
[Federal Register Volume 77, Number 79 (Tuesday, April 24, 2012)]
[Notices]
[Pages 24547-24549]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9771]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66827; File No. SR-ISE-2012-26]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change To List and Trade Option 
Contracts Overlying 10 Shares of a Security

April 18, 2012.
    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 April 9, 2012, 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 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 Exchange proposes to list and trade option contracts overlying 
10 shares of a security (``Mini Options''). The text of the proposed 
rule change is available on the Exchange's Internet Web site at 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
    Pursuant to ISE Rule 502, the Exchange currently lists and trades 
standardized options contracts on a number of equities and Exchange-
Traded Fund Shares (``ETFs''), each with a unit of trading of 100 
shares. The purpose of this proposed rule change is to expand 
investors' choices by listing and trading option contracts on a select 
number of high-priced and actively traded securities, each with a unit 
of trading ten times lower than those of the regular sized option 
contracts, or 10 shares. Specifically, the Exchange proposes to adopt 
Supplementary Material .12(a) to ISE Rule 504, which states that after 
an option class on a stock or Exchange-Traded Fund Share with a 100 
share deliverable has been approved for listing and trading on the 
Exchange, series of option contracts with a 10 share deliverable on 
that stock or Exchange-Traded Fund Share may be listed for all 
expirations opened for trading on the Exchange. The Exchange further 
proposes that Mini Options may only be listed on stocks and Exchange-
Traded Fund Shares that meet the following criteria, at the time of 
listing: (a) The industry average daily options volume over the 
previous three calendar months is at least 10,000 contracts, and (b) 
the price of the underlying security is at least $150.
    The Exchange notes that as a result of the proposed listing 
criteria, only a handful of securities, ones that have significant 
options liquidity, will be eligible to have Mini Options listed on 
them. Specifically, pursuant to the listing criteria established by the 
Exchange for Mini Options, the following securities currently qualify 
to have Mini Options listed: Apple, Inc., (AAPL), SPDR Gold Trust 
(GLD), Google, Inc. (GOOG), Amazon, Inc. (AMZN), International Business 
Machines (IBM), and Priceline.com, Inc. (PCLN). The Exchange believes 
that Mini Options will appeal to retail investors who may not currently 
be able to participate in the trading of options on such high priced 
securities.
    Except for the difference in the deliverable of shares, the 
proposed Mini Options would have the same terms and contract 
characteristics as regular sized equity and ETF options, including 
exercise style. All existing Exchange rules applicable to options on 
equities and ETFs would apply to Mini Options, except with respect to 
position and exercise limits and hedge exemptions to those position 
limits, which would be tailored for the smaller size. Pursuant to 
proposed amendments to Rule 412, position limits applicable to the 
regular sized option contract will also apply to the Mini Options on 
the same underlying security, with 10 Mini Option contracts counting as 
one regular

[[Page 24548]]

