
[Federal Register Volume 78, Number 34 (Wednesday, February 20, 2013)]
[Notices]
[Pages 11921-11923]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03819]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68919; File No. SR-ISE-2013-08]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change To Amend the Minimum 
Trading Increments for Mini Options

February 13, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on February 6, 2013, the International Securities 
Exchange, LLC (``Exchange'' or ``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.
---------------------------------------------------------------------------

    \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 permit the minimum trading increment for 
Mini Options to be the same as the minimum trading increment permitted 
for standard options on the same underlying security. 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 its rules to permit the minimum trading 
increment for Mini Options to be the same as the minimum trading 
increment permitted for standard options on the same underlying 
security. Mini Options overlie 10 equity or ETF shares, rather than the 
standard 100 shares.\3\ Mini Options are currently approved on the 
following five (5) underlying securities: SPDR S&P 500 ETF (``SPY''), 
Apple Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. 
(``GOOG''), and Amazon.com, Inc. (``AMZN''). Of the five securities on 
which Mini Options are permitted, four of them (SPY, AAPL, GLD and 
AMZN) participate in the Penny Pilot Program.\4\ Under the Penny Pilot 
Program, with the exception of three classes,\5\ the minimum price 
variation for all participating options classes is $0.01 for all 
quotations in options series that are quoted at less than $3 per 
contract and $0.05 for all quotations in options series that are quoted 
at $3 per contract or greater. Therefore, the minimum trading increment 
for AAPL, GLD, and AMZN is $0.01 for option series under $3 and $0.05 
for options quoted at $3 or greater, while the minimum trading 
increment for SPY, which is not subject to a price test, is $0.01 
across all option series. The Exchange notes that GOOG is not in the 
Penny Pilot Program and therefore, standard options in GOOG have a 
minimum increment of $0.05 and $0.10

[[Page 11922]]

per contract depending on the price at which the standard option in 
this class is quoted.
---------------------------------------------------------------------------

    \3\ Mini Options were approved for trading on September 28, 
2012. See Securities Exchange Act Release No. 67948 (September 28, 
2012), 77 FR 60735 (October 4, 2012) (Approving SR-ISE-2012-58). The 
Exchange expects to begin trading Mini Options on March 18, 2013.
    \4\ The Penny Pilot Program, which permits certain options 
series to be quoted and traded in increments of $0.01, began on 
January 26, 2007. See Securities Exchange Act Release No. 55161 
(January 24, 2007), 72 FR 4754 (February 1, 2007). The Penny Pilot 
Program has since been extended a number of times and is currently 
in place through June 30, 2013. See Securities Exchange Act Release 
Nos. 56151 (July 26, 2007), 72 FR 42452 (August 2, 2007); 56564 
(September 27, 2007), 72 FR 56412 (October 3, 2007); 57508 (March 
17, 2008), 73 FR 15243 (March 21, 2008); 59633 (March 26, 2009), 74 
FR 15018 (April 2, 2009); 60222 (July 1, 2009), 74 FR 32994 (July 9, 
2009); 60865 (October 22, 2009), 74 FR 55880 (October 29, 2009); 
63437 (December 6, 2010), 75 FR 77032 (December 10, 2010); 65968 
(December 15, 2011), 76 FR 79723 (December 22, 2011); 67323 (June 
29, 2012), 77 FR 40121 (July 6, 2012); and 68424 (December 13, 
2012), 77 FR 75241 (December 19, 2012).
    \5\ The three classes are the Nasdaq-100 Index Tracking Stock 
(``QQQQ''), the SPDR S&P 500 ETF (``SPY'') and the iShares Russell 
2000 Index Fund (``IWM''). QQQQ, SPY and IWM are quoted in $0.01 
increments for all options series.
---------------------------------------------------------------------------

