
[Federal Register: March 21, 2008 (Volume 73, Number 56)]
[Notices]               
[Page 15243-15244]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr08-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57508; File No. SR-ISE-2008-27]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Implementing Phase II of the Penny Pilot Program Expansion

March 17, 2008.
    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 March 12, 2008, 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, II, 
and III below, which Items have been substantially prepared by the ISE. 
The Exchange has designated this proposal as one constituting a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule under section 
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) 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)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE is proposing to implement Phase II of the Penny Pilot Program 
expansion. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.ise.com), at the ISE's principal 
office, and at the Commission's Public Reference Room.\5\
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    \5\ Exhibit 5 to the filing contains a Regulatory Information 
Circular that constitutes the text of the proposed rule change.
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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 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. The 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
    On January 24, 2007, the Commission approved ISE's rule filing, SR-
ISE-2006-62, which permits 13 option classes to quote in penny 
increments in connection with the implementation of an industry-wide, 
six-month pilot program (the ``Penny Pilot Program'').\6\ Under the 
Penny Pilot Program, the minimum price variation for all 13 option 
classes, except for the Nasdaq-100 Index Tracking Stock (``QQQQs''), is 
$0.01 for all quotations in option series that are quoted at less than 
$3 per contract and $0.05 for all quotations in options series that are 
quoted at $3 per contract or greater. The QQQQs are quoted in $0.01 
increments for all options series.
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    \6\ See Securities Exchange Act Release No. 55161 (January 24, 
2007), 72 FR 4754 (February 1, 2007) (the ``Initial Filing''). The 
Penny Pilot Program was subsequently extended for an additional two 
month period, until September 27, 2007. See Securities Exchange Act 
Release No. 56151 (July 26, 2007), 72 FR 42452 (August 2, 2007) (SR-
ISE-2007-68).
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    A subsequent ISE rule filing, SR-ISE-2007-74, initiated a two-phase 
expansion of the Penny Pilot Program. Phase I of the expansion, which 
commenced on September 28, 2007,\7\ added 22 option classes that are 
among the most actively traded, multiply-listed option classes based on 
national average daily volume, and together with the original 13 option 
classes, represented approximately 35% of the total industry volume.
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    \7\ See Securities Exchange Act Release No. 56564 (September 27, 
2007), 72 FR 56412 (October 3, 2007).
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    The Exchange now proposes to implement Phase II of the expansion, 
which will begin on March 28, 2008 and continue for one year until 
March 27, 2009. Phase II will add an additional 28 option classes to 
the Penny Pilot Program on March 28, 2008, bringing the total number of 
option classes in the Penny Pilot Program to 63. These 28 new option 
classes are also among the most actively traded, multiply-listed option 
classes. A Regulatory Information Circular, attached as Exhibit 5 to 
this proposed rule change, identifies these additional 28 underlying 
securities.\8\ The 35 classes currently in the Penny Pilot Program will 
continue to be quoted as they are today.
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    \8\ The Exchange notes that on August 27, 2007, Sun 
Microsystems, Inc. changed its ticker symbol from SUNW to JAVA. The 
Exchange will amend the Regulatory Information Circular to reflect 
this change prior to its issuance. In addition, the Exchange will 
revise the Regulatory Information Circular prior to its issuance to 
correct a typographical error.
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    ISE believes that expanding the Penny Pilot Program as proposed by 
this rule filing will allow the Exchange and the Commission to further 
analyze, and over a longer period of time, the impact of quoting and 
trading option classes in penny increments and the impact of the Penny 
Pilot Program on liquidity, market structure, and quote traffic.
    As proposed in the Initial Filing, ISE represents that options 
trading in penny increments will not be eligible for split pricing, as 
permitted under ISE Rule 716. In the Initial Filing, the Exchange also 
made references to quote mitigation strategies that are currently in 
place and proposed to apply them to the Penny

[[Page 15244]]

Pilot Program. The Exchange proposes to continue applying those quote 
mitigation strategies. Specifically, as proposed in ISE Rule 804, ISE 
will continue to utilize a holdback timer that delays quotation updates 
for up to, but not longer than, one second. The Exchange's monitoring 
and delisting policies, as proposed in the Initial Filing, shall also 
continue to apply.
    Finally, ISE intends to submit reports to the Commission analyzing 
the Penny Pilot Program for the following time periods:
     February 1, 2008--July 31, 2008
     August 1, 2008--January 31, 2009
    The Exchange anticipates its reports will analyze the impact of 
penny pricing on market quality and options system capacity. The 
Exchange will submit each report within one month following the end of 
the period being analyzed.
2. Statutory Basis
    The basis under the Act for this proposed rule change is found in 
section 6(b)(5),\9\ in that the proposed rule change 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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    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not 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 written comments from members or other interested parties.

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

    The proposed rule change has become effective pursuant to section 
19(b)(3)(A)(i) of the Act \10\ and Rule 19b-4(f)(1) thereunder,\11\ 
because it constitutes a stated policy, practice, or interpretation 
with respect to the meaning, administration, or enforcement of an 
existing rule.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(i).
    \11\ 17 CFR 240.19b-4(f)(1).
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    At any time within 60 days of the filing of the 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.\12\
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    \12\ See 15 U.S.C. 78s(b)(3)(C).
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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. 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-2008-27 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-2008-27. 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, 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 the 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-2008-27 and should be submitted on or before April 
11, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-5696 Filed 3-20-08; 8:45 am]

BILLING CODE 8011-01-P
