
[Federal Register: March 16, 2009 (Volume 74, Number 49)]
[Notices]               
[Page 11147-11149]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16mr09-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59548; File No. SR-ISE-2009-10]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Exchange's Obvious Error Rules

March 10, 2009.
    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 February 25, 2009, 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 prepared by the self-
regulatory organization. The Exchange

[[Page 11148]]

filed the proposed rule change as a ``non-controversial'' proposed rule 
change 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 ISE proposes to amend its Rule 720 regarding obvious errors. 
The text of the proposed rule change is as follows, with deletions in 
[brackets] and additions in italics:

Rule 720. Obvious Errors

* * * * *

Supplementary Material to Rule 720

    .01-.04 No Change.
    .05 Buyers of options with a zero bid [and $.05 offer (i.e., a 
Theoretical Price of $.05)] may request that their execution be 
busted if at least the [three] two strikes below (for calls) or 
above (for puts) in the same options class were quoted with a zero 
bid [and $.05 offer] at the time of the execution. Such buyers must 
follow the procedures of paragraph (b)(1) above.
    .06-.08 No Change.
* * * * *

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 self-regulatory organization 
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 self-regulatory organization 
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 this proposed rule change is to amend ISE Rule 720 
regarding obvious errors. Under the current rule, transactions in 
options series quoted no bid at a nickel, i.e., $0.05 offer, may be 
nullified provided at least three strikes below (for calls) or above 
(for puts) in the same options class was quoted zero bid at a nickel at 
the time of execution. A ``no bid'' or ``zero bid'' option refers to an 
option where the bid price is $0.00. Series of options quoted no bid 
are usually deep out-of-the-money series that are perceived as having 
little if any chance of expiring in-the-money. For this reason, 
relatively few transactions occur in these series and those that do are 
usually the result of a momentary pricing error.
    The proposed rule change would eliminate the portion of the current 
rule that requires quotes to have a nickel offer and instead only 
require that the option series be quoted no bid.\5\ The proposed rule 
change would also reduce from three to two the number of strikes above 
or below the options series in question in which there also must be no 
bid.\6\ The reason for this change is that options that are priced at 
no bid, regardless of the offer, are usually deep-out-of-the-money 
series that are perceived as having little if any chance of expiring 
in-the-money. This is especially the case when multiple series below 
(for calls) or above (for puts) in the same option class are quoted no 
bid. In this regard, the offer price is irrelevant. Therefore, 
transactions in series that are quoted no bid at a dime, for example, 
are just as likely to be the result of an obvious error as are 
transactions in series that are quoted no bid at a nickel when multiple 
series below (for calls) or above (for puts) in the same option class 
are quoted no bid.
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    \5\ The Exchange notes that this proposed change is similar to 
the ``no bid'' provision in NYSE Arca Rule 6.87 Commentary .04.
    \6\ The Exchange notes that this proposed change differs from 
NYSE Arca Rule 6.87 Commentary .04 in that it proposes to look to 
two strikes above or below the options series in question in which 
there also must be no bid whereas the NYSE Arca rule looks to only 
one strike above or below the options series in question in which 
there also must be no bid.
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    As is currently required, buyers must notify ISE's market 
operations group within the designated timeframe to seek relief.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (``Exchange 
Act'') for this proposed rule change is the requirement under Section 
6(b)(5) that an exchange have rules that are designed to promote just 
and equitable principles of trade, and to remove impediments to and 
perfect the mechanism for a free and open market and a national market 
system, and in general, to protect investors and the public interest. 
In particular, the proposed rule change provides for the nullification 
of certain trades that result from an inaccurate pricing anomaly.

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 unsolicited written comments from members or other interested 
parties.

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

    This proposed rule change does not significantly affect the 
protection of investors or the public interest, does not impose any 
significant burden on competition, and, by its terms, does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. 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 filing the 
proposed rule change as required by Rule 19b-4(f)(6).\7\ The proposed 
rule change will permit the Exchange to nullify certain trades that 
result from an inaccurate pricing anomaly. Further, the proposed rule 
change is similar to the rules of NYSE Arca currently in effect. For 
the foregoing reasons, this rule filing qualifies for immediate 
effectiveness as a ``non-controversial'' rule change under paragraph 
(f)(6) of Rule 19b-4 of the Act, as it does not raise any new, unique 
or substantive issues, and is beneficial for competitive purposes and 
to promote a free and open market for the benefit of investors.
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    \7\ 17 CFR 240.19b-4(f)(6).
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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 the 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,

[[Page 11149]]

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-2009-10 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2009-10. 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 the Exchange. 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-2009-10 and should be 
submitted on or before April 6, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-5593 Filed 3-13-09; 8:45 am]

BILLING CODE 8011-01-P
