Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 Thereto by the International Securities Exchange, Inc., Relating to Listing Standards for Options on Narrow-Based Securities Indexes, 10447-10449 [E5-848]
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
Rather, the Commission finds that the
proposed interpretation of Article
Fifth(b) is consistent with the Exchange
Act, including section 6(b)(5).
The Petitioner’s legal memorandum
states that the proposal is not consistent
with section 6(c)(3)(A) of the Exchange
Act ‘‘because the proposed rule does not
address the qualifications of CBOT
members to become CBOE members in
accordance with the voting rights and
procedures established by Article
Fifth(b).’’ 62 Section 6(c)(3)(A) of the
Exchange Act provides that an exchange
‘‘may deny membership to, or condition
the membership of, a registered brokerdealer’’ if, among other things, such
broker-dealer does not meet financial
responsibility or operational capability
standards set forth in the exchange’s
rules.63 This provision is further
qualified by section 6(c)(4) of the
Exchange Act, which permits an
exchange to limit the number of
members of the exchange, provided that
the exchange does not decrease the
number of memberships below such
number in effect on May 1, 1975.64
Article Fifth(b) states that a member of
the CBOT is entitled to be a member of
the CBOE, notwithstanding any
limitation on the number of CBOE
members, if such CBOT member applies
for membership and otherwise qualifies
for membership. The CBOE is proposing
to interpret the meaning of the term
‘‘member of the [CBOT]’’ as used in
Article Fifth(b). This interpretation does
not implicate Section 6(c)(3)(A) and is
consistent with Section 6(c)(4) because
the CBOE is not proposing to reduce the
number of members of the exchange.
VI. Conclusion
It is therefore ordered, that the earlier
action taken by delegated authority 65 is
set aside and the proposed rule change
(SR–CBOE–2004–16), as amended, is
approved pursuant to section 19(b)(2) of
the Exchange Act.66
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–833 Filed 3–2–05; 8:45 am]
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Self-Regulatory Organizations;
Emerging Markets Clearing
Corporation; Notice of Withdrawal of a
Proposed Rule Change To Amend Its
Rules With Regard to the Imposition of
Fines Upon Its Members
February 25, 2005.
On January 12, 2005, the Emerging
Markets Clearing Corporation (‘‘EMCC’’)
submitted to the Securities and
Exchange Commission (‘‘Commission’’)
a withdrawal of a proposed rule change
which was filed with the Commission
pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’).1 The purpose of the proposed
rule change was to expand EMCC’s rules
with regard to the imposition of fines
upon its members and to more
specifically identify the actions or
inactions of members that will result in
the imposition of fines. Notice of the
proposal was published in the Federal
Register on May 3, 2004.2
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.3
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–842 Filed 3–2–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51256; File No. SR–ISE–
2005–10]
Self-Regulatory Organizations; Notice
of Filing and Order Granting
Accelerated Approval of a Proposed
Rule Change and Amendment No. 1
Thereto by the International Securities
Exchange, Inc., Relating to Listing
Standards for Options on NarrowBased Securities Indexes
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 February
14, 2005, the International Securities
Exchange, Inc. (‘‘ISE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
Memorandum, Supra note 24, at 7–8.
U.S.C. 78f(c)(3)(A).
64 15 U.S.C. 78f(c)(4).
65 July 15th Order, Supra note 8.
66 15 U.S.C. 78s(b)(2).
63 15
[Release No. 34–51255; File No. SR–EMCC–
2004–01]
February 25, 2005.
BILLING CODE 8010–01–P
62 Legal
SECURITIES AND EXCHANGE
COMMISSION
U.S.C. 78s(b)(1).
Exchange Act Release No. 49623
(April 27, 2004), 69 FR 24208.
3 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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2 Securities
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10447
proposed rule change as described in
items I, II, and III below, which items
have been prepared by the ISE. On
February 23, 2005, the Exchange
amended its proposal.3 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons,
and is approving the proposal on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE is proposing to amend its
rules relating to listing standards for
options on narrow-based security
indexes. The text of the proposed rule
change is as follows (italics indicate
additions; [brackets] indicate deletions):
*
*
*
*
*
Rule 2002. Designation of an Index
(a) No Change.
