Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Generic Listing Standards and Position Limits for Broad-Based Index Options, 43481-43485 [E5-3998]
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Federal Register / Vol. 70, No. 143 / Wednesday, July 27, 2005 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52084; File No. SR–ISE–
2005–27]
Self-Regulatory Organizations;
International Securities Exchange, Inc.;
Notice of Filing of a Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Generic Listing Standards
and Position Limits for Broad-Based
Index Options
July 20, 2005.
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 May 19,
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 July
13, 2005, the ISE filed Amendment No.
1 to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE hereby proposes to amend its
rules to adopt generic listing standards
and position limits for broad-based
index options. The text of the proposed
rule change appears below. Additions
are italicized.
Rule 2002. Designation of an Index
(a)–(c) No Change.
(d) The Exchange may trade options
on a broad-based index pursuant to
Rule 19b–4(e) of the Securities Exchange
Act of 1934, if each of the following
conditions is satisfied:
(1) The index is broad-based, as
defined in Rule 2001(j);
(2) Options on the index are
designated as A.M.-settled;
(3) The index is capitalizationweighted, modified capitalizationweighted, price-weighted, or equal
dollar-weighted;
(4) The index consists of 50 or more
component securities;
(5) Component securities that account
for at least ninety-five percent (95%) of
the weight of the index have a market
capitalization of at least $75 million,
except that component securities that
account for at least sixty-five percent
(65%) of the weight of the index have
a market capitalization of at least $100
million;
(6) Component securities that account
for at least eighty percent (80%) of the
weight of the index satisfy the
requirements of Rule 502 applicable to
individual underlying securities;
(7) Each component security that
accounts for at least one percent (1%)
of the weight of the index has an
average daily trading volume of at least
90,000 shares during the last six month
period;
(8) No single component security
accounts for more than ten percent
(10%) of the weight of the index, and
the five highest weighted component
securities in the index do not, in the
aggregate, account for more than thirtythree percent (33%) of the weight of the
index;
(9) All component securities are
‘‘reported securities,’’ as defined in Rule
11Aa3–1 under the Exchange Act;
(10) Non-U.S. component securities
(stocks or ADRs) that are not subject to
comprehensive surveillance agreements
do not, in the aggregate, represent more
than twenty percent (20%) of the weight
of the index;
(11) The current index value is widely
disseminated at least once every fifteen
(15) seconds by one or more major
market data vendors during the time
options on the index are traded on the
Exchange;
(12) The Exchange reasonably
believes it has adequate system capacity
to support the trading of options on the
index, based on a calculation of the
Exchange’s current ISCA allocation and
the number of new messages per second
expected to be generated by options on
such index;
(13) An equal dollar-weighted index is
rebalanced at least once every calendar
quarter;
S&P SmallCap 600 Index ............................................................................................
S&P MidCap 400 Index ................................................................................................
Reduced Value S&P 1000 Index .................................................................................
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Rule 2004. Position Limits for BroadBased Index Options
(a) Rule 412 generally shall govern
position limits for broad-based index
options, as modified by this Rule 2004.
There may be no position limit for
certain Specified (as provided in Rule
2000) broad-based index options
contracts. Except as otherwise indicated
below, the position limit for a broadbased index option shall be 25,000
contracts. All other broad-based index
options contracts shall be subject to a
contract limitation fixed by the
Exchange, which shall not be larger than
the limits provided in the chart below.
Standard limit
(on the same side
of the market)
(contracts)
Broad-based
underlying index
1 15
(14) If an index is maintained by a
broker-dealer, the index is calculated by
a third-party who is not a broker-dealer,
and the broker-dealer has erected an
informational barrier around its
personnel who have access to
information concerning changes in, and
adjustments to, the index;
(15) The Exchange has written
surveillance procedures in place with
respect to surveillance of trading of
options on the index.
(e) The following maintenance listing
standards shall apply to each class of
index options originally listed pursuant
to paragraph (d) above:
(1) The requirements set forth in
subparagraphs (d)(1)–(d)(3) and (d)(9)–
(d)(15) must continue to be satisfied.
The requirements set forth in
subparagraphs (d)(5)–(d)(8) must be
satisfied only as of the first day of
January and July in each year;
(2) The total number of component
securities in the index may not increase
or decrease by more than ten percent
(10%) from the number of component
securities in the index at the time of its
initial listing.
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 the
continued listing of that class of index
options has been approved by the SEC
under Section 19(b)(2) of the Exchange
Act.
100,000
45,000
50,000
Restrictions
No more than 60,000 near-term.
No more than 25,000 near-term.
No more than 30,000 near-term.
3 In Amendment No. 1, the ISE made technical
corrections to the filing and clarified certain issues
raised by Commission Staff.
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Federal Register / Vol. 70, No. 143 / Wednesday, July 27, 2005 / Notices
Standard limit
(on the same side
of the market)
(contracts)
Broad-based
underlying index
Micro S&P 1000 Index .................................................................................................
Nasdaq 100 Index ........................................................................................................
Mini Nasdaq 100 Index ................................................................................................
