[Federal Register Volume 76, Number 198 (Thursday, October 13, 2011)]
[Notices]
[Pages 63689-63691]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26439]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65502; File No. SR-ISE-2011-63]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Retire a Pilot Program and To Harmonize ISE's Rules Regarding 
Listing Expirations With the Existing Rules of Other Exchanges

October 6, 2011.
    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 September 26, 2011, 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 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 Exchange proposes to amend its rules to retire a pilot program 
and to harmonize ISE's rules regarding listing expirations with the 
existing rules of other exchanges. 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, 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 self-regulatory organization has prepared summaries, 
set forth in Sections A, B and C below, of the most significant aspects 
of such statements.

[[Page 63690]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to retire the Additional 
Expiration Months Pilot Program (``Pilot Program'') and to amend ISE's 
rules regarding listing expirations. This filing is based on the 
existing rules of other options exchanges.\3\
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    \3\ See NASDAQ Options Market (``NOM'') Chapter IV, Section 6 
(Series of Options Contracts Option for Trading), NASDAQ OMX PHLX, 
LLC (``PHLX'') Rule 1012 (Series of Options Listed for Trading) and 
Chicago Board Options Exchange (``CBOE'') Rule 5.5 (Series of Option 
Contracts Open for Trading). See also Securities Exchange Act 
Release Nos. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) 
(SR-NASDAQ-2007-004 and NASDAQ-2007-080) and 63700 (January 11, 
2011) 76 FR 2931 (January 18, 2011) (SR-PHLX-2011-04). The PHLX 
filing was based on NOM's existing rules.
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ISE Rules Governing Listing of Expirations
    Pursuant to ISE Rule 504(e), ISE typically opens four expiration 
months for each class of options open for trading on the Exchange: the 
first two being the two nearest months, regardless of the quarterly 
cycle on which that class trades; the third and fourth being the next 
two months of the quarterly cycle previously designated by the Exchange 
for that specific class. Notwithstanding Rules 504(a) and 504(c), which 
presumably provide ISE with the flexibility to add additional 
expiration months, ISE has historically interpreted Rule 504(e) 
conservatively and viewed it to allow a maximum number of expirations 
that may be listed.
    In 2010, the Exchange established the Pilot Program pursuant to 
which ISE could list up to an additional two expiration months, for a 
total of six expiration months for each class of option open for 
trading on the Exchange.\4\ CBOE subsequently established a similar 
pilot program.\5\
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    \4\ See Securities Exchange Act Release No. 63104 (October 14, 
2010), 75 FR 64773 (October 20, 2010) (SR-ISE-2010-91).
    \5\ See Securities Exchange Act Release No. 63185 (October 27, 
2010), 75 FR 67419 (November 2, 2010) (SR-ISE-CBOE-2010-97).
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    After ISE and CBOE established their respective pilot programs, ISE 
submitted a filing in response to a PHLX filing regarding the listing 
of expirations.\6\ In the PHLX filing, PHLX amended its rules so that 
it could open ``at least one expiration month'' for each class of 
standard options open for trading on PHLX.\7\ PHLX stated in its filing 
that this amendment was ``based directly on the recently approved rules 
of another options exchange, namely Chapter IV, Sections 6 and 8'' of 
NOM. Since PHLX's rules did not hard code an upper limit on the maximum 
number of expirations that may be listed per class, ISE believed that 
PHLX (and NOM) had the ability of list expirations that ISE would not 
be able to list under its rules. As a result, ISE amended its rules by 
adding Supplementary Material .10 to Rule 504 and Supplementary 
Material .04 to Rule 2009 to permit ISE to list additional expiration 
months on options classes opened for trading on ISE if such expiration 
months are opened for trading on at least one other national securities 
exchange.\8\
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    \6\ See Securities Exchange Act Release No. 64343 (April 26, 
2011), 76 FR 24546 (May 2, 2011) (SR-ISE-2011-26).
    \7\ See id. at 24546-24547.
    \8\ See id. at 24547.
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Retire Additional Expiration Months Pilot and Adopt Amended Rules
    ISE initially established the Pilot Program because it did not 
believe it had the ability to list more than four expirations per class 
when an options class is opened for trading on the Exchange. Now that 
ISE has the ability to match the expiration listings of other exchanges 
