
[Federal Register Volume 79, Number 125 (Monday, June 30, 2014)]
[Notices]
[Pages 36848-36849]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15199]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72452; File No. SR-ISE-2014-23]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Granting Approval of Proposed Rule Change, as Modified by 
Amendment No. 2, Regarding the Short-Term Option Series Program

June 24, 2014.

I. Introduction

    On April 22, 2014, the International Securities Exchange, LLC (the 
``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the 
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to amend its rules governing the 
Short Term Option Series Program to introduce finer strike price 
intervals for standard expiration contracts in option classes that also 
have short term options listed on them (``related non-short term 
options''), and to remove obsolete rule text concerning the listing of 
new short term option series during the week of expiration. On May 1, 
2014, the Exchange filed Amendment No. 2 to the proposal.\4\ The 
proposed rule change, as modified by Amendment No. 2, was published for 
comment in the Federal Register on May 12, 2014.\5\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change, as modified by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 was filed on April 29, 2014 and withdrawn on 
May 1, 2014.
    \5\ See Securities Exchange Act Release No. 72098 (May 6, 2014), 
79 FR 27006 (``Notice'').
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II. Description of the Proposed Rule Change

    On any Thursday or Friday that is a business day, the Exchange 
currently may list short term options that expire at the close of 
business on each of the next five Fridays that are business days and 
are not Fridays in which monthly or quarterly options expire.\6\ These 
short term options may be listed in strike price intervals of $0.50, 
$1, or $2.50.\7\ The Exchange may also list standard expiration 
contracts, which are listed in accordance with the regular monthly 
expiration cycle, in wider strike price intervals of $2.50, $5, or 
$10.\8\ During the week prior to expiration only, the Exchange is 
permitted to list related non-short term option contracts in the 
narrower strike price intervals available for short term option 
series.\9\ Since this exception to the standard strike price intervals 
is available only during the week prior to expiration, however, 
standard expiration contracts regularly trade at significantly wider 
intervals than their weekly counterparts.\10\ As a result, the Exchange 
proposes to amend Supplementary Material .02(e) to Rule 504 and 
Supplementary Material .01(e) to Rule 2009 to permit the listing of 
related non-short term options in the same strike price intervals as 
allowed for short term option series at any time during the month prior 
to expiration, which begins on the first trading day after the prior 
month's expiration date, subject to the provisions of Rule 504(f).\11\
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    \6\ See Supplementary Material .02 to Rule 504; Supplementary 
Material .01 to Rule 2009.
    \7\ See Supplementary Material .12 to Rule 504; Supplementary 
Material .05 to Rule 2009. Specifically, the Exchange may list short 
term options in $0.50 intervals for strike prices less than $75, or 
for option classes that trade in one dollar increments in the 
related non-short term option, $1 intervals for strike prices that 
are between $75 and $150, and $2.50 intervals for strike prices 
above $150. See id.
    \8\ See Rule 504(d). In general, the Exchange must list standard 
expiration contracts in $2.50 intervals for strike prices of $25 or 
less, $5 intervals for strike prices greater than $25, and $10 
intervals for strike prices greater than $200. See id.
    \9\ See Supplementary Material .02(e) to Rule 504; Supplementary 
Material .01(e) to Rule 2009.
    \10\ See Notice, supra note 5, at 27007.
    \11\ For example, since the April 2014 monthly option expired on 
Saturday, April 19, the proposed rule change would allow the 
Exchange to list the May 2014 monthly option in short term option 
intervals starting Monday, April 21. See Notice, supra note 5, at 
27007.
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    In addition, the Exchange noted that it recently adopted rule text 
that states that, notwithstanding any language to the contrary, short 
term options may be added up to and including on the expiration 
date.\12\ Accordingly, the Exchange proposes to delete rule text that 
prohibits the opening of additional series listed pursuant to 
Supplementary Material .12 to Rule 504 and Supplementary Material .05 
to Rule 2009 during the week of expiration.\13\
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    \12\ See Securities Exchange Act Release No. 71033 (December 11, 
2013), 78 FR 76375 (December 17, 2013) (SR-ISE-2013-68).
    \13\ See Notice, supra note 5, at 27007.
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    The Exchange also stated that is has analyzed its capacity, and 
represented that it and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle any potential 
additional traffic associated with this proposed rule change.\14\ In 
addition, the Exchange stated that it believes that its members will 
not have a capacity issue as a result of this proposal.\15\ 
Furthermore, the Exchange stated that it does not believe the proposed 
rule change will cause fragmentation of liquidity.\16\
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    \14\ See Notice, supra note 5, at 27008.
    \15\ Id.
    \16\ Id.
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III. Discussion and Commission Findings

    After careful review, 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.\17\ In particular, the Commission finds that the proposed

[[Page 36849]]

rule change is consistent with Section 6(b)(5) of the Act,\18\ 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.
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    \17\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed change may provide the 
investing public and other market participants more flexibility to 
closely tailor their investment and hedging decisions, thus allowing 
them to better manage their risk exposure. As the Exchange notes, 
standard expiration contracts currently trade in wider strike price 
intervals than their weekly counterparts, except during the week prior 
to expiration.\19\ The Exchange further states that this creates a 
situation where contracts on the same option class that expire both 
several weeks before and several weeks after the standard expiration 
are eligible to trade in strike price intervals that the standard 
expiration contract is not.\20\ According to the Exchange, the proposed 
rule change will increase market efficiency by harmonizing strike price 
intervals for contracts that are close to expiration, whether those 
contracts are listed pursuant to weekly or monthly expiration 
cycles.\21\
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    \19\ See Notice, supra note 5, at 27007.
    \20\ See Notice, supra note 5, at 27007-8.
    \21\ See Notice, supra note 5, at 27008.
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    The Commission believes that the proposed rule change to remove 
obsolete rule next concerning the listing of new short term option 
during the week of expiration is consistent with the Act because it 
protects investors and the public interest by eliminating any confusion 
about the opening of additional series during the week of expiration.
    Finally, 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 
this proposed rule change.\22\ The Exchange further stated that it 
believes its members will not have a capacity issue as a result of the 
proposal and that it does not believe this expansion will cause 
fragmentation of liquidity. \23\
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    \22\ Id.
    \23\ Id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\24\ that the proposed rule change (SR-ISE-2014-23), as modified by 
Amendment No. 2, be, and hereby is, approved.
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    \24\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15199 Filed 6-27-14; 8:45 am]
BILLING CODE 8011-01-P