Russell 3000 Index .......................................................................................................
Mini Russell 3000 Index ...............................................................................................
Russell 3000 Value Index ............................................................................................
Mini Russell 3000 Value Index ....................................................................................
Russell 3000 Growth Index ..........................................................................................
Mini Russell 3000 Growth Index ..................................................................................
Russell 2500 Index .......................................................................................................
Mini Russell 2500 Index ...............................................................................................
Russell 2500 Value Index ............................................................................................
Mini Russell 2500 Value Index ....................................................................................
Russell 2500 Growth Index ..........................................................................................
Mini Russell 2500 Growth Index ..................................................................................
Russell 2000 Index .......................................................................................................
Mini Russell 2000 Index ...............................................................................................
Russell 2000 Value Index ............................................................................................
Mini Russell 2000 Value Index ....................................................................................
Russell 2000 Growth Index ..........................................................................................
Mini Russell 2000 Growth Index ..................................................................................
Russell 1000 Index .......................................................................................................
Mini Russell 1000 Index ...............................................................................................
Russell 1000 Value Index ............................................................................................
Mini Russell 1000 Value Index ....................................................................................
Russell 1000 Growth Index ..........................................................................................
Mini Russell 1000 Growth Index ..................................................................................
Russell Top 200 Index .................................................................................................
Mini Russell Top 200 Index .........................................................................................
Russell Top 200 Value Index .......................................................................................
Mini Russell Top 200 Value Index ...............................................................................
Russell Top 200 Growth Index ....................................................................................
Mini Russell Top 200 Growth Index .............................................................................
Russell MidCap Index ..................................................................................................
Mini Russell MidCap Index ..........................................................................................
Russell MidCap Value Index ........................................................................................
Mini Russell MidCap Value Index ................................................................................
Russell MidCap Growth Index .....................................................................................
Mini Russell MidCap Growth Index ..............................................................................
Russell Small Cap Completeness Index ......................................................................
Mini Russell Small Cap Completeness Index ..............................................................
Russell Small Cap Completeness Value Index ...........................................................
Mini Russell Small Cap Completeness Value Index ...................................................
Russell Small Cap Completeness Growth Index .........................................................
Mini Russell Small Cap Completeness Growth Index .................................................
Mini NYSE U.S. 100 Index ...........................................................................................
Micro NYSE U.S. 100 Index ........................................................................................
Mini NYSE International 100 Index ..............................................................................
Micro NYSE International 100 Index ............................................................................
Mini NYSE World Leaders Index .................................................................................
Micro NYSE World Leaders Index ...............................................................................
*
*
*
*
*
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
ISE 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 ISE has prepared
summaries, set forth in sections A, B,
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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 proposes to amend its
rules to adopt generic listing standards
and position limits for broad-based
index options. In particular, the
Exchange proposes to adopt (i) ISE Rule
2002(d), which contains generic initial
listing standards for broad-based index
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500,000
75,000
750,000
50,000
500,000
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50,000
500,000
50,000
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50,000
500,000
50,000
500,000
50,000
500,000
50,000
500,000
50,000
500,000
50,000
500,000
Restrictions
No more
None.
None.
No more
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No more
than 300,000 near-term.
than
than
than
than
than
than
than
than
than
than
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30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
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30,000 near-term.
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30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
30,000 near-term.
300,000 near-term.
options, (ii) ISE Rule 2002(e), which
contains generic maintenance standards
for broad-based index options listed
pursuant to proposed ISE Rule 2002(d),
and (iii) an amendment to ISE Rule
2004(a), to provide position limits for
broad-based index options listed
pursuant to proposed ISE Rule 2002(d).
This rule change would enable the
Exchange to list broad-based index
options pursuant to Rule 19b–4(e) 4 of
4 17 CFR 240.19b–4(e). Rule 19b–4(e) provides
that the listing and trading of a new derivative
securities product by a self-regulatory organization
(‘‘SRO’’) shall not be deemed a proposed rule
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the Act if each of the conditions set
forth in ISE Rule 2002(d) are satisfied.
The proposed rule change would further
provide ongoing maintenance standards
and position limits for broad-based
index options listed pursuant to
proposed ISE Rule 2002(d). Such
options would, in all other respects, be
traded pursuant to the Exchange’s
trading rules and procedures applicable
to index options and be covered under
the Exchange’s surveillance program for
index options. The Exchange notes that
it and other options exchanges currently
have rules that ain ‘‘generic’’ listing
standards pursuant to Rule 19b–4(e) and
position limits for narrow-based index
options.5 The Exchange also notes that
CBOE currently has rules that contain
generic listing standards and position
limits for micro narrow-based index
options.6 The standards contained in
these proposed generic listing standards
and position limits for broad-based
index options are based on the
standards contained in the generic
listing standards and position limits for
narrow-based index options and micro
narrow-based index options that were
previously approved by the Commission
but have been adapted to reflect the
characteristics of broad-based index
options.