    This proposed rule change will permit the minimum trading increment 
for Mini Options to be identical to the minimum trading increment 
applicable to standard options on the same underlying security. The 
Exchange believes having different trading increments for Mini Options 
than those permitted for standard options on the same underlying 
security would be detrimental to the success of this new product 
offering and would also lead to investor confusion. The Exchange notes 
that the Commission approved Mini Options on SPY, AAPL, GLD, GOOG and 
AMZN because of their high price and current volume levels and because 
of the level of retail investor participation in trading options in 
these classes. Mini Options are a natural extension to the options 
overlying these securities and therefore should retain the most 
important characteristic, i.e., trading increments. The Exchange 
believes that by reducing the minimum trading increments for Mini 
Options, the proposed rule change will provide market participants with 
meaningful trading opportunities in this product. Further, quoting and 
trading in smaller increments will enable market participants to trade 
Mini Options with greater precision as to price. Providing these more 
refined increments will permit the Exchange's market makers the 
opportunity to provide better fills (meaning less spread than the 
current wider minimum increments rules allow) to customers. Therefore, 
ISE proposes to amend its rules to permit the listing and trading of 
Mini Options in the same increment permitted for standard options on 
the same underlying security.
    With this proposed rule change, although Mini Options would be 
trading in narrower increments, they would not be considered part of 
the Penny Pilot Program.
    The Exchange's proposal to quote and trade certain option classes 
that are outside of the Penny Pilot Program in $0.01 increments is not 
novel. Specifically, the Commission has permitted ISE to set the 
minimum increment for all Foreign Currency Options traded on the 
Exchange at $0.01 regardless of the price at which the option is 
quoted.\6\ The Commission has also previously approved a proposal by 
NASDAQ OMX PHLX, Inc. permitting that exchange to also trade its 
foreign currency options in $0.01 increments.\7\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 57019 (December 20, 
2007), 72 FR 73937 (December 28, 2007) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to Rule 
710, Minimum Trading Increments) (SR-ISE-2007-120).
    \7\ See Securities Exchange Act Release No. 56933 (December 7, 
2007), 72 FR 71185 (December 14, 2007) (Approving SR-PHLX-2007-70).
---------------------------------------------------------------------------

    In support of this proposed rule change, ISE proposes to amend ISE 
Rules 504 and 710. As so [sic] ISE Rule 710, ISE proposes to add new 
Supplementary Material .03 which provides that the minimum trading 
increment for Mini Options shall be determined in accordance with new 
Supplementary Material .13(d) to Rule 504. Proposed Supplementary 
Material .13(d) provides that the minimum trading increment for Mini 
Options shall be the same as the minimum trading increment permitted 
for standard options on the same underlying security.
    With regard to the impact of this proposal on system capacity, the 
Exchange represents that it and the Options Price Reporting Authority 
have the necessary systems capacity to handle the potential additional 
traffic associated with this proposal. The Exchange does not believe 
that this increased traffic will become unmanageable since Mini Options 
are limited to a fixed number of underlying securities.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is found in Section 6(b)(5), in 
that the proposed change is designed to promote just and equitable 
principles of trade, will serve to remove impediments to and perfect 
the mechanisms of 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 will assure that standard options 
and Mini Options on the same underlying security will trade in similar 
increments and therefore provide market participants meaningful trading 
opportunities and enable them to trade Mini Options with greater 
precision as to price. The Exchange also believes the proposed rule 
change will avoid investor confusion if both standard options and Mini 
Options on the same underlying security are permitted to trade in 
similar trading increments. The Exchange further believes that 
investors and other market participants will benefit from this proposed 
rule change because it proposes to clarify and establish the minimum 
trading increment for Mini Options prior to the commencement of 
trading. The Exchange believes that investors generally will be 
expecting the minimum trading increment for Mini Options to be the same 
as the minimum trading increment for standard options on the same 
underlying security. This proposed rule change will therefore lessen 
investor confusion because Mini Options and standard options on the 
same underlying security will have the same minimum trading increment.

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. ISE believes that the proposed rule change will in 
fact relieve any burden on, or otherwise promote, competition. Mini 
Options are currently approved for trading on multiple options 
exchanges and all of these exchanges will have the opportunity to 
establish minimum trading increment for Mini Options.

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 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 such 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. Comments may be submitted by any of 
the following methods:

[[Page 11923]]

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-2013-08 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-2013-08. 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2013-08 and should be 
submitted on or before March 13, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03819 Filed 2-19-13; 8:45 am]
BILLING CODE 8011-01-P


