[Federal Register Volume 79, Number 125 (Monday, June 30, 2014)]
[Notices]
[Pages 36848-36849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15199]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72452; File No. SR-ISE-2014-23]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Order Granting Approval of Proposed Rule Change, as Modified by
Amendment No. 2, Regarding the Short-Term Option Series Program
June 24, 2014.
I. Introduction
On April 22, 2014, the International Securities Exchange, LLC (the
``Exchange'' or ``ISE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4
thereunder,\3\ a proposed rule change to amend its rules governing the
Short Term Option Series Program to introduce finer strike price
intervals for standard expiration contracts in option classes that also
have short term options listed on them (``related non-short term
options''), and to remove obsolete rule text concerning the listing of
new short term option series during the week of expiration. On May 1,
2014, the Exchange filed Amendment No. 2 to the proposal.\4\ The
proposed rule change, as modified by Amendment No. 2, was published for
comment in the Federal Register on May 12, 2014.\5\ The Commission
received no comments on the proposal. This order approves the proposed
rule change, as modified by Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Amendment No. 1 was filed on April 29, 2014 and withdrawn on
May 1, 2014.
\5\ See Securities Exchange Act Release No. 72098 (May 6, 2014),
79 FR 27006 (``Notice'').
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II. Description of the Proposed Rule Change
On any Thursday or Friday that is a business day, the Exchange
currently may list short term options that expire at the close of
business on each of the next five Fridays that are business days and
are not Fridays in which monthly or quarterly options expire.\6\ These
short term options may be listed in strike price intervals of $0.50,
$1, or $2.50.\7\ The Exchange may also list standard expiration
contracts, which are listed in accordance with the regular monthly
expiration cycle, in wider strike price intervals of $2.50, $5, or
$10.\8\ During the week prior to expiration only, the Exchange is
permitted to list related non-short term option contracts in the
narrower strike price intervals available for short term option
series.\9\ Since this exception to the standard strike price intervals
is available only during the week prior to expiration, however,
standard expiration contracts regularly trade at significantly wider
intervals than their weekly counterparts.\10\ As a result, the Exchange
proposes to amend Supplementary Material .02(e) to Rule 504 and
Supplementary Material .01(e) to Rule 2009 to permit the listing of
related non-short term options in the same strike price intervals as
allowed for short term option series at any time during the month prior
to expiration, which begins on the first trading day after the prior
month's expiration date, subject to the provisions of Rule 504(f).\11\
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\6\ See Supplementary Material .02 to Rule 504; Supplementary
Material .01 to Rule 2009.
\7\ See Supplementary Material .12 to Rule 504; Supplementary
Material .05 to Rule 2009. Specifically, the Exchange may list short
term options in $0.50 intervals for strike prices less than $75, or
for option classes that trade in one dollar increments in the
related non-short term option, $1 intervals for strike prices that
are between $75 and $150, and $2.50 intervals for strike prices
above $150. See id.
\8\ See Rule 504(d). In general, the Exchange must list standard
expiration contracts in $2.50 intervals for strike prices of $25 or
less, $5 intervals for strike prices greater than $25, and $10
intervals for strike prices greater than $200. See id.
\9\ See Supplementary Material .02(e) to Rule 504; Supplementary
Material .01(e) to Rule 2009.
\10\ See Notice, supra note 5, at 27007.
\11\ For example, since the April 2014 monthly option expired on
Saturday, April 19, the proposed rule change would allow the
Exchange to list the May 2014 monthly option in short term option
intervals starting Monday, April 21. See Notice, supra note 5, at
27007.
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In addition, the Exchange noted that it recently adopted rule text
that states that, notwithstanding any language to the contrary, short
term options may be added up to and including on the expiration
date.\12\ Accordingly, the Exchange proposes to delete rule text that
prohibits the opening of additional series listed pursuant to
Supplementary Material .12 to Rule 504 and Supplementary Material .05
to Rule 2009 during the week of expiration.\13\
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\12\ See Securities Exchange Act Release No. 71033 (December 11,
2013), 78 FR 76375 (December 17, 2013) (SR-ISE-2013-68).
\13\ See Notice, supra note 5, at 27007.
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The Exchange also stated that is has analyzed its capacity, and
represented that it and the Options Price Reporting Authority
(``OPRA'') have the necessary systems capacity to handle any potential
additional traffic associated with this proposed rule change.\14\ In
addition, the Exchange stated that it believes that its members will
not have a capacity issue as a result of this proposal.\15\
Furthermore, the Exchange stated that it does not believe the proposed
rule change will cause fragmentation of liquidity.\16\
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\14\ See Notice, supra note 5, at 27008.
\15\ Id.
\16\ Id.
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III. Discussion and Commission Findings
After careful review, 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.\17\ In particular, the Commission finds that the proposed
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rule change is consistent with Section 6(b)(5) of the Act,\18\ 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.
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\17\ In approving the proposed rule change, the Commission has
considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed change may provide the
investing public and other market participants more flexibility to
closely tailor their investment and hedging decisions, thus allowing
them to better manage their risk exposure. As the Exchange notes,
standard expiration contracts currently trade in wider strike price
intervals than their weekly counterparts, except during the week prior
to expiration.\19\ The Exchange further states that this creates a
situation where contracts on the same option class that expire both
several weeks before and several weeks after the standard expiration
are eligible to trade in strike price intervals that the standard
expiration contract is not.\20\ According to the Exchange, the proposed
rule change will increase market efficiency by harmonizing strike price
intervals for contracts that are close to expiration, whether those
contracts are listed pursuant to weekly or monthly expiration
cycles.\21\
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\19\ See Notice, supra note 5, at 27007.
\20\ See Notice, supra note 5, at 27007-8.
\21\ See Notice, supra note 5, at 27008.
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The Commission believes that the proposed rule change to remove
obsolete rule next concerning the listing of new short term option
during the week of expiration is consistent with the Act because it
protects investors and the public interest by eliminating any confusion
about the opening of additional series during the week of expiration.
Finally, 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
this proposed rule change.\22\ The Exchange further stated that it
believes its members will not have a capacity issue as a result of the
proposal and that it does not believe this expansion will cause
fragmentation of liquidity. \23\
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\22\ Id.
\23\ Id.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\24\ that the proposed rule change (SR-ISE-2014-23), as modified by
Amendment No. 2, be, and hereby is, approved.
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\24\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15199 Filed 6-27-14; 8:45 am]
BILLING CODE 8011-01-P