Generic Initial Listing Standards for
Broad-Based Index Options
In order to list broad-based index
options pursuant to the generic Rule
19b–4(e) listing standards, the
underlying index must satisfy all of the
conditions contained in proposed ISE
Rule 2002(d). If the underlying index
does not satisfy all of the conditions, the
Exchange would be required to file a
proposed rule change with the
Commission on Form 19b–4 pursuant to
Section 19(b)(2) of the Act 7 and obtain
Commission approval in order to list
options on that index. Following are the
change, pursuant to paragraph (c)(1) of Rule 19b–
4, if the Commission has approved, pursuant to
Section 19(b) of the Act, the SRO’s trading rules,
procedures and listing standards for the product
class that include the new derivative securities
product and the SRO has a surveillance program for
the product class. When relying on Rule 19b–4(e),
the SRO must submit Form 19b–4(e) to the
Commission within five business days after the
exchange begins trading the new derivative
securities products. See Securities Exchange Act
Release No. 40761 (December 8, 1998), 63 FR 70952
(December 22, 1998).
5 See ISE Rules 2002(b), 2002(c) and 2005;
Chicago Board Options Exchange (‘‘CBOE’’) Rules
24.2(b), 24.2(c) and 24.4A; American Stock
Exchange Rules 901C Commentary .02 and 904C(c);
Pacific Stock Exchange Rules 5.13 and 5.16; and
Philadelphia Stock Exchange Rules 1009A(b),
1009A(c) and 1001A(b).
6 See CBOE Rules 24.2(d), 24.2(e) and 24.4B.
7 15 U.S.C. 78s(b)(2).
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conditions contained in proposed ISE
Rule 2002(d).
• Under proposed ISE Rule
2002(d)(1), the index must be ‘‘broadbased,’’ as defined in ISE Rule 2001(j).
Rule 2001(j) defines the term ‘‘broadbased’’ as an index designed to be
representative of a stock market as a
whole or of a range of companies in
unrelated industries.
• Under proposed ISE Rule
2002(d)(2),8 options on the index must
be designated as A.M.-settled.
• Under proposed ISE Rule
2002(d)(3),9 the index must be
capitalization-weighted, modified
capitalization-weighted, price-weighted,
or equal dollar-weighted.
• Under proposed ISE Rule
2002(d)(4),10 the index must consist of
50 or more component securities. The
Exchange believes that a 50 component
minimum is reasonable for broad-based
indexes, and, when applied in
conjunction with the other listing
requirements, will result in indexes that
are sufficiently broad-based in scope
and not readily subject to manipulation.
The Exchange notes that there are
currently a number of broad-based
indexes that consist of fewer than 50
components, such as, the Dow Jones
Industrial Average Index (30
components) and the Amex Major
Market Index (20 components). The
Exchange further notes that, while
broad-based index options generally
have more components than narrowbased index options, the generic listing
standards for narrow-based index
options are more liberal, requiring an
index to consist of only 10 or more
component securities.
• Under proposed ISE Rule
2002(d)(5),11 component securities
comprising at least 95 percent of the
index, by weight, must have a minimum
market capitalization of $75 million. In
addition, component securities
comprising at least 65 percent of the
index, by weight, must have a minimum
market capitalization of $100 million.
• Under proposed ISE Rule
2002(d)(6),12 component securities that
account for at least eighty percent (80%)
of the weight of the index must satisfy
the requirements of ISE Rule 502. That
is, those securities must be ‘‘options
eligible,’’ meaning they must have, for
8 Proposed ISE Rule 2002(d)(2) is based on ISE
Rule 2002(b)(1).
9 Proposed ISE Rule 2002(d)(3) is based on ISE
Rule 2002(b)(2).
10 Proposed ISE Rule 2002(d)(4) is based on ISE
Rule 2002(b)(2).
11 Proposed ISE Rule 2002(d)(5) is based on ISE
Rule 2002(b)(3).
12 Proposed ISE Rule 2002(d)(6) is based on ISE
Rule 2002(b)(7).
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43483
example, at least a 7 million share float,
2000 holders, total annual trading
volume of 2,400,000 shares, a minimum
price of $3 per share, and the issuer
must be in compliance with its
obligations under the Act. The Exchange
believes that an 80% weighting is
reasonable for broad-based indexes, and,
when applied in conjunction with the
other listing requirements, will result in
indexes that contain components that
are sufficiently liquid and not readily
subject to manipulation. The Exchange
notes that broad-based indexes may
consist of thousands of components (for
example, the Russell 3000 Index), and
the components comprising the bottom
10% to 20% of the weight of the index
generally are the smallest capitalized
stocks and tend not to meet the
requirements of ISE Rule 502. The
Exchange further notes that the generic
listing standards pursuant to Rule 19b–
4(e) for narrow-based index options are
less liberal, requiring a 90% weighting.
• Under proposed ISE Rule
2002(d)(7),13 each component security
that accounts for at least one percent
(1%) of the weight of the index must
have an average daily trading volume, or
ADTV, of at least 90,000 shares over the
prior six month period. The Exchange
believes that 90,000 ADTV is reasonable
for broad-based indexes, and, when
applied in conjunction with the other
listing requirements, will result in
indexes in which the more-heavily
weighted components are sufficiently
liquid and not readily subject to
manipulation.
