the Options Price Reporting Authority (``OPRA'') 
systems.\8\ This has not changed. Moreover, the number of $1 strike 
options traded on the Exchange has continued to increase since the 
inception of the $1 Strike Program such that these options are now 
among some of the most popular products traded on the Exchange.
---------------------------------------------------------------------------

    \8\ See Exchange Act Release Nos. 49827 (June 8, 2004), 69 FR 
33966 (June 17, 2004) (SR-ISE-2004-21); 50060 (July 22, 2004), 69 FR 
45864 (July 30, 2004) (SR-ISE-2004-26); 51769 (May 31, 2005), 70 FR 
33232 (June 7, 2005) (SR-ISE-2005-22); 53806 (May 15, 2006), 71 FR 
29694 (SR-ISE-2006-20); and 55715 (May 7, 2007), 72 FR 26854 (May 
11, 2007) (SR-ISE-2007-26).
---------------------------------------------------------------------------

    The Exchange believes that market conditions have led to an 
increase in the number of securities trading below $50 warranting the 
proposed expansion of the $1 Strike Program. In addition, the Exchange 
notes that this filing is based on a filing previously submitted by 
NASDAQ OMX PHLX, Inc (``PHLX'') that the Commission recently 
noticed.\9\ With regard to previous expansions of the $1 Strike 
Program, the Commission has approved proposals from the options 
exchanges that employ a $1 Strike Program in lockstep.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 62151 (May 21, 
2010), 75 FR 30078 (May 28, 2010) (SR-Phlx-2010-72).
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, ISE 
has analyzed its capacity and represents that it and OPRA have the 
necessary systems capacity to handle the potential additional traffic 
associated with the listing and trading of an expanded number of series 
in the $1 Strike Program.
    The Exchange believes that the $1 Strike Program has provided 
investors with greater trading opportunities and flexibility and the 
ability to more closely tailor their investment and risk management 
strategies and decisions to the movement of the underlying security. 
Furthermore, the Exchange has not detected any material proliferation 
of illiquid options series resulting from the narrower strike price 
intervals. For these reasons, the Exchange requests an expansion of the 
current $1 Strike Program and the opportunity to provide investors with 
additional strikes for investment, trading, and risk management 
purposes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder and, in particular, the requirements of section 
6(b) \10\ of the Act. Specifically, the Exchange believes the proposed 
rule change is consistent with Section 6(b)(5) \11\ requirements that 
the rules of an exchange be 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 expanding 
the current $1 Strike Program will result in a continuing benefit to 
investors by giving them more flexibility to closely tailor their 
investment decisions in greater number of securities.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 C.F.R. 240.19b-4(f)(6). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's 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. The Exchange has satisfied the pre-filing requirement.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to a rule of 
another exchange that has been approved by the Commission.\14\ 
Therefore, the Commission designates the proposal operative upon 
filing.\15\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 62420 (June 30, 
2010) (SR-Phlx-2010-72) (order approving expansion of $1 Strike 
Program to 150 classes).
    \15\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the

[[Page 39599]]

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 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-2010-64 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2010-64. 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 Web site viewing and 
printing 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 the 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-2010-64 and should be 
submitted on or before July 30, 2010.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-16748 Filed 7-8-10; 8:45 am]
BILLING CODE 8010-01-P