[Federal Register Volume 79, Number 93 (Wednesday, May 14, 2014)]
[Notices]
[Pages 27673-27675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11034]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72130; File No. SR-ISE-2014-28]


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

May 8, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on May 5, 2014, the International Securities Exchange, LLC (the 
``Exchange'' or the ``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 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 Supplementary Material .03 to Rule 
504 to expand the Quarterly Options Series Program with respect to 
options on exchange traded funds. The text of the proposed rule change 
is available on the Exchange's Internet Web site at 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.

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 amend Supplementary Material .03 to 
Rule 504 related to the Quarterly Option Series (``QOS'') \3\ Program 
to eliminate the cap on the number of additional series that may be 
listed per expiration month for each QOS in exchange traded fund 
(``ETF'') options, consistent with recent filings by other options 
exchanges.\4\ As set out in Supplementary Material .03, the Exchange 
may list QOS for up to five currently listed options classes that are 
either index options or options on ETFs. The Exchange may also list QOS 
on any option classes that are selected by other securities exchanges 
that employ a similar program under their respective rules. Currently, 
for each QOS in ETF options that has been initially listed on the ISE, 
the Exchange may list up to 60 additional series per expiration month.
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    \3\ A Quarterly Option Series is a series of an option class 
that is approved for listing and trading on the Exchange in which 
the series is opened for trading on any business day, and that 
expires at the close of business on the last business day of a 
calendar quarter. The Exchange lists series that expire at the end 
of the next consecutive four (4) calendar quarters, as well as the 
fourth quarter of the next calendar year. See ISE Rules 100(a)(41) 
and Supplementary Material .03(a) to Rule 504.
    \4\ See Securities Exchange Act Release Nos. 70855 (November 13, 
2013), 78 FR 69493 (November 19, 2013) (SR-NYSEArca-2013-120); 70854 
(November 13, 2013), 78 FR 69465 (November 19, 2103) (SR-NYSEMKT-
2013-90); 70991 (December 5, 2013), 78 FR 75420 (December 11, 2013) 
(SR-BOX-2013-57); 71080 (December 16, 2013), 78 FR 77191 (December 
20, 2013) (SR-CBOE-2013-125); 71310 (January 15, 2014), 79 FR 3655 
(January 22, 2014) (SR-MIAX-2014-01).
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    The Exchange is proposing to amend Supplementary Material .03(d) to 
make the treatment of QOS in ETF options consistent with the treatment 
of QOS on other options exchanges,\5\ and with the treatment of QOS in 
index options on the ISE.\6\ Options on ETFs are similar to index 
options because ETFs hold securities based on an index or portfolio of 
securities. The requirements and conditions of the QOS Program in index 
options, moreover, parallel those of the QOS Program in ETF options. 
For example, like the QOS Program in ETF options, the QOS Program in 
index options permits QOS in up to five currently-listed options 
classes; requires the listing of series that expire at the end of the 
next (as of the listing date) consecutive four quarters, as well as the 
fourth quarter of the next calendar year; requires the strike price of 
each QOS to be fixed at a price per share; and establishes parameters 
for the number of strike prices above and below the underlying index. 
The QOS Program in index options, however, does not place a cap on the 
number of additional series that the Exchange may list per expiration 
month for each QOS in index options. Elimination of the cap set out in 
Supplementary Material .03(d) to Rule 504, therefore, would result in 
similar regulatory treatment of similar options products.
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    \5\ Id.
    \6\ See Supplementary Material .02 to ISE Rule 2009 which 
governs the QOS Program in index options.
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    The Exchange believes that the proposed revision to the QOS Program 
would provide market participants with the ability to better tailor 
their trading to meet their investment objectives, including hedging 
securities positions, by permitting the Exchange to list additional QOS 
in ETF options that meet such objectives. In addition, elimination of 
the cap would further allow the Exchange to react to moving markets as 
it gives the Exchange the ability to add more strike prices closer to 
the underlying security. Finally, the proposed changes will align the

[[Page 27674]]