• Under proposed ISE Rule
2002(d)(8),14 no single component
security may account for more than ten
percent (10%) of the weight of an index,
and the five highest weighted
component securities in the index may
not, in the aggregate, account for more
than thirty-three percent (33%) of the
weight of an index. The Exchange
believes that the 10% and 33%
weighting concentration caps are
reasonable for broad-based indexes, and,
when applied in conjunction with the
other listing requirements, will result in
indexes that are not unreasonably
dominated by a few heavily-weighted
components.15 The Exchange notes that
13 Proposed ISE Rule 2002(d)(7) is based on ISE
Rule 2002(b)(4).
14 Proposed ISE Rule 2002(d)(8) is based on ISE
Rule 2002(b)(6).
15 There are a number of broad-based indexes
with component weighting concentrations that
approach the limits proposed by the Exchange. See,
for example, as of February 22, 2005, Morgan
Stanley Multinational Company Index—50
components, top 5 account for 33.24%; S&P 100
Index—100 components, top 5 account for 25.02%;
Nasdaq 100 Index—100 components, top 5 account
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the generic listing standards for narrowbased index options are more liberal,
establishing 30% and 50% weighting
concentration caps.
• Under proposed ISE Rule
2002(d)(9),16 all component securities
must be ‘‘reported securities,’’ as
defined in Rule 11Aa3–1 under the
Act.17
• Under proposed ISE Rule
2002(d)(10),18 no more than 20 percent
of the securities in the index, by weight,
may be comprised of foreign securities
or American depository receipts
(‘‘ADRs’’) overlying foreign securities
that are not subject to comprehensive
surveillance sharing agreements.
• Under proposed ISE Rule
2002(d)(11),19 the current index value
must be widely disseminated at least
once every fifteen (15) seconds by one
or more major market data vendors
during the time options on the index are
traded on the Exchange.
for 24.32%; GSTI Composite Index—178
components, top 5 account for 33.68%; Dow Jones
Industrial Average Index—30 components; top 5
account for 29.92%; and Amex Major Market
Index—20 components, top 5 account for 37.14%.
16 Proposed ISE Rule 2002(d)(9) is based on ISE
Rule 2002(b)(8).
17 17 CFR 240.11Aa3–1. A ‘‘reported security’’ is
defined in paragraph (a)(4) of this rule as any listed
equity security or NASDAQ security for which
transaction reports are required to be made on a
real-time basis pursuant to an effective transaction
reporting plan. A ‘‘transaction reporting plan’’ is
defined in paragraph (a)(2) of this rule as ‘‘any plan
for collecting, processing, making available or
disseminating transaction reports with respect to
transactions in reported securities filed with the
Commission pursuant to, and meeting the
requirements of, this section.’’
18 Proposed ISE Rule 2002(d)(10) is based on ISE
Rule 2002(b)(9).
19 Proposed ISE Rule 2002(d)(11) is based on ISE
Rule 2002(b)(10).
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• Under proposed ISE Rule
2002(d)(12),20 the Exchange must
reasonably believe that it has adequate
system capacity to support the trading
of options on the index. That belief must
be based on the performance of a
calculation by the Exchange that takes
into account the Exchange’s current
Independent System Capacity Advisor
(‘‘ISCA’’) allocation and the number of
new peak messages per second expected
to be generated by options on such
index. The Exchange notes that it
currently performs this calculation for
all new broad-based index options that
it lists under its current rules and
represents it would use the same
calculation for all broad-based index
options listed pursuant to proposed ISE
Rule 2002(d).
• Under proposed ISE Rule
2002(d)(13),21 an equal dollar-weighted
index must be rebalanced at least once
every calendar quarter.
• Under proposed ISE Rule
2002(d)(14),22 if the index is maintained
by a broker-dealer, it must be calculated
by a third-party who is not a brokerdealer. Further, the broker-dealer must
establish appropriate procedures to
ensure that the broker-dealer will not
possess or be able to misuse any
informational advantages with respect
to changes in, and adjustments to, an
index. Such procedures must include,
for example, the establishment of
appropriate informational barriers.
• Under proposed ISE Rule
2002(d)(15),23 the Exchange must have
written surveillance procedures in place
with respect to surveillance of trading of
options on the index.
Generic Maintenance Standards for
Broad-Based Index Options Listed
Pursuant to Proposed ISE Rule 2002(d)
Following the listing of a broad-based
index option pursuant to proposed ISE
Rule 2002(d), the underlying index must
continue to satisfy the maintenance
standards contained in proposed ISE
Rule 2002(e) in the manner prescribed
in proposed ISE Rule 2002(e). If the
underlying index fails to satisfy the
maintenance standards, the Exchange
may not open for trading any additional
series of options on that class of index
options unless the continued listing of
20 Proposed ISE Rule 2002(d)(12) is not based on
a current ISE rule, but codifies its current practice
with respect to the listing of a broad-based index
option under its current rules.
