[Federal Register Volume 78, Number 227 (Monday, November 25, 2013)]
[Notices]
[Pages 70382-70386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28160]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70900; File No. SR-ISE-2013-58]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Change the Expiration Date for Most Options Contracts to the
Third Friday of the Expiration Month Instead of the Saturday Following
the Third Friday
November 19, 2013.
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 November 7, 2013, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend its rules to change the
expiration date for most option contracts to the third Friday of the
expiration month instead
[[Page 70383]]
of the Saturday following the third Friday, and to make other
amendments to its rules consistent with the industry-wide change to
Friday expiration. The text of the proposed rule change is available on
the Exchange's Internet Web site at http://www.ise.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend its rules to change the
expiration date for most option contracts to the third Friday of the
expiration month instead of the Saturday following the third Friday.
More specifically, the Exchange is proposing to amend rule text
referencing Saturday expirations. The Exchange notes, however, that
this change will apply to all standard expiration contracts including
those in which the rules are silent on the expiration date.\3\ The
Exchange is making this filing to harmonize its rules in connection
with a recently approved rule filing made by The Options Clearing
Corporation (``OCC'') which made substantially similar changes.\4\ The
Exchange believes that the industry must remain consistent in
expiration dates, and, thus, is proposing to update its rules to remain
consistent with those of OCC. In addition, the Exchange understands
that other exchanges have or will be filing similar rules to effect
this industry-wide initiative.\5\
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\3\ Mini Options expirations are the same as those for Standard
Options and would be amended as specified in this proposal.
\4\ See Securities Exchange Act Release No. 69772 (June 17,
2013), 78 FR 37645 (June 21, 2013) (order approving SR-OCC-2013-004
[sic]).
\5\ See e.g. Securities Exchange Act Release Nos. 70372
(September 11, 2013) 78 FR 57186 (September 17, 2013) (SR-NYSEARCA-
2013-88); 70259 (August 26, 2013), 78 FR 53809 (August 30, 2013)
(SR-PHLX-2013-89); 70091 (August 1, 2013), 78 FR 48212 (August 7,
2013) (SR-CBOE-2013-073).
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Most option contracts (``standard expiration contracts'') currently
expire at the ``expiration time'' (11:59 p.m. Eastern Time) on the
Saturday following the third Friday of the specified expiration month
(the ``expiration date''). As a result of this proposed rule change,
the expiration date for standard expiration contracts would be changed
to the third Friday of the expiration month. The expiration time would
continue to be 11:59 p.m. Eastern Time on the expiration date. This
change would apply only to standard expiration contracts expiring after
February 1, 2015, and the Exchange, similar to OCC, does not propose to
change the expiration date for any outstanding option contracts already
listed with a Saturday expiration date. Option contracts having non-
standard expiration dates (``non-standard expiration contracts'') will
be unaffected by this proposed rule change.\6\
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\6\ Options with non-standard expiration contracts include
Quarterly Option Series (Supplementary Material .03 to Rule 504, and
Supplementary Material .02 to Rule 2009), and Short Term Option
Series (Supplementary Material .02 to Rule 504, and Supplementary
Material .01 to Rule 2009).
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In order to provide a smooth transition to Friday expiration OCC
has moved the expiration exercise procedures to Friday for all standard
expiration contracts even though the contracts would continue to expire
on Saturday.\7\ After February 1, 2015, virtually all standard
expiration contracts will actually expire on Friday. The only standard
expiration contracts that will expire on a Saturday after February 1,
2015 are certain options that had been listed prior to the
effectiveness of the OCC rule change and the completion of systems
changes to support Friday expiration. The Exchange will not list any
additional options with Saturday expiration dates falling after
February 1, 2015.
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\7\ See SR-OCC-2013-04.
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Certain option contracts have already been listed with Saturday
expiration dates as distant as December 2016. For these contracts,
transitioning to Friday expiration for newly listed option contracts
expiring after February 1, 2015 would create a situation under which
certain options with open interest would expire on a Saturday while
other options with open interest would expire on a Friday in the same
expiration month. Clearing members have expressed a clear preference to
not have a mix of options with open interest that expire on different
days in a single month.\8\ Accordingly, OCC represented in its recently
approved filing that it will not issue and clear any new option
contract with a Friday expiration if existing option contracts of the
same options class expire on the Saturday following the third Friday of
the same month. However, Friday expiration processing will be in effect
for these Saturday expiration contracts. As with standard expiration
options during the transition period, exercise requests received after
Friday expiration processing is complete but before the Saturday
contract expiration time will continue to be processed without fines or
penalties.