(b) The Exchange may trade options
on a narrow-based index pursuant to
Rule 19b–4(e) of the Securities
Exchange Act of 1934, if each of the
following conditions is satisfied:
(1) No Change.
(2) The index is capitalizationweighted, price-weighted, [or] equal
dollar-weighted, or modified
capitalization-weighted, and consists of
10 or more component securities;
(3)–(4) No Change.
(5) In a capitalization-weighted index
or a modified capitalization-weighted
index, the lesser of the five highest
weighted component securities in the
index or the highest weighted
component securities in the index that
in the aggregate represent at least 30
percent of the total number of
component securities in the index each
have had an average monthly trading
volume of at least 2,000,000 shares over
the past six months;
(6)–(12) No Change.
(c) The following maintenance listing
standards shall apply to each class of
index options originally listed pursuant
to paragraph (b) above:
(1)–(3) No Change.
(4) In a capitalization-weighted index
or a modified capitalization-weighted
index, the lesser of the five highest
weighted component securities in the
index or the highest weighted
component securities in the index that
in the aggregate represent at least 30
percent of the total number of stocks in
the index each have had an average
3 See Amendment No. 1, dated February 23, 2005
(‘‘Amendment No. 1’’). In Amendment No. 1, the
Exchange supplemented its description of the
modified market capitalization methodology.
Amendment No. 1 replaced the ISE’s original filing
in its entirety.
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
monthly trading volume of at least
1,000,000 shares over the past six
months. In the event a class of index
options listed on the Exchange fails to
satisfy the maintenance listing
standards set forth herein, the Exchange
shall not open for trading any additional
series of options of that class unless
such failure is determined by the
Exchange not to be significant and the
SEC concurs in that determination, or
unless the continued listing of that class
of index options has been approved by
the SEC under Section 19(b)(2) of the
Exchange Act.
*
*
*
*
*
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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change,
as amended, and discussed any
comments it received on the proposed
rule change, as amended. The text of
these statements may be examined at
the places specified in item III 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 ISE is proposing to amend ISE
Rule 2002(b). ISE Rule 2002(b) contains
generic listing standards for narrowbased index options pursuant to Rule
19b–4(e) of the Act.4 Rule 19b–4(e)
provides that the listing and trading of
a new derivative securities product by a
self-regulatory organization shall not be
deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4,5 if the Commission has
approved, pursuant to section 19(b) of
the Act,6 the self-regulatory
organization’s trading rules, procedures
and listing standards for the product
class that would include the new
derivatives securities product, and the
self-regulatory organization has a
surveillance program for the product
class.7 Thus, ISE Rule 2002(b) allows
4 17
CFR 240.19b–4(e).
CFR 240.19b–4(c)(1).
6 15 U.S.C. 78s(b).
7 See Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998) (the ‘‘19b–4(e) Order’’). Telephone
conversation between Samir Patel, Assistance
General Counsel, ISE, and Florence E. Harmon,
5 17
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16:38 Mar 02, 2005
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the Exchange to list options on a
narrow-based securities index pursuant
to Rule 19b–4(e) under the Act without
having to submit a formal rule change
under section 19(b) of the Act as long as
the requisite criteria provided for under
ISE Rule 2002(b) are met.8 One of these
criteria, provided under ISE Rule
2002(b)(2), requires that the subject
index be capitalization-weighted, priceweighted, or equal-dollar weighted and
consist of ten or more component
securities.
