

[Federal Register: September 28, 2007 (Volume 72, Number 188)]
[Notices]               
[Page 55266-55268]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28se07-141]                         


[[Page 55266]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56493; File No. SR-ISE-2007-83]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 Thereto To Eliminate Position and Exercise 
Limits for Options on the Russell 2000 Index, and to Specify that 
Certain Reduced-Value Options on Broad-Based Security Indexes Have No 
Position and Exercise Limits

September 21, 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 September 7, 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. On September 17, 2007, ISE submitted Amendment No. 1 to the 
proposed rule change. 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, as amended, 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 eliminate position and exercise limits for 
options on the Russell 2000 Index (``RUT''), and to specify that 
reduced-value options on broad-based security indexes for which full-
value options have no position and exercise limits will similarly have 
no position and exercise limits. The text of the proposed rule change 
is available at ISE, the Commission's Public Reference Room, and http://www.ise.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 Exchange proposes to amend ISE Rule 2004 to eliminate position 
and exercise limits for options on RUT, a broad-based securities index 
that is multiply listed and heavily traded.\5\ The Exchange further 
proposes to amend ISE Rule 2004 to specify that reduced-value options 
on broad-based security indexes for which full-value options have no 
position and exercise limits will similarly have no position and 
exercise limits. Currently, options on the Full Size Nasdaq 100 Index 
Options (``NDX'') have no position and exercise limits. In this regard, 
the Exchange proposes to eliminate position and exercise limits for 
options on the Mini Nasdaq 100 Index (``MNX'').
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    \5\ The current position and exercise limits, under ISE Rules 
2004 and 2007, respectively, for RUT options are 50,000 contracts, 
with no more than 30,000 of such contracts in a series in the 
nearest expiration month.
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Eliminate Position and Exercise Limits for RUT Options

    The Exchange believes that the circumstances and considerations 
relied upon in approving the elimination of position and exercise 
limits for other heavily traded broad-based index options (e.g., 
options on NDX) equally apply to the current proposal relating to 
position and exercise limits for RUT options.\6\
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    \6\ See Securities Exchange Act Release No. 52894 (December 5, 
2005), 70 FR 73497 (December 12, 2005) (SR-ISE-2005-45) (``NDX 
Approval Order'').
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    In approving the elimination of position and exercise limits for 
NDX options, the Commission considered the capitalization of this index 
and the deep and liquid markets for the securities underlying the index 
significantly reduced concerns of market manipulation or disruption in 
the underlying markets. The Commission also noted the active trading 
volume for options on the index. ISE believes that RUT shares these 
factors in common with NDX. As of July 31, 2007, the approximate market 
capitalization of NDX was $2.28 trillion, the average daily trading 
volume (``ADTV'') for the components of NDX was 572 million, and the 
ADTV for options on NDX was 64,003 contracts per day. ISE believes that 
RUT has very comparable characteristics. The market capitalization for 
RUT is $1.73 trillion dollars, the ADTV for the underlying securities 
is 535 million shares, and the ADTV for the option is 79,000 contracts.
    In approving the elimination of position and exercise limits for 
NDX, the Commission also noted the financial requirements imposed by 
both the Exchange and the Commission serve to address any concerns that 
an Exchange member or its customer(s) may try to maintain an 
inordinately large unhedged position in options on NDX. These financial 
requirements also apply to RUT options. Under ISE rules, the Exchange 
also has the authority to impose additional margin upon accounts 
maintaining underhedged positions, and is further able to monitor 
accounts to determine when such action is warranted. As noted in the 
Exchange's rules, the clearing firm carrying such an account would be 
subject to capital charges under Rule 15c3-1 under the Act \7\ to the 
extent of any resulting margin deficiency.\8\
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    \7\ 17 CFR 240.15c3-1.
    \8\ See ISE Rule 2006(a)(14).
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    In approving the elimination of position and exercise limits for 
NDX, the Commission relied heavily on the Exchange's ability to provide 
surveillance and reporting safeguards to detect and deter trading 
abuses arising from the elimination of position and exercise limits in 
options on the index. The Exchange represents that it monitors the 
trading in RUT options in the same manner as trading in NDX options and 
that the current ISE surveillance procedures are adequate to continue 
monitoring RUT options. In addition, the Exchange intends to impose a 
reporting requirement on ISE members who trade RUT options. This 
reporting requirement, which is currently imposed on members who trade 
NDX options, will require members who maintain in excess of 100,000 RUT 
option contracts on the same side of the market, for their own accounts 
or for the account of customers, to report information as to whether 
the positions are hedged and provide documentation as to how such 
contracts are hedged, in a manner and form required by the Exchange. 
The Exchange may also specify other reporting requirements, as well as 
the limit at which the reporting requirement may be triggered.
    The Exchange believes that eliminating position and exercise limits

