

[Federal Register: December 28, 2007 (Volume 72, Number 248)]
[Notices]               
[Page 73937-73939]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de07-194]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57019; File No. SR-ISE-2007-120]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Rule 710, Minimum Trading Increments

December 20, 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 December 17, 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 
the Exchange. The Exchange 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

    ISE proposes to amend Rule 710, Minimum Trading Increments, to 
decrease the size of the minimum quoting and trading increments 
applicable to the Exchange's foreign currency options (``FX options''). 
The text of the proposed rule change is available at ISE, the 
Commission's Public Reference Room, and http://www.ise.com.


[[Page 73938]]

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. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    ISE proposes to amend its Rule 710, Minimum Trading Increments, to 
decrease the size of the minimum quoting and trading increments 
applicable to the Exchange's FX options.\5\ The Exchange believes that 
by reducing the minimum trading increments applicable to ISE's FX 
options, the proposed rule change will provide market participants with 
additional trading opportunities in this product. Further, quoting and 
trading in smaller increments will enable market participants to trade 
FX options with greater precision as to price.
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    \5\ The Exchange began trading FX options on the Euro, the 
British pound, the Japanese yen and the Canadian dollar on April 17, 
2007. See Securities Exchange Act Release No. 55575 (April 3, 2007), 
72 FR 17963 (April 10, 2007) (approving SR-ISE-2006-59).
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    Currently, FX options traded on the Exchange have minimum 
increments of $0.05 or $0.10 depending on the price at which an FX 
option is quoting. Specifically, under the Exchange's current rules, 
the minimum trading increment for an FX options contract trading at 
less than $3.00 is $0.05, and for an FX options contract trading at 
$3.00 or higher, the minimum trading increment is $0.10. The proposed 
amendment to Rule 710 would set the minimum increment for all FX 
options at $0.01 regardless of the price at which the option is 
quoting. Although FX options would be trading in these narrower 
increments, they would not actually be trading in pennies\6\ and would 
not be considered part of the Exchange's pilot program currently 
applicable to certain equity options.\7\
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    \6\ The Exchange notes that ISE's FX options have underlying 
values that modify the magnitude of traditionally quoted exchange 
rates that appear in the underlying foreign currency markets. As a 
result, the ``rate-modified'' FX options traded on the Exchange are 
quoted to reflect the sub-penny movements in the actual exchange 
rate of any underlying currency. Since all premiums in ISE's FX 
options are quoted in U.S. Dollars, customers will be able to trade 
this product in one-cent increments. Thus, while the Exchange's 
proposal seeks to set the minimum increment for all FX options at 
$0.01, the quoted values reflect much smaller currency increments 
with respect to the exchange rate of the underlying currency.
    \7\ The penny pilot, which permits certain options series to be 
quoted and traded in increments of $0.01, began on January 26, 2007. 
See Securities Exchange Act Release No. 55161 (January 24, 2007), 72 
FR 4754 (February 1, 2007) (approving SR-ISE-2006-62). The penny 
pilot was extended through September 27, 2007. See Securities 
Exchange Act Release No. 56151 (July 26, 2007), 72 FR 42452 (August 
2, 2007) (approving SR-ISE-2007-68). The penny pilot has been 
extended again through March 27, 2009. See Securities Exchange Act 
Release No. 56564 (September 27, 2007), 72 FR 56412 (October 3, 
2007) (approving SR-ISE-2007-74). With one exception, all series in 
options included in the penny pilot trading at a price of less than 
$3.00 are currently quoted and traded in minimum increments of 
$0.01, and those with a price of $3.00 or higher are currently 
quoted and traded in minimum increments of $0.05. A list of the 
options to be included in the penny pilot was communicated to the 
Exchange's members via a Regulatory Information Circular.
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    Currently, options on currency futures trade in these smaller 
increments on the Chicago Mercantile Exchange. Also, currencies trade 
on the cash market in these smaller increments. Further, the Commission 
recently approved a proposed rule change by the Philadelphia Stock 
Exchange (``Phlx'') permitting that exchange to trade its U.S. dollar-
settled foreign currency options in $0.01 increments.\8\ As a 
competitive matter, ISE seeks the opportunity to offer market 
participants those same, more refined increments. The Exchange notes 
that providing these more refined increments will permit the Exchange's 
market makers the opportunity to provide better fills (meaning less 
spread than the current wider minimum increments rules allow) to 
customers.
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    \8\ See Securities Exchange Act Release No. 56933 (December 7, 
2007), 72 FR 71185 (December 14, 2007) (approving SR-Phlx-2007-70).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, 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.

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) 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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act and 
Rule 19b-4(f)(6) thereunder. As required under Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange provided the Commission with 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 the filing of the proposed rule 
change.
    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) 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 and render the proposed rule change to 
become operative on January 2, 2008.\9\ The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Waiver of the 30-day operative delay 
would enable the Exchange to start trading FX options in the same 
increments and at the same time as Phlx. For the reasons stated above, 
the Commission therefore designates the proposal to become operative 
immediately.
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    \9\ The Exchange also may decide to start using these smaller 
trading increments later than January 2, 2007. Telephone 
conversation between Samir M. Patel, Assistant General Counsel, ISE, 
and Natasha Cowen, Special Counsel, Division of Trading and Markets, 
Commission, dated December 19, 2007.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate

[[Page 73939]]

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-2007-120 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-2007-120. 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 such 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-2007-120 and should be 
submitted on or before January 18, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-25208 Filed 12-27-07; 8:45 am]

BILLING CODE 8011-01-P
