Self-Regulatory Organizations; Proposed Rule Changes:

Federal Register: May 2, 2011 (Volume 76, Number 84)

Notices

Page 24546-24548

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

DOCID:fr02my11-131

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-64343; File No. SR-ISE-2011-26

Self-Regulatory Organizations; International Securities Exchange,

LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule

Change Relating to Option Expiration Months Open for Trading on the

Exchange

April 26, 2011.

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

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, on April 20, 2011, 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.

\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 Exchange proposes to amend its rules to permit the Exchange to list additional expiration months if such expiration months are listed on another exchange. The text of the proposed rule change is available on the Exchange's Web site http://www.ise.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.

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 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.

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

      Statutory Basis for, the Proposed Rule Change 1. Purpose

      The purpose of the proposed rule change is to amend ISE Rules to permit the Exchange to list additional expiration months if such expiration months are listed on another exchange. This filing is based on a filing previously submitted by NASDAQ OMX PHLX, Inc.

      (``PHLX'').\3\

      \3\ See Securities Exchange Act Release No. 63700 (January 11, 2011) 76 FR 2931 (January 18, 2011) (SR-PHLX-2011-04). In its filing, PHLX cites to the Commission's approval of the NASDAQ

      Options Market and rules pertaining thereto as the basis for making the change to its rules.

      Under current rule 504(e), ISE usually will open four (4) expiration months for each type of option of a class of options open for trading on the Exchange: The first two (2) being the two nearest months, regardless of the quarterly cycle on which that class trades; the third and fourth being the next two months of the quarterly cycle previously designated by the Exchange for that specific class. For example, if the Exchange listed in late September a new stock option on a January-April-July-October quarterly cycle, the Exchange would list the two nearest-term months (October and November) and the next two expiration months of the cycle (January and April). Further, when the

      October series expire, the Exchange would add the December series as the next nearest month. And when the November series expire, the

      Exchange would add the July series as the next month of the cycle.

      In 2010, the Exchange established a pilot program to add up to two additional expiration months for each class of options opened for trading on the Exchange (the ``Additional Expiration Months

      Pilot'').\4\ Under the Additional Expiration Months Pilot, ISE lists expiration months that are considered ``mid-month.'' For example, for options classes that have expiration months of October, November,

      January, and April, the Exchange lists the December series. For options classes that have expiration months of October, November, February and

      May, the Exchange lists the December and January series. The listing of additional expiration months has been well-received by our members and has had very limited impact on system resources.

      \4\ See Securities Exchange Act Release No. 63104 (October 14, 2010) 75 FR 64773 (October 20, 2011) (SR-ISE-2010-91).

      PHLX recently submitted a filing to adopt rules pursuant to which it can

      Page 24547

      open ``at least one expiration month'' for each class of options opened for trading on that exchange.\5\ Consequently, while ISE is currently restricted to listing a limited number of expiration months that are permissible under its rules and the Additional Expiration Months Pilot,

      PHLX has the ability to list an unlimited number of expiration months, including those that ISE would not be able to currently list under its rules. Indeed, PHLX has listed additional expiration months that no other exchange, including ISE, can currently list. For example, in

      February 2011, PHLX listed the October 2011 expiration in Omnicare,

      Inc. (ticker: OCR). PHLX was able to list that expiration month based on its amended rule. Meanwhile, ISE could not list the October 2011 series under Rule 504(e) because the standard expiration months for OCR in February are March, April, June, and September. ISE also could not list the October 2011 series as part of the Additional Expiration

      Months Pilot because OCR is not one of the classes selected by the

      Exchange to participate in the Additional Expiration Months Pilot (nor could ISE select it for the Additional Expiration Months Pilot because all 20 available selections have been chosen). As a result, PHLX was the only exchange that listed the October 2011 series in OCR and continues to trade that series without any competition.

      \5\ This paragraph was modified at the request of the Exchange on April 25, 2011. See e-mail, dated April 25, 2011, from Samir M.

      Patel, Assistant General Counsel, International Securities Exchange, to Kathleen J. Gray, Attorney, Division of Trading and Markets,

      Commission.

      For competitive reasons, ISE now proposes to add new Supplementary

      Material .10 to its Rule 504 and Supplementary Material .04 to ISE Rule 2009 to permit the Exchange to list additional expiration months on options classes opened for trading on the Exchange if such expiration months are opened for trading on at least one other national securities exchange. This proposed rule change will allow ISE to match the listing of expiration months that PHLX or NOM lists in the event ISE is not able to list those expiration months because they do not comport to ISE

      Rules or the Additional Expiration Months Pilot.

      The Exchange notes that the proposed rule change affords additional flexibility in that it will permit the exchange to list those additional expiration months that have an actual demand from market participants thereby potentially reducing the proliferation of classes and series. The Exchange believes the proposed rule change is proper, and indeed necessary, in light of the need to have rules that permit the listing of identical expiration months across exchanges for products that are multiply-listed and fungible with one another. The

      Exchange believes that the proposed rule change should encourage competition and be beneficial to traders and market participants by providing them with a means to trade on the Exchange securities that are listed and traded on other exchanges. 2. Statutory Basis

      The basis under the Securities Exchange Act of 1934 (``Exchange

      Act'') for this proposed rule change is the requirement under Section 6(b)(5) \6\ that an exchange have rules that are designed to promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism for 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 permit the

      Exchange to accommodate requests made by its members and other market participants to list the additional expiration months and thus encourage competition without harming investors or the public interest.

      \6\ 15 U.S.C. 78f(b)(5).

   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 unsolicited 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 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 \7\ and Rule 19b- 4(f)(6) thereunder.\8\

   \7\ 15 U.S.C. 78s(b)(3)(A).

   \8\ 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

   Commission has waived the five-day prefiling requirement in this case.

   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 should promote competition by allowing the Exchange to list and trade option series that are trading on other options exchanges. Therefore, the Commission designates the proposal operative upon filing.\9\

   \9\ 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).

   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-2011-26 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-2011-26. 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

   Page 24548

   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-2011-26 and should be submitted on or before May 23, 2011.

   For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\10\

   \10\ 17 CFR 200.30-3(a)(12).

   Cathy H. Ahn,

   Deputy Secretary.

   FR Doc. 2011-10468 Filed 4-29-11; 8:45 am

   BILLING CODE 8011-01-P