The Exchange hereby proposes to
amend ISE Rule 2002(b)(2) to include a
‘‘modified capitalization-weighted’’
methodology as an acceptable generic
listing standard for options on a narrowbased index.9 The modified
capitalization-weighted methodology is
already an approved criterion for
securities indexes 10 and is an
established method of weighting
securities indexes.11 Accordingly, the
ISE proposes to adopt the modified
capitalization-weighted methodology as
a standard for listing options on narrowbased indexes that satisfy the
Exchange’s generic listing criteria for
options on narrow-based securities
indexes under ISE Rule 2002(b).
section 6(b)(5) requirements that the
rules of an exchange be designed to
promote just and equitable principles of
trade, 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. The
adoption of the proposed rule change, as
amended, would enable the ISE to begin
listing and trading options on new
narrow-based indexes.
2. Basis
The Exchange believes the proposed
rule change, as amended, is consistent
with the Act and the rules and
regulations thereunder and, in
particular, the requirements of section
6(b) of the Act. Specifically, the
Exchange believes the proposed rule
change, as amended, is consistent with
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Senior Special Counsel, Division of Market
Regulation (‘‘Division’’), Commission, on February
24, 2005.
8 See Securities Exchange Act Release No. 47749
(April 25, 2003); 68 FR 23507 (May 2, 2003) (Order
approving rules relating to trading options on
indices, including ISE Rule 2002(b)—Generic
Narrow-Based Index Option Listing Criteria).
9 A modified capitalization-weighted index is
similar to a capitalization-weighted index where the
components are weighted according to the total
market value of the outstanding shares, except that
an adjustment to the weighting of one or more of
the component occurs. This type of methodology is
expected to: (1) Retain the economic attributes of
capitalization weighting; (2) promote portfolio
weight diversification; (3) reduce performance
distortion by preserving the capitalization ranking
of companies; and (4) reduce market impact on the
smallest component securities from necessary
weight rebalancing.
10 The Chicago Board Options Exchange’s
(‘‘CBOE’’) generic listing standards for micro
narrow-based securities indexes, CBOE Rule
24.2(d)(2), includes modified capitalizationweighted methodology as an approved criteria. See
Securities Exchange Act Release No. 49932 (June
28, 2004); 69 FR 40994 (July 7, 2004) (Order
approving CBOE’s micro narrow-based securities
index generic listing standards).
11 For example, the Nasdaq-100 Index is
calculated using the modified capitalizationweighted methodology.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
proposed rule change, as amended, does
not impose any burden on competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
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, as amended.
The Exchange has not received any
unsolicited written comments from
members or other interested parties.
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–ISE–2005–10 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609. All submissions should
refer to File Number SR–ISE–2005–10.
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
Commissions Internet Web site (https://
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
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
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 inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the ISE. 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–2005–10 and should be
submitted by March 24, 2005.
believes that there is good cause,
consistent with sections 6(b)(5) and
19(b)(2) of the Act,14 to approve the
proposal, as amended, on an accelerated
basis.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange, and, in particular,
the requirements of section 6(b)(5)
thereunder.12 The proposed rule change
would facilitate the listing and trading
of options on certain types of narrowbased securities indexes on the
Exchange for the benefit of its members
and their customers, specifically those
that are calculated using the modified
capitalization-weighted methodology
and otherwise meet all applicable
generic listing standards under ISE Rule
2002(b). Accordingly, the Commission
believes that approving this proposed
rule change, as amended, would
promote a fair, orderly, and competitive
options market.
The Exchange has requested that this
proposed rule change be given
accelerated effectiveness pursuant to
section 19(b)(2) of the Act.13 The
Commission finds good cause for
approving this proposed rule change, as
amended, prior to the thirtieth day after
the date of publication of notice thereof
in the Federal Register. The
Commission believes that accelerating
the effectiveness of the proposed rule
change, as amended, would facilitate
the availability of additional investment
choices to investors. In addition, the
Commission notes that it has previously
approved the modified market
capitalization methodology in generic
listing standards for other derivative
products. Accordingly, the Commission
SECURITIES AND EXCHANGE
COMMISSION
12 15
13 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(1).
