
[Federal Register Volume 76, Number 189 (Thursday, September 29, 2011)]
[Notices]
[Pages 60574-60576]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25075]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65384; File No. SR-ISE-2011-59]


Self-Regulatory Organizations; International Securities Exchange, 
Incorporated; Notice of Proposed Rule To Simplify the $1 Strike Price 
Interval Program

September 22, 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 September 21, 2011, 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 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 its rules in order to simplify the 
$1 Strike Price Interval 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 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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Supplementary Material .01 to ISE 
Rule 504 in order to simplify the $1 Strike Price Interval Program 
(``Program''). This filing is based on a filing previously submitted by 
the Chicago Board Options Exchange, Inc. (``CBOE'').\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 65031 (August 4, 
2011) 76 FR 48935 (August 9, 2011) (SR-CBOE-2011-040).
---------------------------------------------------------------------------

    In 2003, the Commission issued an order permitting the Exchange to 
establish the Program on a pilot basis.\4\ At that time, the underlying 
stock had to close at $20 on the previous trading day in order to 
qualify for the Program. The range of available $1 strike price 
intervals was limited to a range between $3 and $20 and no strike price 
was permitted that was greater than $5 from the underlying stock's 
closing price on the previous trading day. Series in $1 strike price 
intervals were not permitted within $0.50 an existing strike. In 
addition, the Exchange was limited to selecting five (5) classes and 
reciprocal listing was permitted. Furthermore, LEAPS in $1 strike price 
intervals were not permitted for classes selected to participate in the 
Program.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 48033 (June 16, 
2003) 68 FR 37036 (June 20, 2003) (SR-ISE-2003-17).
---------------------------------------------------------------------------

    The Exchange renewed the pilot program on a yearly basis and in 
2008, the Commission granted permanent approval of the Program.\5\ At 
that time, the Program was expanded to increase the upper limit of the 
permissible strike price range from $20 to $50. In addition, the number 
of class selections per exchange was increased from five (5) to ten 
(10). Since the Program was made permanent, the number of class 
selections per exchange has been increased from ten (10) classes to 55 
classes \6\ and subsequently increased from 55 classes to 150 
classes.\7\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 57169 (January 18, 
2008) 73 FR 4654 (January 25, 2008) (SR-ISE-2007-110).
    \6\ See Securities Exchange Act Release No. 59587 (March 17, 
2009), 74 FR 12414 (March 24, 2009) (SR-ISE-2009-04).
    \7\ See Securities Exchange Act Release No. 62442 (July 2, 
2010), 75 FR 39597 (July 9, 2010) (SR-ISE-2010-64).
---------------------------------------------------------------------------

Amendments To Simplify Non-LEAPS Rule Text
    The most recent expansion of the Program was approved by the 
Commission in early 2011 and increased the number of $1 strike price 
intervals permitted within the $1 to $50 range.\8\ This expansion was a 
proposal of another exchange and ISE submitted its filing for 
competitive reasons. This expansion, however, has resulted in very 
lengthy rule text that is complicated and difficult to understand. ISE 
believes that the proposed changes to simplify the rule text of the 
Program will benefit market participants since the Program will be 
easier to understand and will maintain the expansions made to the 
Program in early 2011. Through the current proposal, the Exchange also 
hopes to make administration of the Program easier, e.g., system 
programming efforts. To simply the rules of the Program and, as a 
proactive attempt to mitigate any unintentional listing of improper 
strikes, ISE is proposing the following streamlining amendments:
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 63771 (January 25, 
2011), 76 FR 5642 (February 1, 2011) (SR-ISE-2011-06).
---------------------------------------------------------------------------

     When the price of the underlying stock is equal to or less 
than $20, permit $1 strike price intervals with an exercise price up to 
100% above and 100%

[[Page 60575]]

below the price of the underlying stock.\9\
---------------------------------------------------------------------------

    \9\ See proposed new subparagraph (i) to Supplementary Material 
.01(b).
---------------------------------------------------------------------------

    [cir] However, the above restriction would not prohibit the listing 
of at least five (5) strike prices above and below the price of the 
underlying stock per expiration month in an option class.\10\
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    [cir] For example, if the price of the underlying stock is $2, the 
Exchange would be permitted to list the following series: $1, $2, $3, 
$4, $5, $6 and $7.\11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

     When the price of the underlying stock is greater than 
$20, permit $1 strike price intervals with an exercise price up to 50% 
above and 50% below the price of the underlying security up to $50.\12\
---------------------------------------------------------------------------

    \12\ See proposed new subparagraph (ii) to Supplementary 
Material .01(b).
---------------------------------------------------------------------------

     For the purpose of adding strikes under the Program, the 
``price of the underlying stock'' shall be measured in the same way as 
``the price of the underlying security'' is as set forth in Rule 
504(A)(b)(i).\13\
---------------------------------------------------------------------------

