Self-Regulatory Organizations; Proposed Rule Changes:

Federal Register: December 10, 2010 (Volume 75, Number 237)

Notices

Page 77032-77034

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr10de10-101

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-63437; File No. SR-ISE-2010-116

Self-Regulatory Organizations; International Securities Exchange,

LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule

Change To Extend the Penny Pilot Program

December 6, 2010.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on December 2, 2010, the International Securities Exchange, LLC

(the ``Exchange'' or the ``ISE'') filed with the Securities and

Exchange 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.

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The ISE proposes to amend its rules relating to a pilot program to quote and

   Page 77033

   to trade certain options in pennies (``Penny Pilot Program''). The text of the proposed rule change is as follows, with deletions in [brackets] and additions italicized:

   Rule 710. Minimum Trading Increments

   (a) The Board may establish minimum trading increments for options traded on the Exchange. Such changes by the Board will be designated as a stated policy, practice, or interpretation with respect to the administration of this Rule 710 within the meaning of subparagraph

   (3)(A) of Section 19(b) of the Exchange Act and will be filed with the

   SEC as a rule change for effectiveness upon filing. Until such time as the Board makes a change in the increments, the following principles shall apply:

   (1) If the options contract is trading at less than $3.00 per option, $.05; and

   (2) If the options contract is trading at $3.00 per option or higher, $.10.

   (b) Minimum trading increments for dealings in options contracts other than those specified in paragraph (a) may be fixed by the

   Exchange from time to time for options contracts of a particular series.

   (c) Notwithstanding the above, the Exchange may trade in the minimum variation of the primary market in the underlying security.

   Supplementary Material to Rule 710

   .01 Notwithstanding any other provision of this Rule 710, the

   Exchange will operate a pilot program to permit options classes to be quoted and traded in increments as low as $.01. The Exchange will specify which options trade in such pilot, and in what increments, in

   Regulatory Information Circulars filed with the Commission pursuant to

   Rule 19b-4 under the Exchange Act and distributed to Members.

   The Exchange may replace, on a semi-annual basis, any penny pilot issues that have been delisted with the next most actively traded multiply listed options classes that are not yet included in the penny pilot, based on trading activity in the previous six months. The replacement issues may be added to the penny pilot on the second trading day following January 1, 2011 [2010] and July 1, 2011 [2010].

   .02 No Change.

   * * * * *

2. Self-Regulatory Organization's Statement of the Purpose of, and

   Statutory Basis for, the Proposed Rule Change

   In its filing with the Commission, the self-regulatory organization 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 parts of such statements.

   1. Self-Regulatory Organization's Statement of the Purpose of, and the

      Statutory Basis for, the Proposed Rule Change 1. Purpose

      Under the Penny Pilot Program, the minimum price variation for all participating options classes, except for the Nasdaq-100 Index Tracking

      Stock (``QQQQ''), the SPDR S&P 500 Exchange Traded Fund (``SPY'') and the iShares Russell 2000 Index Fund (``IWM''), 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. QQQQ, SPY and IWM are quoted in $0.01 increments for all options series. The Penny Pilot Program is currently scheduled to expire on December 31, 2010.\3\ The Exchange proposes to extend the time period of the Penny Pilot Program through December 31, 2011, and to provide revised dates for adding replacement issues to the

      Penny Pilot program. The Exchange proposes that the semi-annual dates to replace issues that have been delisted be revised to the second trading day following January 1, 2011 and July 1, 2011. The Exchange notes that the replacement issues will be selected based on trading activity for the six month period beginning June 1, 2010 and ending

      November 30, 2010 for the January 2011 replacement, and the six month period beginning December 1, 2010 and ending May 31, 2011 for the July 2011 replacements. This filing does not propose any substantive changes to the Penny Pilot Program: all classes currently participating will remain the same and all minimum increments will remain unchanged. The

      Exchange believes the benefits to public customers and other market participants who will be able to express their true prices to buy and sell options have been demonstrated to outweigh the increase in quote traffic.

      \3\ See Exchange Act Release No. 60865 (October 22, 2009), 74 FR 55880 (October 29, 2009).

      The Exchange agrees to submit reports to the Commission that will analyze the impact of the Penny Pilot Program on market quality and options systems capacity. These reports will include, but are not limited to: (1) Data and analysis on the number of quotations generated for options included in the report; (2) an assessment of the quotation spreads for the options included in the report; (3) an assessment of the impact of the Penny Pilot Program on the capacity of the ISE's automated systems; (4) data reflecting the size and depth of markets; and (5) any capacity problems or other problems that arose related to the operation of the Penny Pilot Program and how the Exchange addressed them. 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 rule change is designed to promote just and equitable principles of trade, 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, which extends the Penny Pilot Program for an additional one year, will enable public customers and other market participants to express their true prices to buy and sell options for the benefit of all market participants.

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

      The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

   3. 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 written comments from members or other interested parties.

3. Date of Effectiveness of the Proposed Rule Change and Timing for

   Commission Action

   Because the foregoing proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) by its terms does not become operative for 30 days after the date of

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   this filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) thereunder.\5\

   \4\ 15 U.S.C. 78s(b)(3)(A).

   \5\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its 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. ISE has satisfied this requirement.

   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.

4. 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 e-mail to rule-comments@sec.gov. Please include

   File Number SR-ISE-2010-116 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-2010-116. This file number should be included on the subject line if e-mail 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 a.m. and 3 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-2010-116 and should be submitted on or before January 3, 2011.

   For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\6\

   \6\ 17 CFR 200.30-3(a)(12).

   Florence E. Harmon,

   Deputy Secretary.

   FR Doc. 2010-31050 Filed 12-9-10; 8:45 am

   BILLING CODE 8011-01-P