
[Federal Register: July 16, 2009 (Volume 74, Number 135)]
[Notices]               
[Page 34611-34613]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jy09-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60274; File No. SR-ISE-2009-48]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Foreign Currency Options Closing Settlement Values

July 9, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 2, 2009, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
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 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.
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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 rules regarding Foreign Currency 
Options (``FX Options'').\3\ The text of the proposed rule amendment is 
as follows, with deletions in [brackets] and additions italicized:
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    \3\ ISE began trading FX options on April 17, 2007 pursuant to 
Commission approval. See Securities Exchange Act Release No. 55575 
(April 3, 2007), 72 FR 17963 (April 10, 2007) (SR-ISE-2006-59) (the 
``FX Options Filing'').
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Rule 2212. Foreign Currency Options Closing Settlement Value
    (a) The closing settlement value for foreign currency options shall 
be determined by using the WM/Reuters Intraday Spot rate [day's 
announced Noon Buying Rate, as determined by the Federal Reserve Bank 
of New York,] on the last trading day during expiration week. [If the 
Noon Buying Rate is not announced by 5 p.m. Eastern time, the closing 
settlement value will be the most recently announced Noon Buying Rate, 
unless the Exchange determines to apply an alternative closing 
settlement value as a result of extraordinary circumstances. In the 
event the Noon Buying Rate is not published for an underlying currency, 
the Exchange will apply the WM/Reuters Closing Spot rate to determine 
the closing settlement value. If the Federal Reserve Bank of New York 
determines to publish a Noon

[[Page 34612]]

Buying Rate in the future for a currency for which it currently does 
not publish such rate, the Exchange will apply the Noon Buying Rate in 
place of the WM/Reuters Composite Spot rate to determine the closing 
settlement value for such currency.]
    (b) No Change.
    (c) The closing settlement value[, whether based on the Noon Buying 
Rate or the WM/Reuters Closing Spot rate,] will also be modified using 
the applicable modifier, i.e., 1, 10 or 100, that is used in 
calculating the respective modified exchange rate, and will be posted 
by the Exchange on its Web site.
* * * * *