    \13\ See proposed new subparagraph (iii) to Supplementary 
Material .01(b). Rule 504A(b(i) provides, ``[t]he price of a 
security is measured by: (1) For intra-day add-on series and next-
day series additions, the daily high and low of all prices reported 
by all national securities exchanges; (2) for new expiration months, 
the daily high and low of all prices reported by all national 
securities exchanges on the day the Exchange determines it 
preliminary notification of new series; and (3) for option series to 
be added as a result of pre-market trading, the most recent share 
price reported by all national securities exchanges between 8:45 
a.m. and 9:30 a.m. (Eastern Time).''
---------------------------------------------------------------------------

     Prohibit the listing of additional series in $1 strike 
price intervals if the underlying stock closes at or above $50 in its 
primary market and provide that additional series in $1 strike price 
intervals may not be added until the underlying stock closes again 
below $50.\14\
---------------------------------------------------------------------------

    \14\ See proposed new subparagraph (iv) to Supplementary 
Material .01(b). The Exchange believes that it is important to 
codify this additional series criterion because there have been 
conflicting interpretations among the exchanges that have adopted 
similar programs. The $50 price criterion for additional series was 
intended when the Program was originally established (as a pilot) in 
2003. See Securities Exchange Act Release No. 48033 (June 16, 2003) 
68 FR 37036 (June 20, 2003) (SR-ISE-2003-17) (``ISE may list an 
additional expiration month provide that the underlying stock closes 
below $20 on its primary market on expiration Friday. If the 
underlying stock closes at or above $20 on expiration Friday, ISE 
will not list an additional month for a $1 strike series until the 
stock again closes below $20.'')
---------------------------------------------------------------------------

Amendments To Simplify LEAPS Rule Text
    The early 2011 expansion of the Program permitted for some limited 
listing of LEAPS in $1 strike price intervals for classes that 
participate in the Program. The Exchange is proposing to maintain the 
expansion as to LEAPS, but simplify the language and provide examples 
of the simplified rule text. These changes are set forth subparagraph 
(v) to Supplementary Material .01(b).
    For stocks in the Program, the Exchange may list one $1 strike 
price interval between each standard $5 strike interval, with the $1 
strike price interval being $2 above the standard strike for each 
interval above the price of the underlying stock, and $2 below the 
standard strike for each interval below the price of the underlying 
stock (``$2 wings''). For example, if the price of the underlying stock 
is $24.50, the Exchange may list the following standard strikes in $5 
intervals: $15, $20, $25, $30 and $35. Between these standard $5 
strikes, the Exchange may list the following $2 wings: $18, $27 and 
$32.\15\
---------------------------------------------------------------------------

    \15\ The Exchange notes that a $2 wing is not permitted between 
the standard $20 and $25 strikes in the above example. This is 
because the $2 wings are added based on reference to the price of 
the underlying and as being between the standard strikes above and 
below the price of the underlying stock. Since the price of the 
underlying stock ($24.50) straddles the standard strikes of $20 and 
$25, no $2 wing is permitted between these standard strikes.
---------------------------------------------------------------------------

    In addition, the Exchange may list the $1 strike price interval 
which is $2 above the standard strike just below the underlying price 
at the time of listing. In the above example, since the standard strike 
just below the underlying price ($24.50) is $20, the Exchange may list 
a $22 strike. The Exchange may add additional long-term options series 
strikes as the price of the underlying stock moves, consistent with the 
OLPP.
Non-Substantive Amendments to Rule Text
    The early 2011 expansion of the Program prohibited the listing of 
$2.50 strike price intervals for classes that participate in the 
Program. This prohibition applies to non-LEAP and LEAPS. The Exchange 
proposes to maintain this prohibition and codify it in Supplementary 
Material .01(a) (Program Description).
    For ease of reference, the Exchange is proposing to add the 
headings ``Program Description,'' ``Initial and Additional Series'' and 
``LEAPS'' to Supplementary Material .01.
    The Exchange is proposing to more accurately reflect the nature of 
the Program and is proposing to make stylistic changes throughout 
Supplementary Material .01 by adding the phrase ``price interval.'' 
Lastly, the Exchange is making technical changes to Supplementary 
Material .01, e.g., replacing the word ``security'' with the word 
``stock.''
    The Exchange represents that it has the necessary systems capacity 
to support the increase in new options series that will result from the 
proposed streamlining changes to the Program.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \16\ and the rules 
and regulations thereunder and, in particular, the requirements of 
Section 6(b) of the Act.\17\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \18\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, to remove impediments to and to 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 seeks to reduce investor confusion 
and to simplify the provisions of the $1 Strike Price Interval Program.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78a et seq.
    \17\ 15 U.S.C. 78f(b).
    \18\ 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

[[Page 60576]]

19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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 the five-day prefiling 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.\21\ 
Therefore, the Commission designates the proposal operative upon 
filing.\22\
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 65383 (September 
22, 2011) (SR-CBOE-2011-040) (order approving proposed rule changes 
to simplify the $1 Strike Price Interval Program).
    \22\ 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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-2011-59 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-2011-59. 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 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 publicly available. All 
submissions should refer to File Number SR-ISE-2011-59 and should be 
submitted on or before October 20, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25075 Filed 9-28-11; 8:45 am]
BILLING CODE 8011-01-P


