
[Federal Register Volume 79, Number 152 (Thursday, August 7, 2014)]
[Notices]
[Pages 46289-46290]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18635]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72740; File No. SR-ISE-2014-31]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving Proposed Rule Change on Bid/Offer Differentials 
for In-The-Money Option Series

August 1, 2014.

I. Introduction

    On June 4, 2014, the International Securities Exchange, LLC 
(``ISE'') 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 amend its rules to require that market makers 
quoting certain in-the-money options series maintain quotes that are no 
wider than the spread between the national best bid and offer 
(``NBBO'') in the underlying security. The proposed rule change was 
published for comment in the Federal Register on June 20, 2014.\3\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72399 (June 16, 
2014), 79 FR 35396 (June 20, 2014) (``Notice'').
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II. Description

    ISE Rule 803(b)(4)(i) presently permits market makers to submit 
quotes with wider bid/offer differentials for in-the-money options 
series where the market for the underlying security is wider than the 
market maker's regular quotation requirements. In particular, a market 
maker quoting an in-the-money options series may submit quotes that are 
as wide as the quotation on the primary market of the underlying 
security.
    ISE proposes to change this obligation to instead require that 
market makers quoting these in-the-money options series maintain quotes 
that are no wider than the spread between the NBBO in the underlying 
security. ISE believes that measuring the permissible width of a market 
maker's quote against the NBBO more accurately reflects the current 
trading environment where multiple trading venues contribute to the 
prevailing market price of a security underlying an options series 
traded on the ISE. Further, ISE explains that a market maker quoting an 
in-the-money options series can hedge its position by trading in the 
underlying security at the NBBO, which may be narrower than the 
quotation on the primary market. In addition, ISE believes that 
requiring market makers to post tighter quotes will improve market 
quality.

III. Discussion and Commission Findings

    After carefully considering the proposal, 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.\4\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\5\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open

[[Page 46290]]

market and a national market system and, in general, to protect 
investors and the public interest. The Commission notes that the 
proposal should improve market quality by narrowing spreads to the 
benefit of investors.
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    \4\ 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).
    \5\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-ISE-2014-31), be, and hereby is, 
approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18635 Filed 8-6-14; 8:45 am]
BILLING CODE 8011-01-P