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\8\ Id.
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Consistent with the OCC filing, the Exchange is proposing to adopt
a definition of expiration date and add language to its rules that
reflects a Saturday expiration date for series expiring prior to
February 1, 2015 and a Friday expiration date for series expiring on or
after February 1, 2015.\9\ In particular, the Exchange proposes to
amend its rules as described in the paragraphs below.
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\9\ With the exception of expirations that were listed prior to
the effective date of the OCC filing and have open interest.
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The Exchange proposes to amend Rule 100 (Definitions) to adopt a
definition of expiration date, as described above, and to modify the
definition of the term ``outstanding'' to mean an option contract which
has been issued by the Clearing Corporation and has neither been the
subject of a closing writing transaction nor has expired.
The Exchange proposes to amend Rule 418 (Other Restrictions on
Option Transactions and Exercises) with respect to certain timing for
restrictions on the exercise of option contracts. Specifically, the
Exchange proposes to specify that the 10-business day period referenced
in Rule 418(a)(2) includes the expiration date for an option contract
that expires on a business day. The Exchange also proposes to specify
that, with respect to index options, restrictions on exercise may be in
effect until the opening of business on the business day of their
expiration (i.e., for Friday expirations), or, in the case of an option
contract expiring on a day that is not a business day, and as is
currently the case for Saturday expirations, on the last business day
before the expiration date. Finally, the Exchange proposes to specify
in Rule 418(a)(3)(ii) that exercises of expiring American-style, cash-
settled index options are not prohibited on the business day of their
expiration (i.e., for Friday expirations), or, in the case of an option
contract
[[Page 70384]]
expiring on a day that is not a business day, and as is currently the
case for Saturday expirations, on the last business day prior to their
expiration.
The Exchange proposes to amend Rule 504 (Series of Options
Contracts Open for Trading) to differentiate between Friday and
Saturday expirations. Specifically, the Exchange proposes to specify
that additional series of individual stock options may be added in
unusual market conditions until the close of trading on the business
day prior to expiration in the case of an option contract expiring on a
business day (i.e., Thursday for Friday expirations), or, in the case
of an option contract expiring on a day that is not a business day, and
as is currently the case for Saturday expirations, until the close of
trading on the second business day prior to expiration (i.e., Thursday
for Saturday expirations). In addition, the Exchange proposes to make a
related technical correction to Rule 504. Currently Rule 504 states, in
part, that new series of FLEX Equity Options may be added on any
business day prior to the expiration date. As the ISE does not list
FLEX Equity Options, the Exchange proposes to remove this reference.
The Exchange proposes to amend Rule 720 (Obvious and Catastrophic
Errors) to add greater specificity regarding the timing surrounding
notifying the Exchange of a ``Catastrophic Error.'' Specifically, the
Exchange proposes to specify that, for such transactions in an expiring
options series that take place on an expiration date that is a business
day (i.e., for Friday expirations), a member must notify the Exchange
by 5:00 p.m. Eastern Time that same day. For such transactions in an
options series that take place on the business day immediately prior to
an expiration date that is not a business day (i.e., for Saturday
expirations), a member must notify the Exchange by 5:00 p.m. Eastern
Time on such business day (i.e., on Friday).