21 Proposed ISE Rule 2002(d)(13) is based on ISE
Rule 2002(b)(11).
22 Proposed ISE Rule 2002(d)(14) is based on ISE
Rule 2002(b)(12).
23 Proposed ISE Rule 2002(d)(15) is not based on
a current ISE rule, but codifies its current practice
with respect to the listing of a broad-based index
option under its current rules.
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that class of index options has been
approved by the Commission pursuant
to section 19(b)(2) of the Act. Following
are the maintenance standards
contained in proposed ISE Rule 2002(e).
• Under proposed ISE Rule
2002(e)(1),24 the requirements of
proposed ISE Rule 2002(d)(1)–(3) and
(9)–(15) must continue to be satisfied. In
addition, the requirements of proposed
ISE Rule 2002(d)(5)–(8) must be
satisfied only as of the first day of
January and July of each year. The
Exchange believes that these
maintenance standards are reasonable
for broad-based indexes in as much as
they strike an appropriate balance
between the obligation to continually
monitor and maintain critical attributes
of the index, and the obligation to, at
certain intervals, monitor and maintain
non-critical attributes of the index,
especially in light of the number of
component securities that comprise
broad-based indexes.
• Under proposed ISE Rule
2002(e)(2),25 the number of component
securities in the index may not increase
or decrease by more than ten percent
(10%) from the number of component
securities in the index at the time of its
initial listing. The Exchange believes
that this maintenance standard is
reasonable for broad-based indexes, and,
when applied in conjunction with the
other maintenance requirements, will
result in indexes that remain
sufficiently broad-based and not readily
subject to manipulation. The Exchange
notes that the generic maintenance
standards for narrow-based index
options are more liberal, establishing a
331⁄3% increase or decrease maximum.
Position Limits for Broad-Based Index
Options Listed Pursuant to Proposed ISE
Rule 2002(d)
Following the listing of a broad-based
index option pursuant to proposed ISE
Rule 2002(d), trading in the broad-based
index option shall be subject to position
limits. If the Exchange sought to apply
a different position limit, the Exchange
would be required to file a proposed
rule change with the Commission on
Form 19b–4 pursuant to section 19(b)(2)
of the Act and obtain Commission
approval in order to apply the different
position limit. The position limit for
broad-based index options listed
pursuant to proposed ISE rule 2002(d)
shall be 25,000 contracts. The Exchange
believes that this position limit is
reasonable for broad-based indexes and
24 Proposed ISE Rule 2002(e)(1) is based on ISE
Rule 2002(c)(1).
25 Proposed ISE Rule 2002(e)(2) is based on ISE
Rule 2002(c)(2).
E:\FR\FM\27JYN1.SGM
27JYN1
Federal Register / Vol. 70, No. 143 / Wednesday, July 27, 2005 / Notices
will result in indexes that are not
readily subject to manipulation.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirement under section 6(b)(5) 26 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.
B. 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.
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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the ISE consents, the
Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. 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:
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–ISE–2005–27 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–ISE–2005–27. 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 Commission’s
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
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 the 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–2005–27 and should be
submitted on or before August 17, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.27
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–3998 Filed 7–26–05; 8:45 am]
BILLING CODE 8010–01–P
U.S.C. 78f(b)(5).
VerDate jul<14>2003
20:48 Jul 26, 2005
27 17
Jkt 205001
PO 00000
[Release No. 34–52089; File No. SR–NASD–
2005–071]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment Nos. 1
and 2 Thereto To Modify Pricing for
NASD Members Using the Nasdaq
Market Center and Nasdaq’s Brut
Facility
July 20, 2005.
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 June 1,
2005, the National Association of
Securities Dealers, Inc. (‘‘NASD’’),
through its subsidiary, The Nasdaq
Stock Market, Inc. (‘‘Nasdaq’’) 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 Nasdaq. Nasdaq
has filed this proposal pursuant to
Section 19(b)(3)(A)(ii) of the Act,3 and
Rule 19b–4(f)(2) thereunder,4 which
renders the proposal effective upon
filing with the Commission. Nasdaq has
designated this proposal as one
establishing or changing a due, fee, or
other charge imposed by the selfregulatory organization. On June 9,
2005, Nasdaq filed an amendment to the
proposed rule change.5 On July 8, 2005,
Nasdaq filed a second amendment to the
proposed rule change.6 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to modify the
pricing for NASD members using the
Nasdaq Market Center and Nasdaq’s
Brut Facility. The proposal modifies the
fee schedule applicable to orders in
Nasdaq-listed stocks and exchangetraded funds listed on the American
Stock Exchange that are entered into the
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 See Partial Amendment dated June 9, 2005
(‘‘Amendment No. 1). Amendment No. 1 made
minor, technical corrections to the discussion
section on page 4 of the original filing.
6 See Partial Amendment dated July 8, 2005
(‘‘Amendment No. 2’’). Amendment No. 2 made
minor changes to the rule text quoted on pages 6
and 15 of the original filing.