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16:38 Mar 02, 2005
Jkt 205001
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,15 that the
proposed rule change (SR–ISE–2005–
10), as amended, is hereby approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.16
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–848 Filed 3–2–05; 8:45 am]
BILLING CODE 8010–01–P
[Release No. 34–51264; File No. SR–NYSE–
2005–07]
Self-Regulatory Organizations; Order
Granting Approval of Proposed Rule
Change by the New York Stock
Exchange, Inc. Relating to Proposed
Changes to Exchange Rules 440F
(‘‘Public Short Sale Transactions
Effected on the Exchange’’) and 440G
(‘‘Transactions in Stocks and Warrants
for the Accounts of Members, Allied
Members and Member Organizations’’)
February 25, 2005.
On January 11, 2005, the New York
Stock Exchange, Inc. (the ‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the ‘‘SEC’’
or the ‘‘Commission’’) the proposed rule
change pursuant to section 19(b)(1) 1 of
the Securities Exchange Act of 1934 (the
‘‘Exchange Act’’) 2 and Rule 19b–4
thereunder,3 a proposed rule change
relating to the inclusion of certain shortexempt sales on Reports of Short
Interest (i.e., NYSE Forms SS20 and
121). This order approves the proposed
rule change.
The proposed rule change was
published for notice and comment in
the Federal Register on January 26,
2005.4 The Commission did not receive
comments on the foregoing proposed
rule change.
The Commission has carefully
reviewed the proposed rule change and
U.S.C. 78f(b)(5) and 78s(b)(2).
U.S.C. 78s(b)(2).
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1)
2 15 U.S.C. 78a et seq.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 51054
(January 18, 2005), 70 FR 3758.
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14 15
15 15
Frm 00097
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10449
finds that the proposed rule change is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange 5 and, in
particular, the requirements of section 6
of the Exchange Act.6 In particular, the
Commission finds that the proposed
rule change is consistent with section
6(b)(5) in that it is 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
perfect the mechanism of a free and
open market and national market
system, and in general to protect
investors and the public interest; and
the prompt and accurate clearance and
settlement of securities transactions.7
The Commission notes that the NYSE
proposal amends Exchange Rule 440F,
which requires members and member
organizations to report round-lot short
sale transactions for public customers
on Form SS20, and Exchange Rule
440G, which requires members and
member organizations to report roundlot short sale transactions for members,
allied members or member
organizations on Form 121, to include
certain short-exempt sale transactions.
Currently, short-exempt sales are
excluded when computing the total
short interest on the forms, under Rules
440F and 440G, respectively. However,
the Commission’s Pilot Order issued
pursuant to Rule 202T of Regulation
SHO 8 greatly increased the number of
short-exempt sales transactions. Under
the terms of the Commission’s Pilot
Order, sales in certain ‘‘designated
securities’’ should be marked ‘‘shortexempt.’’ 9 The Commission finds that
5 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
6 15 U.S.C. 78f.
7 15 U.S.C. 78f(b)(5).
8 17 CFR 242.202T.
9 See Securities Exchange Act Release No. 50104
(July 28, 2004), 69 F.R. 48032 (August 6, 2004)
(‘‘Pilot Order’’), available at https://www.sec.gov/
rules/other/34-50104.htm; see also Securities
Exchange Act Release No. 50747 (November 29,
2004), 69 FR 70480 (December 6, 2004), available
at https://www.sec.gov/rules/other/34-50747.htm
(Second Pilot Order). The Pilot Order provided for
a one-year pilot program (‘‘Pilot Program’’), under
which short sale price tests are suspended for short
sales in: (1) Certain ‘‘designated securities’’
identified in Appendix A to the SEC’s Pilot Order;
(2) any security included in the Russell 1000 Index
effected between 4:15 p.m. EST and the open of the
consolidated tape on the following day; and (3) any
security not included in (1) and (2) above effected
E:\FR\FM\03MRN1.SGM
Continued
03MRN1
Agencies
[Federal Register Volume 70, Number 41 (Thursday, March 3, 2005)]
[Notices]
[Pages 10447-10449]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-848]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51256; File No. SR-ISE-2005-10]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of a Proposed Rule Change and Amendment
No. 1 Thereto by the International Securities Exchange, Inc., Relating
to Listing Standards for Options on Narrow-Based Securities Indexes
February 25, 2005.