Exchange's QOS rules with the rules of other options exchanges.\7\
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    \7\ See supra note 4.
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    In addition, the Exchange believes the elimination of the cap would 
also help market participants meet their investment objectives by 
providing expanded opportunities to roll ETF options into later 
quarters. Because of the current cap the Exchange may not be able to 
list the appropriate series for market participants to roll their 
positions in ETF options. Elimination of the cap, however, would allow 
the Exchange to meet the investment needs of market participants.
    With regard to the impact of this proposal on system capacity, the 
Exchange represents that it and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle any potential 
additional traffic associated with this amendment to the QOS Program. 
The Exchange believes that its members will not have a capacity issue 
as a result of this proposal. The Exchange also represents that it does 
not believe this expansion will cause fragmentation to liquidity.
    To help ensure that only active options series are listed, the 
Exchange has in place procedures to delist inactive series. 
Supplementary Material .03(g)(i) to Rule 504 requires the Exchange to 
review, on a monthly basis, the series that are outside of a range of 
five (5) strikes above and five (5) strikes below the current price of 
the underlying ETF, and delist series with no open interest in both the 
put and the call series having a: (i) Strike higher than the highest 
strike price with open interest in the put and/or call series for a 
given expiration month; and (ii) strike lower than the lowest strike 
price with open interest in the put and/or call series for a given 
expiration month.\8\ The Exchange believes this provision helps to 
maintain capacity to handle quote traffic.
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    \8\ See Supplementary Material .03(g)(i) to Rule 504.
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    Finally, the Exchange is proposing to delete Supplementary Material 
.03(h) to Rule 504. That rule temporarily increased the number of 
additional QOS in ETF options that could be added by the Exchange from 
60 to 100. Now that the pilot program has expired, there is no need for 
the continued inclusion of this paragraph.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Securities Exchange Act of 1934 
(the ``Act''),\9\ in general, and with Section 6(b)(5) of the Act,\10\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
is designed to remove impediments to and perfect the mechanism of a 
free and open market because it will expand the investment options 
available to investors and will allow for more efficient risk 
management. The Exchange believes that removing the cap on the number 
of QOS in ETF options permitted to be listed on the Exchange will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions to 
their needs, and therefore, the proposal is designed to protect 
investors and the public interest. In addition, the elimination of the 
cap will make the treatment of QOS in ETF options consistent with the 
treatment of QOS in index options, thus resulting in similar regulatory 
treatment for similar option products.
    Furthermore, the Exchange believes it is appropriate to eliminate 
obsolete or out-of-date rule text from the rule book. Specifically, the 
elimination of Supplementary Material .03(h) to Rule 504 is appropriate 
as this will reduce investor confusion by deleting rules that no longer 
are applicable.
    As the Exchange has already stated, with regard to the impact of 
this proposal on system capacity, the Exchange represents that it and 
OPRA have the necessary systems capacity to handle any potential 
additional traffic associated with this amendment to the QOS Program. 
The Exchange believes that its members will not have a capacity issue 
as a result of this proposal. The Exchange also represents that it does 
not believe this expansion will cause fragmentation to liquidity.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes the proposal is pro-competitive. The proposed rule 
change is a competitive response to recent filings by other options 
exchanges,\11\ which the ISE believes is necessary to permit fair 
competition among the options exchanges with respect to QOS Programs. 
Moreover, the Exchange believes that the elimination of the cap on 
series in the QOS Program will benefit investors by providing more 
flexibility to more closely tailor their investment and hedging 
decisions.
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    \11\ See supra note 4.
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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 from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). 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, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will ensure 
fair competition among exchanges by allowing the ISE to treat QOS in 
ETF options consistent with the treatment of QOS in index options in 
the same manner as other exchanges. The Exchange also stated that the 
proposal would allow the Exchange to meet investor demand for an 
expanded number of QOS in ETF options, allowing investors to meet 
investment objectives, including hedging securities positions, 
currently unavailable because

[[Page 27675]]

of the limited number of QOS in ETF options available. For these 
reasons, the Commission believes that the proposed rule change presents 
no novel issues and that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest; 
and will allow the Exchange to remain competitive with other exchanges. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\14\
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    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 email to [email protected]. Please include 
File Number SR-ISE-2014-28 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-2014-28. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2014-28 and should be 
submitted on or before June 4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11034 Filed 5-13-14; 8:45 am]
BILLING CODE 8011-01-P