The Exchange proposes to amend Rule 1100 (Exercise of Options
Contracts) in several areas, each of which is designed to differentiate
between Friday and Saturday expirations. First, the Exchange proposes
to specify in Rule 1100(b) that special procedures apply to the
exercise of equity options on the business day of their expiration
(i.e., for Friday expirations), or, in the case of an option contract
expiring on a day that is not a business day, and as is currently the
case for Saturday expirations, on the last business day before their
expiration. Second, the Exchange proposes to specify in Rule 1100(c)
that, regarding exercise cut-off times, option holders have until 5:30
p.m. Eastern Time on the business day of their expiration (i.e., for
Friday expirations), or, in the case of an option contract expiring on
a day that is not a business day, and as is currently the case for
Saturday expirations, on the business day immediately prior to the
expiration date. Third, the Exchange proposes to specify in Rule
1100(h) that the advance notice described therein is applicable if
provided by the Exchange on or before 5:30 p.m. Eastern Time on the
business day immediately prior to the business day of expiration (i.e.,
Thursday for Friday expirations), or, in the case of an option contract
expiring on a day that is not a business day, and as is currently the
case for Saturday expirations, the business day immediately prior to
the last business day before the expiration date (i.e., Thursday for
Saturday expirations). Fourth, the Exchange proposes to specify in Rule
1100(i)(2) that the reference therein to ``unusual circumstances''
includes, but is not limited to, a significant news announcement
concerning the underlying security of an option contract that is
scheduled to be released just after the close on the business day the
option contract expires (i.e., for Friday expirations), or, in the case
of an option contract expiring on a day that is not a business day, and
as is currently the case for Saturday expirations, the business day
immediately prior to expiration. Fifth, the Exchange proposes to
specify in Rule 1100(h)(8)(ii) that exercises of expiring American-
style, cash-settled index options are not prohibited on the business
day of their expiration (i.e., for Friday expirations), or, in the case
of an option contract expiring on a day that is not a business day, and
as is currently the case for Saturday expirations, on the last business
day prior to their expiration. The Exchange notes that due to an error
in its rulebook it currently has two rules labeled as Rule 1100(h), the
Exchange therefore also proposes to move one of these subsections,
which deals with procedures for exercise of American-style cash-settled
index options contracts, to Rule 1100(l).\10\
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\10\ New Rule 1100(l), previously Rule 1100(h), has been
mistakenly referenced in the Exchange's rulebook as Rule 1102(h).
With this filing the Exchange will move the rule back to Rule 1100
as approved in SR-ISE-2003-05 but will move it to subsection (l) to
avoid conflicting with another rule currently labeled as Rule
1100(h). See Securities Exchange Act Release No. 48405 (August 25,
2003), 68 FR 52257 (September 2, 2003) (SR-ISE-2003-05).
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The Exchange proposes to amend Rule 2001 (Definitions) to clarify
the definition of the term ``American-style index option'' to mean an
option on an industry or market index that can be exercised on any
business day prior to expiration, including the business day of
expiration in the case of an option contract expiring on a business day
(i.e., for Friday expirations), and the term ``European-style index
option'' to mean an option on an industry or market index that can be
exercised only on the business day of its expiration (i.e., for Friday
expirations), or, in the case of an option contract expiring on a day
that is not a business day, and as is currently the case for Saturday
expirations, on the last business day prior to the day it expires.
The Exchange proposes to amend Rule 2009 (Terms of Index Option
Contracts) with respect to the permitted timing for adding new series
of index option contracts so as to differentiate between Friday and
Saturday expirations. First, the Exchange proposes to specify in Rule
2009(a)(5) that the last day of trading for A.M.-settled index options
is the business day preceding the business day of expiration (i.e., for
Friday expirations), or, in the case of an option contract expiring on
a day that is not a business day, and as is currently the case for
Saturday expirations, the business day preceding the last day of
trading in the underlying securities prior to the expiration date.
Second, the Exchange proposes to specify in Rule 2009(c)(2) that new
series of index option contracts may be added up to, but not on or
after, the fourth business day prior to expiration for an option
contract expiring on a business day (i.e., up to, but not on or after,
the opening of trading on Monday morning for Friday expirations), or,
in the case of an option contract expiring on a day that is not a
business day, and as is currently the case for Saturday expirations,
the fifth business day prior to expiration. Third, the Exchange
proposes to specify in Rule 2009(d) that the reported level of the
underlying index that is calculated by the reporting authority on the
business day of expiration (i.e., for Friday expirations), or, in the
case of an option contract expiring on a day that is not a business
day, and as is currently the case for Saturday expirations, the last
day of trading in the underlying securities prior to the expiration
date for purposes of determining the current index value at the
expiration of an A.M.-settled index option may differ from the level of
the index that is separately calculated and reported by the reporting
authority and that reflects trading activity
[[Page 70385]]
subsequent to the opening of trading in any of the underlying
securities.
Finally, the Exchange proposes to amend Rule 2206 (Terms of Foreign
Currency Options Contracts) to specify that foreign currency options
shall be European-style, which means that they may be exercised only on
the business day of expiration (i.e., for Friday expirations), or, in
the case of an option contract expiring on a day that is not a business
day, and as is currently the case for Saturday expirations, the last
business day prior to the expiration date (normally a Friday).