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 February 14, 2005, the International Securities Exchange, Inc.
(``ISE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
items I, II, and III below, which items have been prepared by the ISE.
On February 23, 2005, the Exchange amended its proposal.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons, and is
approving the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Amendment No. 1, dated February 23, 2005 (``Amendment
No. 1''). In Amendment No. 1, the Exchange supplemented its
description of the modified market capitalization methodology.
Amendment No. 1 replaced the ISE's original filing in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The ISE is proposing to amend its rules relating to listing
standards for options on narrow-based security indexes. The text of the
proposed rule change is as follows (italics indicate additions;
[brackets] indicate deletions):
* * * * *
Rule 2002. Designation of an Index
(a) No Change.
(b) The Exchange may trade options on a narrow-based index pursuant
to Rule 19b-4(e) of the Securities Exchange Act of 1934, if each of the
following conditions is satisfied:
(1) No Change.
(2) The index is capitalization-weighted, price-weighted, [or]
equal dollar-weighted, or modified capitalization-weighted, and
consists of 10 or more component securities;
(3)-(4) No Change.
(5) In a capitalization-weighted index or a modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least 30
percent of the total number of component securities in the index each
have had an average monthly trading volume of at least 2,000,000 shares
over the past six months;
(6)-(12) No Change.
(c) The following maintenance listing standards shall apply to each
class of index options originally listed pursuant to paragraph (b)
above:
(1)-(3) No Change.
(4) In a capitalization-weighted index or a modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least 30
percent of the total number of stocks in the index each have had an
average
[[Page 10448]]
monthly trading volume of at least 1,000,000 shares over the past six
months. In the event a class of index options listed on the Exchange
fails to satisfy the maintenance listing standards set forth herein,
the Exchange shall not open for trading any additional series of
options of that class unless such failure is determined by the Exchange
not to be significant and the SEC concurs in that determination, or
unless the continued listing of that class of index options has been
approved by the SEC under Section 19(b)(2) of the Exchange Act.
* * * * *
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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change, as amended, and discussed any comments it
received on the proposed rule change, as amended. The text of these
statements may be examined at the places specified in item III 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 ISE is proposing to amend ISE Rule 2002(b). ISE Rule 2002(b)
contains generic listing standards for narrow-based index options
pursuant to Rule 19b-4(e) of the Act.\4\ Rule 19b-4(e) provides that
the listing and trading of a new derivative securities product by a
self-regulatory organization shall not be deemed a proposed rule
change, pursuant to paragraph (c)(1) of Rule 19b-4,\5\ if the
Commission has approved, pursuant to section 19(b) of the Act,\6\ the
self-regulatory organization's trading rules, procedures and listing
standards for the product class that would include the new derivatives
securities product, and the self-regulatory organization has a
surveillance program for the product class.\7\ Thus, ISE Rule 2002(b)
allows the Exchange to list options on a narrow-based securities index
pursuant to Rule 19b-4(e) under the Act without having to submit a
formal rule change under section 19(b) of the Act as long as the
requisite criteria provided for under ISE Rule 2002(b) are met.\8\ One
of these criteria, provided under ISE Rule 2002(b)(2), requires that
the subject index be capitalization-weighted, price-weighted, or equal-
dollar weighted and consist of ten or more component securities.
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e).
\5\ 17 CFR 240.19b-4(c)(1).
\6\ 15 U.S.C. 78s(b).
\7\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (the ``19b-4(e) Order'').
Telephone conversation between Samir Patel, Assistance General
Counsel, ISE, and Florence E. Harmon, Senior Special Counsel,
Division of Market Regulation (``Division''), Commission, on
February 24, 2005.
\8\ See Securities Exchange Act Release No. 47749 (April 25,
2003); 68 FR 23507 (May 2, 2003) (Order approving rules relating to
trading options on indices, including ISE Rule 2002(b)--Generic
Narrow-Based Index Option Listing Criteria).
