

[Federal Register: December 22, 2005 (Volume 70, Number 245)]
[Notices]               
[Page 76090-76091]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de05-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52960; File No. SR-ISE-2005-59]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Expand its $2.50 Strike Price Program

December 15, 2005.
    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 December 13, 2005, the International Securities Exchange, Inc. 
(``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 ISE. The 
Exchange has filed the proposal as a ``non-controversial'' rule change 
pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders it 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

    ISE proposes to amend ISE Rule 504 pertaining to the $2.50 Strike 
Price Program (``Program''). Below is the text of the proposed rule 
change. Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *

Rule 504. Series of Options Contracts Open for Trading

    (a) through (f)--No change.
    (g) Pursuant to a program initially approved by the SEC in 1995, 
[T]the options exchanges may select up to 200 options classes on 
individual stocks for which the interval of strike prices will be $2.50 
where the strike price is greater than $25 but less than $50 (the 
``$2.50 Strike Price Program''). On any option class that has been 
selected as part of this $2.50 Strike Price Program, $2.50 strike 
prices between $50 and $75 may be listed, provided that $2.50 strike 
prices between $50 and $75 are no more than $10 from the closing price 
of the underlying stock in its primary market on the preceding day. For 
example, if an options class has been selected as part of the $2.50 
Strike Price Program, and the underlying stock closes at $48.50 in its 
primary market, the Exchange may list the $52.50 strike price and the 
$57.50 strike price on the next business day. If an underlying security 
closes at $54, the Exchange may list the $52.50 strike price, the 
$57.50 strike price and the $62.50 strike price on the next business 
day. [The 200 options classes may be selected by the various options 
exchanges pursuant to any agreement mutually agreed to by the 
individual exchanges. In addition to those options selected by the 
Exchange, t]The Exchange may list a strike price interval [may be] of 
$2.50 in any multiply-traded option once [another exchange trading that 
option selects such option as part of this program] an exchange selects 
an option as part of the $2.50 Price Program. [The Exchange and any of 
the other exchanges may also list strike prices of $2.50 on any options 
class that was previously selected by the NYSE.]
    (h) No change.
* * * * *

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

    In its filing with the Commission, ISE 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 Exchange 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 proposes to amend ISE Rule 504 to allow the listing of 
options with $2.50 strike price intervals for options with strike 
prices between $50 and $75 on those option classes that have been 
selected as part of the Program, provided the $2.50 strike price 
intervals between $50 and $75 are no more than $10 from the closing 
price of the underlying stock in its primary market on the preceding 
day. For example, if an options class has been selected as part of the 
Program, and the underlying stock closes at $48.50 in its primary 
market, the Exchange may list options with strike prices of $52.50 and 
$57.50 on the next business day. If an underlying security closes at 
$54, the Exchange may list options with strike prices of $52.50, 
$57.50, and $62.50 on the next business day.
    The Program was initially adopted in 1995 as a joint pilot program 
of the options exchanges, whereby the options exchanges were permitted 
to list options with $2.50 strike price intervals up to $50 on a total 
of up to 100 option classes.\5\ The Program was later expanded and 
permanently approved in 1998 to allow the options exchanges to select 
up to 200 classes on which to list options with $2.50 strike price 
intervals up to $50.\6\ Of these 200 options classes eligible for the 
Program, 60 classes were allocated to the Chicago Board Options 
Exchange (``CBOE'') and 51 classes were allocated to the American Stock 
Exchange (``Amex''), all pursuant to a formulae approved by the SEC. 
Each options exchange, however, is permitted to list options with $2.50 
strike price intervals on any option class that another exchange 
selects as part of the Program.\7\
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    \5\ See Securities Exchange Act Release No. 35993 (July 19, 
1995), 60 FR 38073 (July 25, 1995) (approving File Nos. SR-Phlx-95-
08, SR-Amex-95-12, SR-PSE-95-07, SR-CBOE-95-19, and SR-NYSE-95-12).
    \6\ See Securities Exchange Act Release No. 40662 (November 12, 
1998), 63 FR 64297 (November 19, 1998) (approving File Nos. SR-Amex-
98-21, SR-CBOE-98-29, SR-PCX-98-31, and SR-Phlx-98-26).
    \7\ The ISE does not select any option classes for inclusion in 
the Program. The Exchange lists options with $2.50 strike price 
intervals on those classes selected by the other options exchanges. 
Telephone conversation between Samir Patel, Assistant General 
Counsel, ISE, and Theodore S. Venuti, Attorney, Division of Market 
Regulation, Commission, on December 15, 2005.
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    The Exchange believes that its experiences over the years with the 
Program have produced positive results.

[[Page 76091]]

Specifically, the Program has stimulated customer interest by creating 
additional trading opportunities, by providing more flexibility in 
trading decisions, and by affording customers the ability to more 
closely tailor investment strategies to the precise movement of the 
underlying security. The Exchange's proposal to expand the Program as 
described in the proposed rule change is intended to provide customers 
with greater flexibility in their investment choices for those stocks 
priced between $50 and $75 that have a low volatility and thus trade in 
a narrow range. The Exchange represents that the Options Price 
Reporting Authority has the capacity to accommodate the increase in the 
number of series added pursuant to this rule change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objective of Section 
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote 
just and equitable principles of change as well as to protect investors 
and the public interest, by increasing trading opportunities which 
should, in turn, increase the depth and liquidity of the 
marketplace.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ The Commission notes that the statutory basis section of 
Exhibit 1 to the proposed rule change states the incorrect rule 
amended by the proposal.
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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 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 forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to section 19(b)(3)(A) 
of the Act \11\ and Rule 19b-4(f)(6) 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 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest.\15\ The Exchange has requested that 
the Commission waive the 30-day pre-operative delay, and the Commission 
hereby grants that request.\16\ The Commission believes that waiving 
the 30-day pre-operative delay is consistent with the protection of 
investors and in the public interest. This action will allow the 
Exchange to immediately expand its Program to list options with $2.50 
strike price intervals for options with strike prices between $50 and 
$75. The Commission notes that it recently approved similar expansions 
to the $2.50 Strike Price Programs of CBOE and Amex.\17\ These 
proposals were subject to a full notice-and-comment period, and no 
negative comments were submitted. The Commission does not believe that 
ISE's proposal raises any novel issues.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ Id.
    \15\ In addition, Rule 19b-4(f)(6)(iii) requires that the 
Exchange give the Commission 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. The Commission has decided to waive 
the five-day pre-filing notice requirement.
    \16\ For the purposes only of waiving the 30-day pre-operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ See Securities Exchange Act Release Nos. 52892 (December 5, 
2005), 70 FR 73492 (December 12, 2005) (approving SR-CBOE-2005-39) 
and 52893 (December 5, 2005), 70 FR 73488 (December 12, 2005) 
(approving SR-Amex-2005-067).
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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 furtherance 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 rule-comments@sec.gov. Please include 

File No. SR-ISE-2005-59 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

    All submissions should refer to File No. SR-ISE-2005-59. 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. Copies of such filing will also be available for 
inspection and copying at the principal office of ISE. 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 No. SR-ISE-2005-59 and should be 
submitted on or before January 12, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Jonathan G. Katz,
Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E5-7676 Filed 12-21-05; 8:45 am]

BILLING CODE 8010-01-P