\9\ (that may exceed six expirations and may occur on a regular basis) 
the Exchange believes that the Pilot Program is no longer necessary and 
is proposing to retire it. To affect this change, the Exchange is 
proposing to delete Supplementary Material .08 to Rule 504, which sets 
forth the terms of the Pilot Program, and which is currently scheduled 
to expire on October 31, 2011.
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    \9\ See Supplementary Material .10 to ISE Rule 504.
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    In addition, ISE's ability to match the expirations listed by other 
exchanges is set forth in Supplementary Material .10 to Rule 504. This 
provision, however, only provides ISE with the ability the match 
expirations initiated by other options exchanges. To encourage 
competition and to place ISE on a level playing field, the Exchange 
should have the same ability as PHLX, NOM and CBOE to initiate 
expirations. Therefore, ISE is proposing to harmonize its rules with 
the rules of PHLX, NOM and CBOE by clarifying that ISE will open at 
least one expiration month and one series for each class opened for 
trading on the Exchange. To affect this change, the Exchange is 
proposing to amend the text of Rule 504(b) to track the rule text of 
NOM Chapter IV, Section 6, PHLX Rule 1012 and CBOE Rule 5.5 and to 
delete Rule 504(e).
    Finally, the Exchange is proposing to slightly modify Rule 504 
regarding the opening of additional series. Specifically, the Exchange 
proposes to amend Rule 504(c) to permit the listing of additional 
series when (among other reasons) the market price of the underlying 
stock moves more than five strike prices from the initial exercise 
price or prices.\10\ Currently, Rule 504(c) permits the listing of 
additional series when the market price of the underlying stock moves 
substantially from the initial exercise price or prices. This proposed 
rule change again tracks PHLX, NOM and CBOE's existing rule text.
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    \10\ Rule 504(c) also permits ISE to add additional series of 
options of the same class when the Exchange deems it necessary to 
maintain an orderly market and to meet customer demand. These 
``additional series'' provisions are similar to existing provisions 
in NOM Chapter IV, Section 6, PHLX Rule 1012 and CBOE Rule 5.5.
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    The Exchange believes the proposed rule change is proper, and 
indeed necessary, in light of the need to have rules that do not put 
the Exchange at a competitive disadvantage. ISE's proposal puts the 
Exchange in the same position as PHLX, NOM and CBOE and provides the 
Exchange with the same ability to initiate and match identical 
expirations across exchanges for products that are multiply-listed and 
fungible with one another. The Exchange believes that the proposed rule 
change should encourage competition and be beneficial to traders and 
market participants by providing them with a means to trade on the 
Exchange securities that are initiated by the Exchange and listed and 
traded on other exchanges.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \11\ and the rules 
and regulations thereunder and, in particular, the requirements of 
Section 6(b) of the Act.\12\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \13\ 
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 to perfect the 
mechanism for a free and open market and a national market system, and, 
in general, to protect investors and the public interest. In 
particular, the proposed rule change will permit the Exchange to 
accommodate requests made by its Members and other market participants

[[Page 63691]]

to list additional expiration months and thus encourages competition 
without harming investors or the public interest.
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    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 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 this requirement.
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    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 should promote competition by allowing 
the Exchange, without undue delay, to incorporate rules that previously 
have been adopted by other exchanges and thereby to list and trade 
option series that are trading on those other options exchanges. 
Therefore, the Commission designates the proposal operative upon 
filing.\16\
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    \16\ 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).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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-2011-63 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-2011-63. 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 website 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-2011-63 and should be 
submitted on or before November 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26439 Filed 10-12-11; 8:45 am]
BILLING CODE 8011-01-P