2 17
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
26 15
SECURITIES AND EXCHANGE
COMMISSION
1 15
Electronic Comments
CFR 200.30–3(a)(12).
Frm 00096
Fmt 4703
Sfmt 4703
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]]>Agencies
[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43481-43485]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3998]
[[Page 43481]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52084; File No. SR-ISE-2005-27]
Self-Regulatory Organizations; International Securities Exchange,
Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1
Thereto Relating to Generic Listing Standards and Position Limits for
Broad-Based Index Options
July 20, 2005.
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 May 19, 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 July 13,
2005, the ISE filed Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the ISE made technical corrections to
the filing and clarified certain issues raised by Commission Staff.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The ISE hereby proposes to amend its rules to adopt generic listing
standards and position limits for broad-based index options. The text
of the proposed rule change appears below. Additions are italicized.
Rule 2002. Designation of an Index
(a)-(c) No Change.
(d) The Exchange may trade options on a broad-based index pursuant
to Rule 19b-4(e) of the Securities Exchange Act of 1934, if each of the
following conditions is satisfied:
(1) The index is broad-based, as defined in Rule 2001(j);
(2) Options on the index are designated as A.M.-settled;
(3) The index is capitalization-weighted, modified capitalization-
weighted, price-weighted, or equal dollar-weighted;
(4) The index consists of 50 or more component securities;
(5) Component securities that account for at least ninety-five
percent (95%) of the weight of the index have a market capitalization
of at least $75 million, except that component securities that account
for at least sixty-five percent (65%) of the weight of the index have a
market capitalization of at least $100 million;
(6) Component securities that account for at least eighty percent
(80%) of the weight of the index satisfy the requirements of Rule 502
applicable to individual underlying securities;
(7) Each component security that accounts for at least one percent
(1%) of the weight of the index has an average daily trading volume of
at least 90,000 shares during the last six month period;
(8) No single component security accounts for more than ten percent
(10%) of the weight of the index, and the five highest weighted
component securities in the index do not, in the aggregate, account for
more than thirty-three percent (33%) of the weight of the index;
(9) All component securities are ``reported securities,'' as
defined in Rule 11Aa3-1 under the Exchange Act;
(10) Non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than twenty percent (20%) of the weight of
the index;
(11) The current index value is widely disseminated at least once
every fifteen (15) seconds by one or more major market data vendors
during the time options on the index are traded on the Exchange;
(12) The Exchange reasonably believes it has adequate system
capacity to support the trading of options on the index, based on a
calculation of the Exchange's current ISCA allocation and the number of
new messages per second expected to be generated by options on such
index;
(13) An equal dollar-weighted index is rebalanced at least once
every calendar quarter;
(14) If an index is maintained by a broker-dealer, the index is
calculated by a third-party who is not a broker-dealer, and the broker-
dealer has erected an informational barrier around its personnel who
have access to information concerning changes in, and adjustments to,
the index;
(15) The Exchange has written surveillance procedures in place with
respect to surveillance of trading of options on the index.
(e) The following maintenance listing standards shall apply to each
class of index options originally listed pursuant to paragraph (d)
above:
(1) The requirements set forth in subparagraphs (d)(1)-(d)(3) and
(d)(9)-(d)(15) must continue to be satisfied. The requirements set
forth in subparagraphs (d)(5)-(d)(8) must be satisfied only as of the
first day of January and July in each year;
(2) The total number of component securities in the index may not
increase or decrease by more than ten percent (10%) from the number of
component securities in the index at the time of its initial listing.
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 the continued listing of that class of index options
has been approved by the SEC under Section 19(b)(2) of the Exchange
Act.
Rule 2004. Position Limits for Broad-Based Index Options
(a) Rule 412 generally shall govern position limits for broad-based
index options, as modified by this Rule 2004. There may be no position
limit for certain Specified (as provided in Rule 2000) broad-based
index options contracts. Except as otherwise indicated below, the
position limit for a broad-based index option shall be 25,000
contracts. All other broad-based index options contracts shall be
subject to a contract limitation fixed by the Exchange, which shall not
be larger than the limits provided in the chart below.
----------------------------------------------------------------------------------------------------------------
Standard limit
(on the same side
Broad-based underlying index of the market) Restrictions
(contracts)
----------------------------------------------------------------------------------------------------------------
S&P SmallCap 600 Index............... 100,000 No more than 60,000 near-term.
S&P MidCap 400 Index................. 45,000 No more than 25,000 near-term.
Reduced Value S&P 1000 Index......... 50,000 No more than 30,000 near-term.
[[Page 43482]]
Micro S&P 1000 Index................. 500,000 No more than 300,000 near-term.
Nasdaq 100 Index..................... 75,000 None.
Mini Nasdaq 100 Index................ 750,000 None.
Russell 3000 Index................... 50,000 No more than 30,000 near-term.
Mini Russell 3000 Index.............. 500,000 No more than 300,000 near-term.
Russell 3000 Value Index............. 50,000 No more than 30,000 near-term.
