
[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Notices]
[Pages 54629-54630]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21767]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67754; File No. SR-ISE-2012-33]


 Self-Regulatory Organizations; International Securities 
Exchange, LLC; Order Granting Approval of Proposed Rule Change, as 
Modified by Amendment No. 1, Regarding Strike Price Intervals for 
Certain Option Classes

August 29, 2012.

I. Introduction

    On May 21, 2012, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to modify its Short Term Option 
Series Program (``STOS Program'') to permit, during the expiration week 
of an option class that is selected for the STOS Program (``STOS 
Option''), the strike price intervals for the related non-STOS option 
that is in the same class as a STOS Option (``Related non-STOS 
Option'') to be the same as the strike price interval for the STOS 
Option. The Exchange also proposed to adopt a rule to open for trading 
Short Term Option Series at $0.50 strike price intervals for option 
classes that trade in one dollar increments and are in the STOS Program 
(``Eligible Option Classes''). The proposed rule change was published 
for comment in the Federal Register on June 6, 2012.\3\ The Commission 
received one comment letter on the proposal.\4\ On July 26,

[[Page 54630]]

2012, ISE filed Amendment No.1 to the proposed rule change.\5\ This 
order approves the proposed rule change, as modified by Amendment No. 
1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 67083 (June 6, 2012), 76 
FR 33543 (``Notice'').
    \4\ See letter from Jenny L. Klebes, Senior Attorney, Legal 
Division, Chicago Board Options Exchange, Incorporated (``CBOE''), 
to Elizabeth M. Murphy, Secretary, Commission, dated June 27, 2012 
(``CBOE Letter''). CBOE sought further clarification on how the 
proposed rule change would be implemented and suggested that the 
proposed rule change be revised to indicate which, if any, day(s) 
during the week of expiration for standard options the related non-
STOS options could be added. See CBOE Letter at 2.
    \5\ Amendment No. 1 clarified the timing of when additional 
series of non-STOS, or standard options, may be opened. Because 
Amendment No. 1 is technical in nature, the Commission is not 
required to publish it for public comment.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposed to amend ISE Rules 504 (Series of Options 
Contracts Open for Trading) and 2009 (Terms of Index Options Contracts) 
to indicate that, during the expiration week, the strike price 
intervals for the Related non-STOS Option shall be the same as the 
strike price interval for the STOS Option. The Exchange also proposed 
to adopt a rule that would permit ISE to list Short Term Option Series 
at $0.50 strike price intervals for Eligible Option Classes.
    In the Notice, the Exchange stated that the principal reason for 
the proposed expansion is in response to market and customer demand to 
list actively traded products in more granular strike price intervals 
and to provide Exchange members and their customers increased trading 
opportunities in the STOS Program.\6\ ISE also represented that there 
are substantial benefits to market participants in the ability to trade 
the Eligible Option Classes at more granular strike price intervals and 
that the instant proposal has the support of several of its market 
makers and was developed in consultations with one such market-making 
firm.\7\ Furthermore, the Exchange also argued that allowing it to open 
Related non-STOS Options at the more granular strike price intervals 
the week before expiration would ensure conformity between STOS options 
and Related non-STOS Options.
---------------------------------------------------------------------------

    \6\ See Notice, supra note 3 at 33544.
    \7\ Id. at 33545.
---------------------------------------------------------------------------

    The Exchange stated that it has analyzed its capacity, and 
represented that it and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle the potential 
additional traffic associated with trading the Eligible Option Classes 
in narrower strike price intervals.\8\ The Exchange also represented 
that the proposal, if approved, would not increase the number of listed 
short-term series.\9\
---------------------------------------------------------------------------

    \8\ Id. The Exchange also stated that, while liquidity levels at 
each individual option series could decrease as a result of listing 
short term options series at more granular strike price intervals, 
it did not expect that the proposed rule change would result in a 
significant change in liquidity or otherwise cause liquidity in the 
Eligible Options Classes products to decline.
    \9\ See Notice, supra note 3 at 33545
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review of the proposed rule change and the CBOE 
Letter, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\10\ Specifically, the Commission finds that the proposal is 
consistent with Section 6(b)(5) of the Act,\11\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, 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 
Commission believes that the proposal strikes a reasonable balance 
between the Exchange's desire to offer a wider array of investment 
opportunities and the need to avoid unnecessary proliferation of 
options series.
---------------------------------------------------------------------------

    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In approving this proposal, the Commission notes that the Exchange 
has represented that it and OPRA have the necessary systems capacity to 
handle the potential additional traffic associated with trading the 
expanded number of strike price intervals available to the Eligible 
Option Classes and Related non-STO Options. The Commission expects the 
Exchange to monitor the trading volume associated with the additional 
options series listed as a result of this proposal and the effect of 
these additional series on market fragmentation and on the capacity of 
the Exchange's, OPRA's, and vendors' automated systems.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-ISE-2012-33) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

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

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21767 Filed 9-4-12; 8:45 am]
BILLING CODE 8011-01-P


