

[Federal Register: July 17, 2006 (Volume 71, Number 136)]
[Notices]               
[Page 40564-40566]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jy06-116]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54117; File No. SR-ISE-2006-37]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Extend the Short Term Option Series Pilot Program

July 10, 2006.
    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 July 3, 2006, the International Securities Exchange, Inc. 
(``Exchange'' or ``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. 
ISE has designated this proposal as non-controversial under section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change effective upon filing with the 
Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 47 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Supplementary Material .02 to ISE 
Rule 504 and Supplementary Material .01 to ISE Rule 2009 to extend 
until July 12, 2007, its pilot program for listing and trading Short 
Term Option Series (``Pilot Program''). The text of the proposed rule 
change is available on the Exchange's Web site (http://www.iseoptions.com
), at the Exchange's principal office, 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 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 purpose of the proposed rule change is to extend the Pilot 
Program for an additional year, through July 12, 2007.\5\ The Pilot 
Program allows ISE to list and trade Short Term Option Series, which 
expire one week after the date on which a series is opened. Under the 
Pilot Program, ISE may select up to five approved options classes on 
which Short Term Option Series could be opened.\6\ A series could be 
opened on any Friday that is a business day and would expire on the 
next Friday that is a business day.\7\ If a Friday were not a business 
day, the series could be opened (or would expire) on the first business 
day immediately prior to that Friday.
---------------------------------------------------------------------------

    \5\ The Commission approved the Pilot Program on July 12, 2005. 
See Securities Exchange Act Release No. 52012 (July 12, 2005), 70 FR 
41246 (July 18, 2005) (SR-ISE-2005-17). Under ISE Rules 504 and 
2009, the Pilot Program is scheduled to expire on July 12, 2006.
    \6\ A Short Term Option Series could be opened in any options 
class that satisfied the applicable listing criteria under ISE rules 
(i.e., stock options, options on exchange traded funds as defined 
under ISE Rule 502(h), or options on indexes). The Exchange could 
also list and trade Short Term Option Series on any options class 
that is selected by another exchange that employs a similar pilot 
program.
    \7\ Short Term Option Series would be settled in the same manner 
as the monthly expiration series in the same class. Thus, if the 
monthly option contract for a particular class were A.M.-settled, as 
most index options are, the Short Term Option Series for that class 
also would be A.M.-settled; if the monthly option contract for a 
particular class were P.M.-settled, as most non-index options are, 
the Short Term Option Series for that class also would be P.M.-
settled. Similarly, Short Term Option Series for a particular class 
are physically settled or cash-settled in the same manner as the 
monthly option contract in that class.
---------------------------------------------------------------------------

    For each class selected for the Pilot Program, the Exchange usually 
would open five Short Term Option Series in that class for each 
expiration date. The strike price of each Short Term Option Series 
would be fixed at a price per share, with at least two strike prices 
above and two strike prices below the value of the underlying security 
or calculated index value at about the time that the Short Term Option 
Series is opened. ISE would not open a Short Term Option Series in the 
same week that the corresponding monthly options series is expiring, 
because the monthly options series in its last week before expiration 
is functionally equivalent to the Short Term Option Series. The 
intervals between strike prices on a Short Term Option Series would be 
the same as the intervals between strike prices on the corresponding 
monthly options series.
    The Exchange believes that Short Term Option Series can provide 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and be more responsive to the timing of 
events affecting the securities that underlie option contracts. While 
ISE has not listed any Short Term Option Series during the first year 
of the Pilot Program, there has been significant investor interest in 
trading short-term options at the Chicago Board Options Exchange 
(``CBOE'').\8\ To have the ability to respond to customer interest in 
the future, the Exchange proposes the continuation of the Pilot 
Program.
---------------------------------------------------------------------------

    \8\ CBOE filed a report with the Commission on June 13, 2006, 
stating that CBOE has listed Short Term Options Series in four 
different options classes. See Securities Exchange Act Release No. 
53984 (June 14, 2006), 71 FR 35718 (June 21, 2006) (extending CBOE's 
Short Term Option Series Pilot Program).
---------------------------------------------------------------------------

    In the original proposal to establish the Pilot Program, the 
Exchange stated

[[Page 40565]]

that if it were to propose an extension, expansion, or permanent 
approval of the program, the Exchange would submit, along with any 
filing proposing such amendments to the program, a report providing an 
analysis of the Pilot Program covering the entire period during which 
the Pilot Program was in effect.\9\ Since the Exchange did not list any 
One Week Options Series during the first year of the Pilot Program, 
there is no data available to compile such a report at this time. 
Therefore the Exchange did not submit a report with its proposal to 
extend the Pilot Program.
---------------------------------------------------------------------------

    \9\ See Form 19b-4 for File No. SR-ISE-2005-17, filed March 7, 
2005.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that Short Term Option Series could stimulate 
customer interest in options and provide a flexible and valuable tool 
to manage risk exposure, minimize capital outlays, and be more 
responsive to the timing of events affecting the securities that 
underlie option contracts. For these reasons, the Exchange believes 
that the proposed rule change is consistent with section 6(b) of the 
Act \10\ in general and furthers the objectives of section 6(b)(5) of 
the Act \11\ in particular in that it is designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts, 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.
---------------------------------------------------------------------------

    \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 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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to section 
19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\13\ Because the foregoing proposed rule change (i) does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally 
requires notice to the Commission of the Exchange's intent to file the 
proposed rule change five business days prior to filing, and normally 
does not become operative for 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to waive the five 
day pre-filing requirement and to accelerate the operative date if such 
action is consistent with the protection of investors and the public 
interest. The Exchange has asked the Commission to waive the pre-filing 
notice requirement and the operative delay to permit the Pilot Program 
extension to become effective prior to the 30th day after filing.
    The Commission believes that waiving the pre-filing notice 
requirement and the 30-day operative delay is consistent with the 
protection of investors and the public interest because waiving these 
requirements will allow the benefits of the Pilot Program to continue 
without interruption.\14\ Therefore, the Commission designates that the 
proposal will become operative on July 12, 2006.\15\
---------------------------------------------------------------------------

    \14\ 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).
    \15\ As set forth in the Exchange's original filing proposing 
the Pilot Program, if the Exchange were to propose an extension, 
expansion, or permanent approval of the Pilot Program, the Exchange 
would submit, along with any filing proposing such amendments to the 
program, a report that would provide an analysis of the Pilot 
Program covering the entire period during which the Pilot Program 
was in effect. The report would include, at a minimum: (1) Data and 
written analysis on the open interest and trading volume in the 
classes for which Short Term Option Series were opened; (2) an 
assessment of the appropriateness of the options classes selected 
for the Pilot Program; (3) an assessment of the impact of the Pilot 
Program on the capacity of ISE, OPRA, and market data vendors (to 
the extent data from market data vendors is available); (4) any 
capacity problems or other problems that arose during the operation 
of the Pilot Program and how ISE addressed such problems; (5) any 
complaints that ISE received during the operation of the Pilot 
Program and how ISE addressed them; and (6) any additional 
information that would assist in assessing the operation of the 
Pilot Program. The report must be submitted to the Commission at 
least 60 days prior to the expiration date of the Pilot Program. See 
Form 19b-4 for File No. SR-ISE-2005-17, filed March 7, 2005.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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 rule-comments@sec.gov. Please include 

File No. SR-ISE-2006-37 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2006-37. 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 Commissions 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. Copies of such 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

[[Page 40566]]

should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ISE-2006-37 
and should be submitted on or before August 7, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

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

Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-11204 Filed 7-14-06; 8:45 am]

BILLING CODE 8010-01-P
