
[Federal Register Volume 77, Number 126 (Friday, June 29, 2012)]
[Notices]
[Pages 38869-38871]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15939]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67251; File No. SR-ISE-2012-56]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Exchange's Obvious Error Rule

June 25, 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 June 14, 2012, 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, II, and III 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.
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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 amend ISE Rule 720 regarding Obvious 
Errors. The text of the proposed rule change is available on the 
Exchange's Web site 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 this proposed rule change is to amend ISE Rule 720 
regarding Obvious Errors.\3\ Under the current rule, buyers of options 
with a zero bid may request that their execution be busted if at least 
the two strikes below (for calls) or above (for puts) in the same 
options class were quoted with a zero bid at the time of the 
execution.\4\ A zero bid option refers to an option where the bid price 
is $0.00. Series of options quoted zero bid are usually deep out-of-
the-money series that are perceived as having little if any chance of 
expiring in-the-money. For this reason, relatively few transactions 
occur in these series and those that do are usually the result of a 
momentary pricing error.
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    \3\ The changes proposed to ISE Rule 720 are based on Chicago 
Board Option Exchange (``CBOE'') Rule 6.25.
    \4\ See ISE Rule 720, Supplementary Material .05.
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    This proposed rule change will add additional criteria and 
clarifying language to the current rule. Specifically, under the 
revised rule, trades in series quoted no bid on the Exchange would be 
subject to nullification provided: (i) The bid in that series 
immediately preceding the execution was, and for five (5) seconds prior 
to the execution remained, zero and (ii) at least one strike below (for 
calls) or above (for puts) in the same option class was quoted no bid 
at the time of execution. Thus, for example, if a trade occurs in the 
ABC 45 call option series when the series was quoted $0.00-$0.10, the 
trade may be nullified if (i) the bid was $0.00 for at least five (5) 
seconds prior to the execution and (ii) at least one call option series 
in ABC with a strike below 45 (e.g., the ABC 30, 35 or 40 call option 
series) had a bid of $0.00 at the time of execution.
    The revised no bid provision would also provide that each group of 
series in an options class with a non-standard deliverable will be 
treated as a separate options class. Thus, for example, if due to a 
reorganization certain of the series in the ABC option class have a 
deliverable of 150 shares per options contract (as compared to the 
standard 100 shares per option contract), all ABC option series that 
are subject to the 150 contract delivery requirements would be 
considered separately from the ABC

[[Page 38870]]

option series that are subject to the 100 contract delivery 
requirements for purposes of applying the no bid provision. The revised 
rule would also provide that, when determining the Exchange's quotes in 
the relevant series, bids and offers of the parties to the subject 
trade that are in any of the series in the same options class and are 
believed to be erroneous shall not be considered. Thus, for example, if 
a member had a system error that caused it to quote a $0.05 bid in all 
the series of an options class and a trade(s) resulted in some of those 
series, the erroneous $0.05 bids would not be considered when 
determining the quoted market in the strike prices below (for calls) or 
above (for puts) each of the series for the subject trade(s). Finally, 
the revised rule would clarify that the no bid provision is intended to 
apply to series quoted no bid on the Exchange (as opposed to series for 
which the national best bid is quoted no bid). As is currently 
required, buyers must notify ISE's market operations group within the 
designated timeframe to seek relief.
    The Exchange believes that the proposed rule change is reasonable 
and objective, and would serve to better identify instances where the 
no bid provision in intended to apply. The purpose of this proposed 
rule change is to align the Exchange's rule with rules currently in 
place at other exchanges.\5\ The proposed rule change will provide 
members with similar opportunities for trade nullification that are 
available on CBOE which has an identical rule in place to address 
obvious errors.
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    \5\ See, for example, CBOE Rule 6.25(a)(2).
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2. 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) 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.
    The Exchange understands that, in approving proposals of other 
exchanges related to adjusting and nullifying option trades involving 
obvious errors, the Commission has focused on the need for specificity 
and objectivity with respect to exchange determinations and processes 
for reviewing such determinations.\6\ In this regard, the Exchange 
believes that the proposed rule change would clarify the application of 
the Exchange's obvious error rule, while also simplifying the 
administration of the rule in order to more efficiently render such 
determinations. The Exchange further believes that the proposed rule 
change would benefit investors and be in the public's interest because 
it would provide increased clarity and specificity concerning the 
objective standards used by the Exchange when making trade 
nullification determinations.
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    \6\ See supra note 1. [sic] See also Securities Exchange Act 
Release No. 63692 (January 11, 2011), 76 FR 2940 (January 18, 2011) 
(SR-Phlx-2010-163).
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    The Exchange also believes that the proposed rule change would 
benefit investors and market participants that are members of multiple 
exchanges by more closely aligning the Exchange's rules with respect to 
obvious errors with those of other exchanges. In this respect, the 
proposed rule change helps foster certainty for market participants 
trading on multiple exchanges. Accordingly, the Exchange believes that 
the increased specificity resulting from the proposed rule change, 
combined with the continued objective nature of the Exchange's process 
for rendering and reviewing trade nullification determinations, is 
consistent with prior guidance from the Commission, is consistent with 
the Exchange Act and is consistent with the maintenance of a fair and 
orderly market and the protection of investors and the public interest.

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) \7\ of the Act and Rule 19b-
4(f)(6) \8\ thereunder. 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    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.

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 email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2012-56 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-2012-56. 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

[[Page 38871]]

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 offices 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-2012-56, and should be submitted on or before July 
20, 2012.
    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).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15939 Filed 6-28-12; 8:45 am]
BILLING CODE 8011-01-P


