[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Notices]
[Pages 54629-54630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-21767]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67754; File No. SR-ISE-2012-33]
Self-Regulatory Organizations; International Securities
Exchange, LLC; Order Granting Approval of Proposed Rule Change, as
Modified by Amendment No. 1, Regarding Strike Price Intervals for
Certain Option Classes
August 29, 2012.
I. Introduction
On May 21, 2012, the International Securities Exchange, LLC
(``ISE'' or ``Exchange'') 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 modify its Short Term Option
Series Program (``STOS Program'') to permit, during the expiration week
of an option class that is selected for the STOS Program (``STOS
Option''), the strike price intervals for the related non-STOS option
that is in the same class as a STOS Option (``Related non-STOS
Option'') to be the same as the strike price interval for the STOS
Option. The Exchange also proposed to adopt a rule to open for trading
Short Term Option Series at $0.50 strike price intervals for option
classes that trade in one dollar increments and are in the STOS Program
(``Eligible Option Classes''). The proposed rule change was published
for comment in the Federal Register on June 6, 2012.\3\ The Commission
received one comment letter on the proposal.\4\ On July 26,
[[Page 54630]]
2012, ISE filed Amendment No.1 to the proposed rule change.\5\ This
order approves the proposed rule change, as modified by Amendment No.
1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 67083 (June 6, 2012), 76
FR 33543 (``Notice'').
\4\ See letter from Jenny L. Klebes, Senior Attorney, Legal
Division, Chicago Board Options Exchange, Incorporated (``CBOE''),
to Elizabeth M. Murphy, Secretary, Commission, dated June 27, 2012
(``CBOE Letter''). CBOE sought further clarification on how the
proposed rule change would be implemented and suggested that the
proposed rule change be revised to indicate which, if any, day(s)
during the week of expiration for standard options the related non-
STOS options could be added. See CBOE Letter at 2.
\5\ Amendment No. 1 clarified the timing of when additional
series of non-STOS, or standard options, may be opened. Because
Amendment No. 1 is technical in nature, the Commission is not
required to publish it for public comment.
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposed to amend ISE Rules 504 (Series of Options
Contracts Open for Trading) and 2009 (Terms of Index Options Contracts)
to indicate that, during the expiration week, the strike price
intervals for the Related non-STOS Option shall be the same as the
strike price interval for the STOS Option. The Exchange also proposed
to adopt a rule that would permit ISE to list Short Term Option Series
at $0.50 strike price intervals for Eligible Option Classes.
In the Notice, the Exchange stated that the principal reason for
the proposed expansion is in response to market and customer demand to
list actively traded products in more granular strike price intervals
and to provide Exchange members and their customers increased trading
opportunities in the STOS Program.\6\ ISE also represented that there
are substantial benefits to market participants in the ability to trade
the Eligible Option Classes at more granular strike price intervals and
that the instant proposal has the support of several of its market
makers and was developed in consultations with one such market-making
firm.\7\ Furthermore, the Exchange also argued that allowing it to open
Related non-STOS Options at the more granular strike price intervals
the week before expiration would ensure conformity between STOS options
and Related non-STOS Options.
---------------------------------------------------------------------------
\6\ See Notice, supra note 3 at 33544.
\7\ Id. at 33545.
---------------------------------------------------------------------------
The Exchange stated that it has analyzed its capacity, and
represented that it and the Options Price Reporting Authority
(``OPRA'') have the necessary systems capacity to handle the potential
additional traffic associated with trading the Eligible Option Classes
in narrower strike price intervals.\8\ The Exchange also represented
that the proposal, if approved, would not increase the number of listed
short-term series.\9\
---------------------------------------------------------------------------
\8\ Id. The Exchange also stated that, while liquidity levels at
each individual option series could decrease as a result of listing
short term options series at more granular strike price intervals,
it did not expect that the proposed rule change would result in a
significant change in liquidity or otherwise cause liquidity in the
Eligible Options Classes products to decline.
\9\ See Notice, supra note 3 at 33545
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review of the proposed rule change and the CBOE
Letter, 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.\10\ Specifically, the Commission finds that the proposal is
consistent with Section 6(b)(5) of the Act,\11\ 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. The
Commission believes that the proposal strikes a reasonable balance
between the Exchange's desire to offer a wider array of investment
opportunities and the need to avoid unnecessary proliferation of
options series.
---------------------------------------------------------------------------
\10\ 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).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 trading the
expanded number of strike price intervals available to the Eligible
Option Classes and Related non-STO Options. The Commission expects the
Exchange to monitor the trading volume associated with the additional
options series listed as a result of this proposal and the effect of
these additional series on market fragmentation and on the capacity of
the Exchange's, OPRA's, and vendors' automated systems.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-ISE-2012-33) be, and it
hereby is, approved.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21767 Filed 9-4-12; 8:45 am]
BILLING CODE 8011-01-P