Mini Russell 3000 Value Index........ 500,000 No more than 300,000 near-term.
Russell 3000 Growth Index............ 50,000 No more than 30,000 near-term.
Mini Russell 3000 Growth Index....... 500,000 No more than 300,000 near-term.
Russell 2500 Index................... 50,000 No more than 30,000 near-term.
Mini Russell 2500 Index.............. 500,000 No more than 300,000 near-term.
Russell 2500 Value Index............. 50,000 No more than 30,000 near-term.
Mini Russell 2500 Value Index........ 500,000 No more than 300,000 near-term.
Russell 2500 Growth Index............ 50,000 No more than 30,000 near-term.
Mini Russell 2500 Growth Index....... 500,000 No more than 300,000 near-term.
Russell 2000 Index................... 50,000 No more than 30,000 near-term.
Mini Russell 2000 Index.............. 500,000 No more than 300,000 near-term.
Russell 2000 Value Index............. 50,000 No more than 30,000 near-term.
Mini Russell 2000 Value Index........ 500,000 No more than 300,000 near-term.
Russell 2000 Growth Index............ 50,000 No more than 30,000 near-term.
Mini Russell 2000 Growth Index....... 500,000 No more than 300,000 near-term.
Russell 1000 Index................... 50,000 No more than 30,000 near-term.
Mini Russell 1000 Index.............. 500,000 No more than 300,000 near-term.
Russell 1000 Value Index............. 50,000 No more than 30,000 near-term.
Mini Russell 1000 Value Index........ 500,000 No more than 300,000 near-term.
Russell 1000 Growth Index............ 50,000 No more than 30,000 near-term.
Mini Russell 1000 Growth Index....... 500,000 No more than 300,000 near-term.
Russell Top 200 Index................ 50,000 No more than 30,000 near-term.
Mini Russell Top 200 Index........... 500,000 No more than 300,000 near-term.
Russell Top 200 Value Index.......... 50,000 No more than 30,000 near-term.
Mini Russell Top 200 Value Index..... 500,000 No more than 300,000 near-term.
Russell Top 200 Growth Index......... 50,000 No more than 30,000 near-term.
Mini Russell Top 200 Growth Index.... 500,000 No more than 300,000 near-term.
Russell MidCap Index................. 50,000 No more than 30,000 near-term.
Mini Russell MidCap Index............ 500,000 No more than 300,000 near-term.
Russell MidCap Value Index........... 50,000 No more than 30,000 near-term.
Mini Russell MidCap Value Index...... 500,000 No more than 300,000 near-term.
Russell MidCap Growth Index.......... 50,000 No more than 30,000 near-term.
Mini Russell MidCap Growth Index..... 500,000 No more than 300,000 near-term.
Russell Small Cap Completeness Index. 50,000 No more than 30,000 near-term.
Mini Russell Small Cap Completeness 500,000 No more than 300,000 near-term.
Index.
Russell Small Cap Completeness Value 50,000 No more than 30,000 near-term.
Index.
Mini Russell Small Cap Completeness 500,000 No more than 300,000 near-term.
Value Index.
Russell Small Cap Completeness Growth 50,000 No more than 30,000 near-term.
Index.
Mini Russell Small Cap Completeness 500,000 No more than 300,000 near-term.
Growth Index.
Mini NYSE U.S. 100 Index............. 50,000 No more than 30,000 near-term.
Micro NYSE U.S. 100 Index............ 500,000 No more than 300,000 near-term.
Mini NYSE International 100 Index.... 50,000 No more than 30,000 near-term.
Micro NYSE International 100 Index... 500,000 No more than 300,000 near-term.
Mini NYSE World Leaders Index........ 50,000 No more than 30,000 near-term.
Micro NYSE World Leaders Index....... 500,000 No more than 300,000 near-term.
----------------------------------------------------------------------------------------------------------------
* * * * *
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 ISE 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 ISE 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 proposes to amend its rules to adopt generic listing
standards and position limits for broad-based index options. In
particular, the Exchange proposes to adopt (i) ISE Rule 2002(d), which
contains generic initial listing standards for broad-based index
options, (ii) ISE Rule 2002(e), which contains generic maintenance
standards for broad-based index options listed pursuant to proposed ISE
Rule 2002(d), and (iii) an amendment to ISE Rule 2004(a), to provide
position limits for broad-based index options listed pursuant to
proposed ISE Rule 2002(d). This rule change would enable the Exchange
to list broad-based index options pursuant to Rule 19b-4(e) \4\ of
[[Page 43483]]
the Act if each of the conditions set forth in ISE Rule 2002(d) are
satisfied. The proposed rule change would further provide ongoing
maintenance standards and position limits for broad-based index options
listed pursuant to proposed ISE Rule 2002(d). Such options would, in
all other respects, be traded pursuant to the Exchange's trading rules
and procedures applicable to index options and be covered under the
Exchange's surveillance program for index options. The Exchange notes
that it and other options exchanges currently have rules that ain
``generic'' listing standards pursuant to Rule 19b-4(e) and position
limits for narrow-based index options.\5\ The Exchange also notes that
CBOE currently has rules that contain generic listing standards and
position limits for micro narrow-based index options.\6\ The standards
contained in these proposed generic listing standards and position
limits for broad-based index options are based on the standards
contained in the generic listing standards and position limits for
narrow-based index options and micro narrow-based index options that
were previously approved by the Commission but have been adapted to
reflect the characteristics of broad-based index options.