[[Page 55267]]

for RUT options is consistent with ISE rules relating to similar broad-
based indexes and also allows ISE members and their customers greater 
hedging and investment opportunities.
Elimination of Position Limits for Reduced-Value Options on Broad-
Based-Indexes for Which There Are Not Position and Exercise Limits for 
Full-Value Options
    The Exchange lists and trades reduced-value options on broad-based 
indexes for which the Exchange also lists and trades full value options 
(e.g., MNX options). When the Exchange received approval to list and 
trade MNX options, the proscribed position and exercise limits were 
equivalent to the reduced-value contract factor (e.g., 10) multiplied 
by the applicable position and exercise limits for the full-value 
options on the same broad-based index.\9\ For example, when the 
Exchange received approval to list and trade NDX and MNX options,\10\ 
the position and exercise limits for MNX (\1/10\\th\ NDX value) options 
were 750,000 contracts, which was equal to the applicable factor (10) 
multiplied by the position limit for NDX options (75,000 contracts). In 
the NDX/MNX Approval Order, the Exchange noted that NDX contracts would 
be aggregated with MNX contracts to determine compliance with 
applicable position and exercise limits. Since position and exercise 
limits were eliminated for NDX options,\11\ the Exchange now proposes 
to eliminate position and exercise limits for MNX options. The Exchange 
further proposes to amend Rule 2004 to state that reduced-value options 
on broad-based security indexes for which full-value options have no 
position and exercise limits would similarly have no position and 
exercise limits.
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    \9\ See Securities Exchange Act Release No. 51121 (February 1, 
2005), 70 FR 6476 (February 7, 2005) (SR-ISE-2005-01) (``NDX/MNX 
Approval Order'').
    \10\ Id.
    \11\ See NDX Approval Order, supra note 6.
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    In addition, because position and exercise limits for reduced-value 
options are aggregated with full-value options for purposes of 
determining compliance with position and exercise limits, the Exchange 
proposes amending Rule 2006(a)(13) to reflect that such aggregation 
would apply when calculating reporting requirements (e.g., 10 MNX 
options equal 1 NDX full-value contract). Further, the Exchange 
proposes to delete certain rule text in Rule 2006(a)(5) relating to MNX 
options because, pursuant to this proposed rule change, there is no 
longer a need for an exemption from position limits for MNX options.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act,\12\ in general, and furthers the objectives of 
section 6(b)(5) of the Act,\13\ 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. Further, the Exchange notes 
that this proposed rule change is similar to proposals filed by the 
American Stock Exchange LLC (``Amex'') and the Chicago Board Options 
Exchange, Incorporated (``CBOE'') that were recently approved by the 
Commission.\14\
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See Securities Exchange Act Release Nos. 56351 (September 
4, 2007), 72 FR 51875 (September 11, 2007) (SR-Amex-2007-81); and 
56350 (September 4, 2007), 72 FR 51878 (September 11, 2007) (SR-
CBOE-2007-79).
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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.

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 foregoing 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 \15\ and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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.\17\ 
However, Rule 19b-4(f)(6)(iii) \18\ 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 
will allow ISE members and their customers greater hedging and 
investment opportunities in RUT options without further delay. The 
Commission notes that it recently approved substantially similar 
proposals filed by CBOE and Amex.\19\ The Commission believes that 
ISE's proposal to eliminate position and exercise limits for RUT 
options raises no new issues. For these reasons, the Commission 
designates the proposed rule change to be operative upon filing with 
the Commission.\20\
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    \17\ 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 requested the Commission to waive 
this five-day pre-filing notice requirement. The Commission hereby 
grants this request.
    \18\ Id.
    \19\ See supra note 14.
    \20\ 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.\21\
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    \21\ 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 60-
day period within which the Commission may summarily abrogate the 
proposal, the Commission considers the period to commence on 
September 17, 2007, the date on which the Exchange submitted 
Amendment No. 1.
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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.

[[Page 55268]]

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-2007-83 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-2007-83. 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-2007-83 and should be 
submitted on or before October 19, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Deputy Secretary.
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    \22\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E7-19161 Filed 9-27-07; 8:45 am]

BILLING CODE 8010-01-P