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
    ISE proposes to amend its rules regarding FX Options. Currently, 
ISE's rule for determining closing settlement value for FX Options 
states that the closing settlement value shall be the day's announced 
``Noon Buying Rate,'' as determined by the Federal Reserve Bank of New 
York (``FRBNY''), on the last trading day during expiration week. If 
the Noon Buying Rate is not announced by 5 p.m. Eastern time, the 
closing settlement value will be the most recently announced Noon 
Buying Rate, unless the Exchange determines to apply an alternative 
closing settlement value as a result of extraordinary circumstances. 
ISE's experience with the Noon Buying Rate indicates that the FRBNY is 
becoming increasingly unreliable in the timeliness of its publication 
of the Noon Buying Rate. On at least one occasion earlier this year, 
the FRBNY delayed publication of the Noon Buying Rate. As a result, ISE 
resorted to the WM/Reuters Closing Spot rate, as permitted under 
current rules, to determine the closing settlement value for expiring 
FX Options.\4\
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    \4\ Pursuant to the FX Options Filing, the Exchange has the 
ability to use the WM/Reuters Closing Spot rate for six currencies 
to determine their closing settlement value because the FRBNY does 
not publish a Noon Buying Rate for these currencies. Those six 
currencies are the Czech koruna, the Hungarian forint, the Israeli 
shekel, the Korean won, the Polish zloty and the Russian ruble.
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    ISE recently entered into an agreement with The World Markets 
Company, PLC (``WM''), publisher of a number of foreign currency 
reference rates, pursuant to which WM will provide ISE with the WM/
Reuters Intraday Spot rate. The calculation methodology of the Intraday 
Spot rate is the same as that used for the Closing Spot rate. The only 
difference between the two rates is the time and frequency at which 
they are calculated. The Closing Spot rate is calculated at 16:00 UK 
time while the Intraday Spot rates are calculated every hour. Going 
forward, instead of using the Noon Buying Rate, the Exchange intends to 
use the WM/Reuters Intraday Spot rate, as of 12 p.m., New York time, to 
determine closing settlement value for all the currency pairs approved 
in the FX Options Filing. As noted above, the WM/Reuters Intraday Spot 
rate is calculated every hour, from Monday 7 a.m. Sydney time (Sunday 5 
p.m. New York time) to Friday 10 p.m. UK time (Friday 5 p.m. New York 
time). Those times are also known as the `fix' times. WM/Reuters 
typically publishes its rates 15 minutes after the fix time. The 
Reuters System is the primary source of spot foreign exchange rates 
used in the calculation of the WM/Reuters Intraday Spot rate. WM/
Reuters, however, may use alternative sources such as a country's 
Central Bank or rates from EBS, which is another major FX venue and 
market data service provider for 156 currencies, including all of the 
currencies approved by the FX Options Filing.
    WM/Reuters has two main methods for calculating its Intraday Spot 
rate. The methodology used depends on whether a currency is determined 
by WM/Reuters to be a ``trade currency'' or a ``non-trade currency.'' 
\5\ WM/Reuters applies a unique methodology for each category. Intraday 
Spot rates for ``non-trade currencies'' are determined primarily by 
using data from Reuters. This methodology involves taking snapshots of 
quoted bids and offers for each currency at 15-second intervals over a 
two minute period. The median is then calculated independently for each 
currency's bid and offer. The midpoint of that median bid and offer 
becomes the final value.
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    \5\ The Australian dollar, British pound, Canadian dollar, Czech 
koruna, Danish krone, euro, Japanese yen, New Zealand dollar, 
Norwegian krone, Singapore dollar, South African rand, Swedish 
krona, and Swiss franc are all considered by WM/Reuters to be 
``trade currencies,'' while all others are considered ``non-trade 
currencies.'' All of the ``trade currencies'' have been approved for 
trading by the Exchange except the Danish krone and the Singapore 
dollar. See supra note 1.
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    Intraday Spot rates for ``trade currencies'' are determined 
primarily by using data from both Reuters and EBS. This methodology 
involves taking snapshots of actual traded rates every second for a 
period of 30 seconds before the fix to 30 seconds after the fix. Trades 
are identified as a bid or offer and a spread is applied to calculate 
the opposite bid or offer. The spread applied is determined by the 
spread between buy and sell orders captured at the same time. The 
median is then independently calculated for each currency's bid and 
offer, resulting in a midpoint trade rate. The midpoint of that median 
bid and offer becomes the final value.
    ISE proposes to amend its rules by replacing all references to the 
FRBNY's Noon Buying Rate with WM/Reuters Intraday Spot rate. This 
proposed rule change will allow the Exchange to adopt an industry-
recognized vendor for foreign currency rates and do so without causing 
any disruption in the calculation of the closing settlement value for 
FX Options.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations under the Act applicable to a national securities exchange 
and, in particular, the requirements of Section 6(b) of the Act.\6\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(5) of the Act's \7\ requirements that the 
rules of a national securities exchange be designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts and, in general, to protect investors and the public interest. In 
particular, the proposed rule change will allow the Exchange to adopt 
an industry-recognized value to determine the closing settlement value 
for FX Options traded on the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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

[[Page 34613]]

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).\8\ For the 
foregoing reasons, the Exchange believes the proposed rule filing 
qualifies for expedited approval as a ``non-controversial'' rule change 
under paragraph (f)(6) of Rule 19b-4 of the Act.
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    \8\ 17 CFR 240.19b-4(f)(6).
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    The Exchange believes the proposed rule change is non-controversial 
in that it will allow the Exchange to adopt an industry-recognized 
value to determine the closing settlement value for FX Options traded 
on the Exchange. The Exchange also believes that the proposed rule 
change 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.
    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.

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-2009-48 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-2009-48. 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 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-
2009-48 and should be submitted on or before August 6, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16854 Filed 7-15-09; 8:45 am]

BILLING CODE 8010-01-P
