
[Federal Register: December 9, 2009 (Volume 74, Number 235)]
[Notices]               
[Page 65191-65193]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09de09-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61102; File No. SR-ISE-2009-102]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the $1 Strike Program To Allow Low-Strike LEAPS

December 3, 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 November 24, 2009, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which items have been prepared by 
the Exchange. The Exchange has filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section

[[Page 65192]]

19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(iii).
    \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 amend the $1 Strike Program. The text of 
the proposed rule change is available on the Exchange's Web site http:/
/www.ise.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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. 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 the proposed rule change is to expand the $1 Strike 
Program (``Program'') in a limited fashion to allow ISE to list new 
series in $1 intervals up to $5 in long-term options series (``LEAPS'') 
in up to 200 options classes on individual stocks.\5\ Currently, under 
the Program, ISE may not list LEAPS at $1 strike price intervals for 
any class selected for the Program. ISE is also restricted from listing 
any series that would result in strike prices being $0.50 apart, unless 
the series are part of the $0.50 Strike Program.\6\
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    \5\ Under ISE Rule 506, LEAPS expire from 12-39 months from the 
time they are listed.
    \6\ See Securities Exchange Act Release No. 60696 (September 18, 
2009), 74 FR 49053 (September 25, 2009) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to Strike 
Price Intervals of $0.50 for Options on Stocks Trading At or Below 
$3.00).
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    ISE believes that this proposed rule change is appropriate and will 
allow investors to establish options positions that are better tailored 
to meet their investment objectives, vis-[agrave]-vis credit risk, 
using deep out-of-the-money put options. Deep out-of-the-money put 
options are viewed as a viable, liquid alternative to OTC-traded credit 
default swaps (``CDS''). These options do not possess the negative 
characteristics associated with CDS, namely, lack of transparency, 
insufficient collateral requirements, and inefficient trade processing. 
Moreover, deep out-of-the-money put options and CDS are functionally 
similar, as there is a high correlation between low-strike put prices 
and CDS spreads.
    ISE notes that this proposal is limited in scope, as $1 strikes in 
LEAPS may only be listed up to $5 and in only up to 200 options 
classes. As is currently the case, ISE would not list series with $1 
intervals within $0.50 of an existing $2.50 strike price in the same 
series. As a result, ISE does not believe that this proposed rule 
change will cause a significant increase in quote traffic.
    Moreover, as the SEC is aware, ISE has adopted various quote 
mitigation strategies on an effort to lessen the growth rate of options 
quotations. When ISE expanded the Program several months ago, ISE 
included a delisting policy that would be applicable with regard to 
this proposed expansion.\7\ ISE and the other options exchanges amended 
the Options Listing Procedures Plan (``OLPP'') in 2008 to impose a 
minimum volume threshold of 1,000 contracts national average daily 
volume per underlying class to qualify for an additional year of LEAP 
series.\8\ Most recently, ISE, along with the other options exchanges, 
amended the OLPP to adopt objective, exercise price range limitations 
applicable to equity options classes, options on ETFs and options on 
trust issued receipts.\9\ ISE believes that these price range 
limitations will have a meaningful quote mitigation impact. 
Additionally, pursuant to its policy to delist options with ADV of less 
than 50 contracts, ISE has, since January 2009, delisted 95 options 
classes.\10\
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    \7\ The delisting policy includes a provision that states ISE 
may grant member requests to add strikes and/or maintain strikes in 
series of options classes traded pursuant to the Program that are 
eligible for delisting.
    \8\ See SEC Release No. 34-58630 (September 24, 2008), approving 
Amendment No. 2 to the OLPP.
    \9\ See SEC Release No. 34-60531 (August 19, 2009), approving 
Amendment No. 3 to the OLPP. This proposed rule change would not be 
subject to the exercise price range limitations contained in the 
OLPP.
    \10\ Members are advised of an Involuntary Delisting through an 
Information Alert sent via Electronic Mail by the Exchange. An 
Information Alert announcing the delisting of 21, 33, 28 and 13 
options classes as part of the Exchange's delisting program was sent 
to Members on January 16, 2009, April 13, 2009, July 17, 2009 and 
October 30, 2009, respectively.
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    The margin requirements set forth in Chapter 12 of the Exchange's 
rules and the position and exercise requirements set forth in Rules 412 
and 414 will continue to apply to these new series, and no changes are 
being proposed to those requirements by this proposed rule change.
    ISE has analyzed its capacity and represents that it and the 
Options Price Reporting Authority have the necessary systems capacity 
to handle the additional traffic associated with the listing and 
trading of an expanded number of series as proposed by this filing.
    The Exchange also proposes to make a non-substantive change to Rule 
504 by relocating the provision ``A stock shall remain in the $1 Strike 
Program until otherwise designated by the Exchange'' to the end of 
Supplementary Material .01 to Rule 504.
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) of the Exchange Act \11\ 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 will allow the Exchange to list $1 strike prices in LEAPS series 
for the benefit of investors and as a competitive response to the 
listing of $1 strike prices in LEAPS series by another exchange.
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    \11\ 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 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 proposed rule change does not: (i) 
Significantly affect

[[Page 65193]]

the protection of investors or the public interest; (ii) impose any 
significant burden on competition; or (iii) 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, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give 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 Commission has waived this requirement in this case.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission hereby grants that request.\14\ The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest because it 
recently approved a proposal from CBOE which is identical to the 
current proposal in all material respects and on which no comments were 
received.\15\ Therefore, the proposal is operative upon filing.
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    \14\ For 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).
    \15\ See Exchange Act Release No. 60978 (November 10, 2009), 74 
FR 59296 (November 17, 2009) (approving SR-CBOE-2009-68).
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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.

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 No. SR-ISE-2009-102 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 No. SR-ISE-2009-102. 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 No. SR-ISE-2009-102 and should be 
submitted on or before December 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-29388 Filed 12-8-09; 8:45 am]

BILLING CODE 8011-01-P
