
[Federal Register Volume 77, Number 248 (Thursday, December 27, 2012)]
[Notices]
[Pages 76334-76335]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31123]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68491; File No. SR-ISE-2012-101]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend ISE Rule 504(f) To Permit the Exchange To List 
Additional Strike Prices Until the Close of Trading on the Second 
Business Day Prior to Monthly Expiration in Unusual Market Conditions

December 20, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on December 19, 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 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.
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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 504(f) to permit the 
Exchange to list additional strike prices until the close of trading on 
the second business day prior to monthly expiration. 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
    ISE proposes to amend ISE Rule 504(f) to permit the Exchange to 
list additional strike prices until the close of trading on the second 
business day prior to monthly expiration. This is a competitive filing 
that is based on proposals recently approved by NYSE MKT LLC (``MKT'') 
\3\ and NYSE Arca, Inc. (``Arca'').\4\
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    \3\ See Securities Exchange Act Release No. 68460 (December 18, 
2012) (SR-NYSEMKT-2012-41).
    \4\ See Securities Exchange Act Release No. 68461 (December 18, 
2012) (SR-NYSEARCA-2012-94).
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    ISE Rule 504 currently permits the Exchange to open additional 
series of options on individual stocks and exchange-traded funds (ETFs) 
until the beginning of the month in which the option expires or until 
five business days prior to expiration if unusual market conditions 
exist.\5\ Options market participants generally prefer to focus their 
trading in strike prices that immediately surround the price of the 
underlying security. However, if the price of the underlying stock 
moves significantly, there may be a market need for additional strike 
prices to adequately account for market participants risk management 
needs in a stock. In these situations, the Exchange has the ability to 
add additional series at strike prices that are better tailored to the 
risk management needs of market participants.\6\ The Exchange may make 
the determination to open additional series for trading when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand, or when certain price movements take place in the 
underlying market.\7\ If the market need occurs prior to five business 
days prior to expiration, then the market participants may have access 
to an option contract that is more tailored to the movement in the 
underlying stock.\8\ However, if the market need to manage risk due to 
unusual market conditions comes to light anytime from five to two days 
prior to expiration, then market participants are left without a 
contract that is tailored to manage their risk.\9\
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    \5\ See ISE Rule 504(f). `Until the fifth business day prior' 
generally means up through the end of the day on the Friday of the 
week prior to expiration week.
    \6\ See ISE Rule 504.
    \7\ See ISE Rule 504(c).
    \8\ Id.
    \9\ While these situations are relatively rare, the Exchange 
represents that approximately two times a month there is a 
legitimate need to add additional strikes closer to expiration than 
the five business day limitation permits, due to it being necessary 
to maintain an orderly market, to meet customer demand, or when 
certain price movements take place in the underlying market.
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    The Exchange proposes to permit the listing of additional strikes 
until the close of trading on the second business day prior to 
expiration in unusual market conditions. Since expiration of the 
monthly contract is on a Saturday, the close of trading on the second 
business day will typically fall on a Thursday. However, in the cases 
where Friday is a holiday during which the Exchange is closed, the 
close of trading on the second business day will occur on a Wednesday. 
The Exchange will continue to make the determination to open additional 
series for trading when the Exchange deems it necessary to maintain an 
orderly market, to meet customer demand, or when certain price 
movements take place in the underlying market. The proposed change will 
provide an additional four days to the Exchange to gauge market impact 
of the underlying stock and to react to any market conditions that 
would render additional series prior to expiration beneficial to market 
participants. The Exchange believes that the impact on the market from 
the proposed change will be very minimal to market participants, 
however it will be extremely beneficial in that minority of situations 
where unusual market conditions dictate immediately prior to 
expiration. The proposal would simply allow participants to adjust 
their risk exposure in narrow situations when an unusual market event 
occurred on trading days 2, 3, 4, 5 prior to expiration.
    This proposal does not raise any capacity concerns on the Exchange, 
because the changes have no material difference in impact from the 
current rules. The Exchange notes the proposed change allows for new 
strikes that would otherwise be permitted to add under existing rules 
either on the fifth day prior or immediately after expiration.\10\ A 
strike which opens two days prior to expiration will have minimal 
impact on quoting, as it adds two series out of hundreds of thousands, 
and only for a small number of days.\11\ Thus, any additional strikes 
that may be added under the proposed change

[[Page 76335]]

would have no measurable effect on systems capacity.
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    \10\ Any new strikes added under this proposal would be added in 
a manner consistent with the range limitations described in ISE Rule 
504A.
    \11\ In the case of a multi-stock event where multiple stocks 
may be subject to unusual market conditions, a strike which opens 
two days prior to expiration will also have minimal impact on 
quoting, as it adds two series per stock out of hundreds of 
thousands, and only for a small number of days.
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2. Basis
    The Exchange believes that the proposed rule change is consistent 
with the Securities Exchange Act of 1934 \12\ (the ``Act'') in general, 
and furthers the objectives of Section 6(b)(5) of the Act \13\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that providing an additional four days to the 
Exchange to gauge market impact and to react to any market conditions 
prior to expiration beneficial will result in a continuing benefit to 
investors by giving them more flexibility to closely tailor their 
investment decisions and hedging decisions prior to expiration. The 
Exchange also believes that the additional four days will provide the 
investing public and other market participants with additional 
opportunities to hedge their investment thus allowing these investors 
to better manage their risk exposure with additional in the money 
series. While the four additional days may generate additional quote 
traffic, the Exchange does not believe that this increased traffic will 
become unmanageable since the proposal remains limited to the narrow 
situations when an unusual market event occurred on trading days 2, 3, 
4, 5 prior to expiration.

B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act. In this regard and as indicated above, the Exchange 
notes that the rule change is being proposed as a competitive response 
to filings submitted by MKT and Arca that were recently approved by the 
Commission.\14\ ISE believes this proposed rule change is necessary to 
permit fair competition among the options exchanges and to establish 
uniform rules regarding the listing of strike prices.
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    \14\ See supra, notes 3 and 4.
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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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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.
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    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 those of 
other exchanges that have been approved by the Commission and would 
permit the Exchange to list additional strike prices until the close of 
trading on the second business day prior to monthly expiration in 
unusual market conditions.\17\ Therefore, the Commission designates the 
proposal operative upon filing.\18\
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    \17\ See supra notes 3 and 4.
    \18\ 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).
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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 No. SR-ISE-2012-101 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2012-101. 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 Commissions 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 inspection and copying in the 
Commission's Public Reference Room on official business days between 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the ISE. 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-2012-101 and should be 
submitted by January 17, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31123 Filed 12-26-12; 8:45 am]
BILLING CODE 8011-01-P