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The Exchange hereby proposes to amend ISE Rule 2002(b)(2) to
include a ``modified capitalization-weighted'' methodology as an
acceptable generic listing standard for options on a narrow-based
index.\9\ The modified capitalization-weighted methodology is already
an approved criterion for securities indexes \10\ and is an established
method of weighting securities indexes.\11\ Accordingly, the ISE
proposes to adopt the modified capitalization-weighted methodology as a
standard for listing options on narrow-based indexes that satisfy the
Exchange's generic listing criteria for options on narrow-based
securities indexes under ISE Rule 2002(b).
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\9\ A modified capitalization-weighted index is similar to a
capitalization-weighted index where the components are weighted
according to the total market value of the outstanding shares,
except that an adjustment to the weighting of one or more of the
component occurs. This type of methodology is expected to: (1)
Retain the economic attributes of capitalization weighting; (2)
promote portfolio weight diversification; (3) reduce performance
distortion by preserving the capitalization ranking of companies;
and (4) reduce market impact on the smallest component securities
from necessary weight rebalancing.
\10\ The Chicago Board Options Exchange's (``CBOE'') generic
listing standards for micro narrow-based securities indexes, CBOE
Rule 24.2(d)(2), includes modified capitalization-weighted
methodology as an approved criteria. See Securities Exchange Act
Release No. 49932 (June 28, 2004); 69 FR 40994 (July 7, 2004) (Order
approving CBOE's micro narrow-based securities index generic listing
standards).
\11\ For example, the Nasdaq-100 Index is calculated using the
modified capitalization-weighted methodology.
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2. Basis
The Exchange believes the proposed rule change, as amended, is
consistent with the Act and the rules and regulations thereunder and,
in particular, the requirements of section 6(b) of the Act.
Specifically, the Exchange believes the proposed rule change, as
amended, is consistent with section 6(b)(5) requirements that the rules
of an exchange be designed to promote just and equitable principles of
trade, 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. The adoption of the proposed
rule change, as amended, would enable the ISE to begin listing and
trading options on new narrow-based indexes.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change, as amended,
does not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
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, as amended. The Exchange has not
received any unsolicited written comments from members or other
interested parties.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-ISE-2005-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609. All submissions should refer to File Number
SR-ISE-2005-10. 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 Commissions Internet Web site (https://
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
[[Page 10449]]
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 inspection and copying in the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
ISE. 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-
2005-10 and should be submitted by March 24, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular, the requirements of section 6(b)(5) thereunder.\12\
The proposed rule change would facilitate the listing and trading of
options on certain types of narrow-based securities indexes on the
Exchange for the benefit of its members and their customers,
specifically those that are calculated using the modified
capitalization-weighted methodology and otherwise meet all applicable
generic listing standards under ISE Rule 2002(b). Accordingly, the
Commission believes that approving this proposed rule change, as
amended, would promote a fair, orderly, and competitive options market.
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\12\ 15 U.S.C. 78f(b)(5).
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The Exchange has requested that this proposed rule change be given
accelerated effectiveness pursuant to section 19(b)(2) of the Act.\13\
The Commission finds good cause for approving this proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of notice thereof in the Federal Register. The Commission
believes that accelerating the effectiveness of the proposed rule
change, as amended, would facilitate the availability of additional
investment choices to investors. In addition, the Commission notes that
it has previously approved the modified market capitalization
methodology in generic listing standards for other derivative products.
Accordingly, the Commission believes that there is good cause,
consistent with sections 6(b)(5) and 19(b)(2) of the Act,\14\ to
approve the proposal, as amended, on an accelerated basis.
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\13\ 15 U.S.C. 78s(b)(1).
\14\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-ISE-2005-10), as amended, is
hereby approved on an accelerated basis.
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\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-848 Filed 3-2-05; 8:45 am]
BILLING CODE 8010-01-P