To the extent applicable to the timeframes herein, the Exchange is
also proposing, with this filing, to replace any reference in the
purpose section of any past Exchange rule filings or notices to any
expiration date other than Friday for a standard options contract with
the new Friday standard. Essentially, the Exchange is now proposing to
replace any relevant historic references to expiration dates to be
replaced with the proposed Friday expiration. As stated above, the
Exchange believes the proposed change will keep the Exchange consistent
with the processing at OCC and will enable the Exchange to give effect
to the industry-wide initiative. In addition, the Exchange understands
that other exchanges have filed or will be filing similar rules, thus
creating a uniform expiration date for standard options on listed
classes.\11\
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\11\ See supra note 5.
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The Exchange notes that OCC, industry groups, clearing members and
the other exchanges have been active participants in planning for the
transition to the Friday expiration.\12\ In March 2012, OCC began to
discuss moving standard contract expirations to Friday expiration dates
with industry groups, including two Securities Industry and Financial
Markets Association (``SIFMA'') committees, the Operations and
Technology Steering Committee and the Options Committee, and at two
major industry conferences, the SIFMA Operations Conference and the
Options Industry Conference.\13\ OCC also discussed the project with
the Intermarket Surveillance Group and at an OCC Operations Roundtable.
In each case, there was broad support for the initiative.\14\
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\12\ Id.
\13\ Id.
\14\ Id.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \17\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that keeping its rules
consistent with those of the industry will protect all participants in
the market by eliminating confusion. The proposed changes thus allow
for a more orderly market by allowing all options markets, including
the clearing agencies, to have the same expiration date for standard
options. In addition, the proposed changes will foster cooperation and
coordination with persons engaged in regulating clearing, settling,
processing information with respect to, and facilitating transactions
in securities by aligning a pivotal part of the options processing to
be consistent industry-wide. If the industry were to differ, investors
would suffer from confusion and be more vulnerable to violate different
exchange rules. The proposed changes do not permit unfair
discrimination between any members because they are applied to all
members equally. Moreover, the Exchange believes that it helps all
members by keeping the Exchange consistent with OCC practices and those
of other exchanges.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Specifically, the Exchange does not believe the proposed rule change
will impose a burden on intramarket competition because it will be
applied to all members equally. In addition, the Exchange does not
believe the proposed rule change will impose any burden to intermarket
competition because it will be applied industry-wide and apply to all
market participants. The proposed rule change is structured to enhance
competition because the shift from an expiration date of the Saturday
following the third Friday to the third Friday is anticipated to be
adopted industry-wide and will apply to all option classes listed on
the Exchange. This in turn will allow the Exchange to compete more
effectively with other exchanges making similar rule changes.
C. 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
Because the proposed rule change does not (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder.\20\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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
Exchange has satisfied this requirement.
\20\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the
[[Page 70386]]
Commission to waive the 30-day operative delay so that the proposal may
become operative immediately upon filing. The Exchange stated that
waiver of this requirement will allow the Exchange to more quickly
align its rules with an industry-wide initiative. The Exchange noted
that the transition to Friday expiration has already begun, and that
certain option series expiring after February 1, 2015 have already been
listed with a Friday expiration date. The Exchange also stated that the
proposal will provide greater clarity to members and investors
regarding how ISE rules will apply to the expiration of those
contracts. Finally, the Exchange noted that none of the options
contracts expiring within the next 30-days would be affected by the
proposed changes. Based on the Exchange representations above, and
since the proposal is based, in part, on a proposal submitted by the
OCC and approved by the Commission,\23\ the Commission waives the 30-
day operative delay requirement and designates the proposed rule change
as operative upon filing.\24\
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\21\ 17 CFR 240.19b-4(f)(6).
\22\ 17 CFR 240.19b-4(f)(6)(iii).
\23\ See supra note 4.
\24\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings under Section 19(b)(2)(B) \25\
of the Act to determine whether the proposed rule should be approved or
disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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IV. 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 email to [email protected]. Please include
File Number SR-ISE-2013-58 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-2013-58. This file
number should be included on the subject line if email 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
10:00 a.m. and 3:00 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-2013-58 and should be
submitted on or before December 16, 2013.
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\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28160 Filed 11-22-13; 8:45 am]
BILLING CODE 8011-01-P