
[Federal Register Volume 76, Number 8 (Wednesday, January 12, 2011)]
[Notices]
[Pages 2174-2176]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-440]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63653; File No. SR-ISE-2011-01]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Establish a $5 Strike Price Program

January 6, 2011.
    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 January 4, 2011, the International Securities Exchange, LLC 
(``ISE''or the ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend ISE Rule 504 to allow the Exchange 
to list and trade series in intervals of $5 or greater where the strike 
price is more than $200 in up to five option classes on individual 
stocks. 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 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 adopt Supplementary 
Material .09 to ISE Rule 504 to allow the Exchange to list and trade 
series in intervals of $5 or greater where the strike price is more 
than $200 in up to five option classes on individual stocks (``$5 
Strike Price Program'') to provide investors and traders additional 
opportunities and strategies to hedge high priced securities.
    Currently, Exchange Rule 504(d) permits strike price intervals of 
$10 or greater where the strike price is $200 or more,\3\ except the 
Exchange may list options classes on individual stocks for which the 
interval of strike prices will be $2.50 where the strike price is 
greater

[[Page 2175]]

than $25 but less than $50 (the ``$2.50 Strike Price Program'').\4\
---------------------------------------------------------------------------

    \3\ ISE Rule 504(d) also permits strike price intervals of $5 or 
greater where the strike price is greater than $25; and $2.50 or 
greater where the strike price is $25 or less.
    \4\ Initially adopted in 1995 as a pilot program, the pilot 
$2.50 Strike Price Program allowed options exchanges to list options 
with $ 2.50 strike price intervals for options trading at strike 
prices greater than $ 25 but less than $ 50 on a total of up to 100 
option classes. See Securities Exchange Act Release No. 35993 (July 
19, 1995), 60 FR 38073 (July 25, 1995) (approving File Nos. SR-Phlx-
95-08, SR-Amex-95-12, SR-PSE-95-07, SR-CBOE-95-19, and SR-NYSE-95-
12). In 1998, the pilot program was permanently approved and 
expanded to allow the options exchanges to select up to 200 option 
classes for the $2.50 Strike Price Program. See Securities Exchange 
Act Release No. 40662 (November 12, 1998), 63 FR 64297 (November 19, 
1998) (approving File Nos. SR-Amex-98-21, SR-CBOE-98-29, SR-PCX-98-
31, and SR-Phlx-98-26). The Exchange lists options with $2.50 strike 
price intervals on those classes selected by the other options 
exchanges and does not select any class for inclusion in the $2.50 
Strike Price Program. See Securities Exchange Act Release No. 52960 
(December 15, 2005), 70 FR 76090 (December 22, 2005) (SR-ISE-2005-
59).
---------------------------------------------------------------------------

    The Exchange now proposes to list series in intervals of $5 or 
greater where the strike price is more than $200 in up to five option 
classes on individual stocks.
    The Exchange believes the $5 Strike Price Program would offer 
investors a greater selection of strike prices at a lower cost. For 
example, if an investor wanted to purchase an option with an expiration 
of approximately one month, a $5 strike interval could offer a wider 
choice of strike prices, which may result in reduced outlays in order 
to purchase the option. By way of illustration, using Google, Inc. 
(``GOOG'') as an example, if GOOG would trade at $610 \5\ with 
approximately one month remaining until expiration, the front month 
(one month remaining) at-the-money call option (the 610 strike) would 
trade at approximately $17.50 and the next highest available strike 
(the 620 strike) would trade at approximately $13.00. By offering a 615 
strike an investor would be able to trade a GOOG front month call 
option at approximately $15.25, thus providing an additional choice at 
a different price point.
---------------------------------------------------------------------------

    \5\ The prices listed in this example are assumptions and not 
based on actual prices. The assumptions are made for illustrative 
purposes only using the stock price as a hypothetical.
---------------------------------------------------------------------------

    Similarly, if an investor wanted to hedge exposure to an underlying 
stock position by selling call options, the investor may chose an 
option term with two months remaining until expiration. An additional 
$5 strike interval could offer additional and varying yields to the 
investor. For example if Apple, Inc. (``AAPL'') would trade at $310 \6\ 
with approximately two months remaining until expiration, the second 
month (two months remaining) at-the-money call option (the 310 strike) 
would trade at approximately $14.50 and the next highest available 
strike (the 320 strike) would trade at $9.90. The 310 strike would 
yield a return of 4.67% and the 320 strike would yield a return of 
3.20%. If the 315 strike were available, that series would be priced at 
approximately $12.20 (a yield of 3.93%) and would minimize the risk of 
having the underlying stock called away at expiration.
---------------------------------------------------------------------------

    \6\ Id.
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority have the necessary systems capacity 
to handle the potential additional traffic associated with the listing 
and trading of classes on individual stocks $5 Strike Price Program.
    The proposed $5 Strike Price Program would provide investors 
increased opportunities to improve returns and manage risk in the 
trading of equity options that overlie high priced stocks. In addition, 
the proposed $5 Strike Price Program would allow investors to establish 
equity options positions that are better tailored to meet their 
investment, trading and risk management requirements.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \8\ in particular, in that it 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. 
The Exchange believes the $5 Strike Price Program proposal would 
provide the investing public and other market participants increased 
opportunities because a $5 series in high-priced stocks would provide 
market participants additional opportunities to hedge high-priced 
securities allowing investors to better manage their risk exposure. 
Moreover, the Exchange believes the proposed rule change would benefit 
investors by giving them more flexibility to closely tailor their 
investment decisions in a greater number of securities.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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 from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\11\ 
Therefore, the Commission designates the proposal operative upon 
filing.\12\
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 63654 (January 6, 
2011) (SR-Phlx-2010-158) (order approving establishment of a $5 
Strike Price Program).
    \12\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.

[[Page 2176]]

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-2011-01 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-2011-01. 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 Web site viewing and 
printing 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 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-2011-01 and should be 
submitted on or before February 2, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-440 Filed 1-11-11; 8:45 am]
BILLING CODE 8011-01-P


