

[Federal Register: July 12, 2007 (Volume 72, Number 133)]
[Notices]               
[Page 38109-38110]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jy07-92]                         


[[Page 38109]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56020; File No. SR-ISE-2007-56]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to the Extension of a Pilot Program for Position and 
Exercise Limits for Options on the iShares[supreg] Russell 2000[supreg] 
Index Fund

July 6, 2007.
    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 June 29, 2007, 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 substantially prepared by ISE. The 
Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
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

    The Exchange proposes to extend an existing pilot program that 
increases the position and exercise limits for options on the 
iShares[supreg] Russell 2000[supreg] Index Fund (``IWM'') traded on the 
Exchange (``IWM Pilot Program''). The text of the proposed rule change 
is available at ISE, the Commission's Public Reference Room, and http://www.iseoptions.com
.


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. ISE 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 IWM Pilot 
Program for an additional six-month period, through January 18, 
2008,\5\ and to make non-substantive changes to simplify the rule text 
describing the IWM Pilot Program. The IWM Pilot Program increases the 
position and exercise limits for IWM options traded on the Exchange.\6\ 
The Exchange is not proposing any other changes to the IWM Pilot 
Program. The Exchange represents that it has not encountered any 
problems or difficulties relating to the IWM Pilot Program since its 
inception.
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    \5\ January 18, 2008 is the third Friday of the month (or 
expiration Friday), which is the day on which January 2008 IWM 
options will expire.
    \6\ Pursuant to ISE Rule 414, the exercise limit established 
under Rule 414 for IWM options shall be equivalent to the position 
limit prescribed for IWM options in Supplementary Material .01 to 
Rule 412. The increased exercise limits would only be in effect 
during the IWM Pilot Period.
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    The proposal that established the IWM Pilot Program was designated 
by the Commission to be effective and operative upon filing and 
provided that it would run from January 22, 2007 through July 22, 
2007.\7\ In that filing, the Exchange explained that in June 2005, as a 
result of a 2-for-1 stock split, the position limit for IWM options was 
temporarily increased from 250,000 contracts (covering 25,000,000 
shares) to 500,000 contracts (covering 50,000,000 shares). At the time 
of the split, the furthest IWM option expiration date was January 2007. 
Therefore, the temporary increase of the IWM position limit would have 
reverted to the pre-split level (as provided for in connection with the 
Rule 412 Pilot Program) of 250,000 contracts after expiration in 
January 2007, or on January 22, 2007.
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    \7\ See Securities Exchange Act Release No. 55175 (January 25, 
2007), 72 FR 4753 (February 1, 2007) (SR-ISE-2007-07).
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    The Exchange described in the proposal that established the IWM 
Pilot Program that a position limit of 250,000 contracts would prevent 
traders from adequately hedging their options positions, thereby 
impairing their ability to provide liquidity. Specifically, the 
Exchange stated that options on IWM are 1/10th the size of options on 
the Russell 2000[supreg] Index (``RUT''), which has a position limit of 
50,000 contracts.\8\ Therefore, traders who trade IWM options to hedge 
positions in RUT options are likely to find a position limit of 250,000 
contracts in IWM options too restrictive and insufficient to properly 
hedge. For example, if a trader held 50,000 RUT options and wanted to 
hedge that position with IWM options, the trader would, at a minimum, 
need 500,000 IWM options to properly hedge the position. Additionally, 
the Exchange notes that index options on 1/10th the RUT have a position 
limit of 500,000 contracts, which is consistent with and corresponds to 
the increased position limits permitted under the IWM Pilot Program.\9\ 
Therefore, the Exchange continues to believe that a position limit of 
250,000 contracts is too low and may adversely affect market 
participants' ability to provide liquidity in this product.
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    \8\ See ISE Rule 2004(a).
    \9\ Id.
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    As the Exchange also described in the proposal that established the 
IWM Pilot Program, IWM options have grown to become one of the largest 
options contracts in terms of trading volume. For example, through May 
29, 2007, year-to-date industry volume in IWM options has averaged over 
460,000 contracts per day, for a total of over 61 million contracts. 
Further, ISE alone has averaged more than 125,000 IWM option contracts 
per day during that time, for a total of almost 13 million contracts. 
In contrast, QQQQ options, which have a position limit of 900,000 
contracts, have averaged almost 575,000 contracts per day.
    The Exchange believes that maintaining the increased position and 
exercise limits for IWM options will lead to a more liquid and more 
competitive market environment for IWM options that will benefit 
customers interested in trading this product. As a result, the Exchange 
requests that the Commission extend the pilot for an additional six-
month period, through January 18, 2008.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act,\10\ in 
that it is designed to promote just and equitable principles of trade, 
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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    \10\ 15 U.S.C. 78f(b)(5).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 38110]]

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 no 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. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
would permit position and exercise limits for options on IWM to 
continue at 500,000 option contracts for a six-month pilot period. For 
this reason, the Commission designates the proposed rule change to be 
operative upon filing with the Commission.\15\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
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 Exchange has satisfied the five-day pre-filing 
notice requirement.
    \14\ Id.
    \15\ For the 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 such 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 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 Number SR-ISE-2007-56 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-2007-56. 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, 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 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 Number SR-ISE-2007-56 and should be 
submitted on or before August 2, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13502 Filed 7-11-07; 8:45 am]

BILLING CODE 8010-01-P
