

[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]               
[Page 8015-8016]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-141]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53248; File No. SR-ISE-2005-58]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Order Granting Accelerated Approval of a Proposed Rule Change and 
Amendment No. 1 Thereto To Amend ISE Rule 700 Governing the Hours of 
Trading in Equity Options and Narrow-Based Index Options

February 7, 2006.

I. Introduction

    On December 27, 2005, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its rules governing the 
hours of trading in equity options and narrow-based index options. The 
proposed rule change was published for comment in the Federal Register 
on January 13, 2006.\3\ The Commission received no comments on the 
proposed rule change. On January 30, 2006, the Exchange filed Amendment 
No. 1 to the proposed rule change.\4\ The Commission is approving the 
amended proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53055 (January 5, 
2006), 71 FR 2279.
    \4\ In Amendment No. 1, the Exchange requested that the 
implementation date for the new closing time be changed from 
February 1, 2006, as was originally proposed, to February 13, 2006.
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II. Description

    The ISE proposes to amend ISE Rule 700 governing the hours of 
trading in equity options and narrow-based index options. Specifically, 
the ISE proposes to amend ISE Rule 700 to change the close of the 
normal trading hours in options on individual stocks and narrow-based 
indexes from 4:02 p.m. to 4 p.m. (New York time). After the change, the 
time of the close of trading in these ISE options will correspond to 
the normal time set for the close of trading on the primary exchanges 
listing the stocks underlying the ISE options. The primary exchanges 
generally close at 4 p.m. (New York time).
    The Exchange represents that improvements in the processing and 
reporting of transactions have largely eliminated significant delays in 
the reporting of closing prices; and therefore, a two minute session is 
no longer needed to trade options after the underlying securities close 
trading. Additionally, the Exchange believes that pricing aberrations 
can occur if an option is traded when the underlying stock is no longer 
trading, since there is a close relationship in the price of the 
underlying stock and the overlying option. As a result, the ISE 
believes that it is difficult for the market to price options 
accurately when the underlying security is not trading. Furthermore, as 
noted above, the Exchange proposes to change the closing time for 
options on narrow-based indexes, as defined in ISE Rule 2001, because 
these indexes are subject to the same pricing problems as options on 
individual stocks. According to the ISE, a significant news 
announcement on one component of a

[[Page 8016]]

narrow-based index could have a significant effect on that index. 
However, the Exchange is not at this time proposing to change the 
closing time of 4:15 p.m. (New York time) for options on a broad-based 
index, as defined in ISE Rule 2001, because the ISE believes it is 
unlikely that a significant news announcement by the issuer of one 
component stock of a broad-based index is likely to have a significant 
effect on the price of that broad-based index. The Exchange proposes to 
implement the proposed rule change on February 13, 2006.\5\
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    \5\ Id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\6\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\7\ which 
requires, among other things, that the rules of a national securities 
exchange be 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 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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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchange believes that the need to 
continue trading options for some period of time after the close of 
trading in the underlying securities markets is no longer necessary 
because improvements in the processing and reporting of transactions 
have obviated the need to respond to late reports of closing prices 
over the consolidated tape in order to bring options quotes in line 
with the closing price of the underlying security. Moreover, the 
Exchange believes that allowing two additional minutes of options 
trading after trading on the underlying primary exchanges has ended may 
actually result in pricing aberrations. Because the two minute delay 
between the close of normal trading in equity options and narrow-based 
index options and the corresponding underlying equity markets is no 
longer necessary, the Commission believes that eliminating the delay is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets. Therefore, the 
Commission finds that it is consistent with the Act for the Exchange to 
amend its rules to change the close of normal trading hours in equity 
and narrow-based index options from 4:02 p.m. to 4 p.m. (New York 
time).
    The Commission finds good cause for approving this proposed rule 
change, as amended, before the thirtieth day after publication of 
notice thereof in the Federal Register. The Commission notes that all 
of the options exchanges have filed substantially similar proposals and 
seek to implement these industry-wide changes simultaneously on 
February 13, 2006.\8\ For example, on December 20, 2005, the Commission 
published for comment in the Federal Register a similar proposed rule 
change submitted by the Chicago Board Options Exchange, Incorporated 
(``CBOE'').\9\ The Commission received no comments on the CBOE's 
proposed rule change. The Commission believes that the ISE's proposed 
rule change, as amended, raises no new issues or novel regulatory 
questions. Accordingly, the Commission finds good cause, pursuant to 
Section 19(b)(2) of the Act,\10\ for approving the proposed rule 
change, as amended, prior to the thirtieth day after publication in the 
Federal Register. In addition, because the existence of dissimilar 
closing times among the options exchanges could lead to confusion for 
options investors and broker-dealers, the Commission finds good cause 
to accelerate approval of the proposed rule change to enable the six 
options exchanges to simultaneously amend their hours of trading on an 
industry-wide basis in a uniform manner.\11\
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    \8\ See note 11, infra.
    \9\ See Securities Exchange Act Release No. 52949 (December 13, 
2005), 70 FR 75513 (December 20, 2005) (SR-CBOE-2005-104).
    \10\ 15 U.S.C. 78s(b)(2).
    \11\ The Commission notes that it is simultaneously approving 
similar proposals from the other options exchanges. See Securities 
Exchange Act Release Nos. 53244 (SR-Amex-2006-003); 53245 (SR-BSE-
2006-02); 53246 (SR-CBOE-2005-104); 53249 (SR-PCX-2005-138); and 
53247 (SR-Phlx-2006-01) (February 7, 2006).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change and Amendment No. 1 thereto (SR-
ISE-2005-58) be, and hereby are, approved on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-2114 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P