sized contract. Positions in both the regular sized option contract and 
Mini Options on the same security will be combined for purposes of 
calculating positions. Further, hedge exemptions will apply pursuant to 
ISE Rule 413(a), which the Exchange proposes to revise to provide that 
10 (as opposed to 100) shares of the underlying security in the 
appropriate hedge for Mini Options and to make clear that the hedge 
exemptions apply to the position limits set forth in Rule 412(a) and 
any Supplementary Material thereto, as well as the position limits set 
forth in Rule 412(d).\3\
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    \3\ ISE Rule 414, Exercise Limits, refers to exercise limits 
that correspond to aggregate long positions as described in ISE Rule 
412. The position limit established in a given option under ISE Rule 
412 is also the exercise limit for such option. Thus, although the 
proposed rule change would not amend the text of ISE Rule 414 
itself, the proposed amendment to ISE Rule 412 would have a 
corresponding effect to the exercise limits established in ISE Rule 
414.
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    The Exchange believes that the proposal to list Mini Options will 
not lead to investor confusion. There are two important distinctions 
between Mini Options and regular options that are designed to ease the 
likelihood of any investor confusion. First, the premium multiplier for 
the proposed Mini Options will be 10, rather than 100, to reflect the 
smaller unit of trading. To reflect this change, the Exchange proposes 
to add Rule 709(c) which notes that bids and offers for an option 
contract overlying 10 shares will be expressed in terms of dollars per 
1/10th part of the total value of the contract. Thus, an offer of 
``.50'' shall represent an offer of $5.00 on an option contract having 
a unit of trading consisting of 10 shares. Second, the Exchange intends 
to designate Mini Options with different trading symbols than that 
designated for the regular sized contract. For example, while the 
trading symbol for regular option contracts for Apple, Inc. is AAPL, 
the Exchange proposes to adopt 7AAPL as the trading symbol for Mini 
Options on that same security.
    The Exchange proposes to add Supplementary Material .12(b) to 
reflect that strike prices for Mini Options shall be set at the same 
level as for regular options. For example, a call series strike price 
to deliver 10 shares of stock at $125 per share has a total deliverable 
value of $1250, and the strike price will be set at 125. Further, 
pursuant to proposed new Supplementary Material .12(c) to Rule 504, the 
Exchange proposes to not permit the listing of additional series of 
Mini Options if the underlying is trading at $90 or less to limit the 
number of strikes once the underlying is no longer a high priced 
security. The Exchange proposes a $90.01 minimum for continued 
qualification so that additional series of Mini Options that correspond 
to standard strikes may be added even though the underlying has fallen 
slightly below the initial qualification standard. In addition, the 
underlying security must be trading above $90 for five consecutive days 
before the listing of Mini Option contracts in a new expiration month. 
This restriction will allow the Exchange to list strikes in Mini 
Options without disruption when a new expiration month is added even if 
the underlying has had a minor decline in price.
    The same trading rules applicable to existing equity and ETF 
options will apply to Mini Options. The Exchange notes that by listing 
the same strike price for Mini Options as for regular options, the 
Exchange seeks to keep intact the long-standing relationship between 
the underlying security and an option strike price thus allowing 
investors to intuitively grasp the option's value, i.e., option is in 
the money, at the money or out of the money. The Exchange believes that 
by not changing anything but the multiplier and the option symbol, as 
discussed above, retail investors will be able to grasp the distinction 
between regular size option contracts and Mini Options. The Exchange 
notes that The Options Clearing Corporation (``OCC'') Symbology is 
structured for contracts that have a deliverable of other than 100 
shares to be designated with a numeric added to the standard trading 
symbol. Further, the Exchange believes that the contract 
characteristics of Mini Options are consistent with the terms of the 
Options Disclosure Document.
    With regard to the impact of this proposal on system capacity, ISE 
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 
Mini Options. The Exchange has further discussed the proposed listing 
and trading of Mini Options with the OCC, which has represented that it 
is able to accommodate the proposal.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Securities and Exchange Act of 
1934 (``Exchange Act''),\4\ in general, and with Section 6(b)(5) of the 
Exchange Act,\5\ in particular, in that the proposal is designed to 
prevent fraudulent and manipulative acts and practices, 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. 
Specifically, the Exchange believes that investors would benefit from 
the introduction and availability of Mini Options by making options on 
high priced securities more readily available and as an investing tool 
at more affordable prices, particularly for average retail investors, 
who otherwise may not be able to participate in trading options on high 
priced securities. As noted above, the proposed rule change intends to 
adopt a different trading symbol to distinguish Mini Options from 
regular option contracts and therefore, ease any investor confusion as 
to the product they are trading. Moreover, the proposed rule change is 
designed to protect investors and the public interest by providing 
investors with an enhanced tool to reduce risk in high priced 
securities. In particular, Mini Options will provide retail customers 
who invest in high priced issues in lots of less than 100 shares with a 
means of protecting their investments that is currently only available 
to those who have positions of 100 shares or more. Further, the 
proposed rule change is limited to those securities that meet the 
Exchange's proposed listing criteria to ensure that only those 
securities that have significant options liquidity and therefore, 
customer demand, are selected to have Mini Options listed on them.
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    \4\ 15 U.S.C. 78f.
    \5\ 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

    Within 45 days of the date of publication of this notice in the 
Federal

[[Page 24549]]

Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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. In particular, the Commission seeks 
comment on the following:
    1. NYSE Arca, Inc. recently proposed to allow the listing and 
trading of a ``mini'' option product.\6\ The Exchange's proposal would 
allow the listing and trading of Mini Options contracts with contract 
specifications that differ from the similar product proposed by NYSE 
Arca. Due to the differences in contract specifications, these two 
similar products, even if on the same underlying security, would not 
necessarily be fungible. The Commission requests comment on whether the 
listing and trading of two distinct and non-fungible ``mini'' options 
products, particularly if on the same underlying security, would create 
investor confusion or raise any other issues or concerns for market 
participants.
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    \6\ See Securities Exchange Act Release No. 66725 (April 3, 
2012), 77 FR 21120 (April 9, 2012) (SR-NYSEArca-2012-26).
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    2. As discussed above, the Exchange's proposal would provide for 
contract specifications for Mini Options that include: (i) The strike 
prices would be set at the same level for Mini Options as for 
corresponding standard contracts; (ii) the premium multiplier would be 
10 for Mini Options (rather than 100 as for the standard contract) and 
the premium would be expressed in terms of dollars per 1/10th part of 
the total value of the contract; and (iii) the Exchange would designate 
Mini Options with different trading symbols than the standard contract. 
The Commission requests comment regarding the Exchange's proposed 
contract methodology.\7\
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    \7\ For a description of the proposed contract methodology for 
the mini option product proposed by NYSE Arca, see id.
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    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 email to rule-comments@sec.gov. Please include 
File No. SR-ISE-2012-26 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2012-26. This file 
number should be included on the subject line if email 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 available publicly. All 
submissions should refer to File Number SR-ISE-2012-26 and should be 
submitted on or before May 15, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Kevin M. O'Neill,
Deputy Secretary.
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    \8\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-9771 Filed 4-23-12; 8:45 am]
BILLING CODE 8011-01-P