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e). Rule 19b-4(e) provides that the listing
and trading of a new derivative securities product by a self-
regulatory organization (``SRO'') shall not be deemed a proposed
rule change, pursuant to paragraph (c)(1) of Rule 19b-4, if the
Commission has approved, pursuant to Section 19(b) of the Act, the
SRO's trading rules, procedures and listing standards for the
product class that include the new derivative securities product and
the SRO has a surveillance program for the product class. When
relying on Rule 19b-4(e), the SRO must submit Form 19b-4(e) to the
Commission within five business days after the exchange begins
trading the new derivative securities products. See Securities
Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952
(December 22, 1998).
\5\ See ISE Rules 2002(b), 2002(c) and 2005; Chicago Board
Options Exchange (``CBOE'') Rules 24.2(b), 24.2(c) and 24.4A;
American Stock Exchange Rules 901C Commentary .02 and 904C(c);
Pacific Stock Exchange Rules 5.13 and 5.16; and Philadelphia Stock
Exchange Rules 1009A(b), 1009A(c) and 1001A(b).
\6\ See CBOE Rules 24.2(d), 24.2(e) and 24.4B.
---------------------------------------------------------------------------
Generic Initial Listing Standards for Broad-Based Index Options
In order to list broad-based index options pursuant to the generic
Rule 19b-4(e) listing standards, the underlying index must satisfy all
of the conditions contained in proposed ISE Rule 2002(d). If the
underlying index does not satisfy all of the conditions, the Exchange
would be required to file a proposed rule change with the Commission on
Form 19b-4 pursuant to Section 19(b)(2) of the Act \7\ and obtain
Commission approval in order to list options on that index. Following
are the conditions contained in proposed ISE Rule 2002(d).
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(1), the index must be
``broad-based,'' as defined in ISE Rule 2001(j). Rule 2001(j) defines
the term ``broad-based'' as an index designed to be representative of a
stock market as a whole or of a range of companies in unrelated
industries.
Under proposed ISE Rule 2002(d)(2),\8\ options on the
index must be designated as A.M.-settled.
---------------------------------------------------------------------------
\8\ Proposed ISE Rule 2002(d)(2) is based on ISE Rule
2002(b)(1).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(3),\9\ the index must be
capitalization-weighted, modified capitalization-weighted, price-
weighted, or equal dollar-weighted.
---------------------------------------------------------------------------
\9\ Proposed ISE Rule 2002(d)(3) is based on ISE Rule
2002(b)(2).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(4),\10\ the index must
consist of 50 or more component securities. The Exchange believes that
a 50 component minimum is reasonable for broad-based indexes, and, when
applied in conjunction with the other listing requirements, will result
in indexes that are sufficiently broad-based in scope and not readily
subject to manipulation. The Exchange notes that there are currently a
number of broad-based indexes that consist of fewer than 50 components,
such as, the Dow Jones Industrial Average Index (30 components) and the
Amex Major Market Index (20 components). The Exchange further notes
that, while broad-based index options generally have more components
than narrow-based index options, the generic listing standards for
narrow-based index options are more liberal, requiring an index to
consist of only 10 or more component securities.
---------------------------------------------------------------------------
\10\ Proposed ISE Rule 2002(d)(4) is based on ISE Rule
2002(b)(2).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(5),\11\ component
securities comprising at least 95 percent of the index, by weight, must
have a minimum market capitalization of $75 million. In addition,
component securities comprising at least 65 percent of the index, by
weight, must have a minimum market capitalization of $100 million.
---------------------------------------------------------------------------
\11\ Proposed ISE Rule 2002(d)(5) is based on ISE Rule
2002(b)(3).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(6),\12\ component
securities that account for at least eighty percent (80%) of the weight
of the index must satisfy the requirements of ISE Rule 502. That is,
those securities must be ``options eligible,'' meaning they must have,
for example, at least a 7 million share float, 2000 holders, total
annual trading volume of 2,400,000 shares, a minimum price of $3 per
share, and the issuer must be in compliance with its obligations under
the Act. The Exchange believes that an 80% weighting is reasonable for
broad-based indexes, and, when applied in conjunction with the other
listing requirements, will result in indexes that contain components
that are sufficiently liquid and not readily subject to manipulation.
The Exchange notes that broad-based indexes may consist of thousands of
components (for example, the Russell 3000 Index), and the components
comprising the bottom 10% to 20% of the weight of the index generally
are the smallest capitalized stocks and tend not to meet the
requirements of ISE Rule 502. The Exchange further notes that the
generic listing standards pursuant to Rule 19b-4(e) for narrow-based
index options are less liberal, requiring a 90% weighting.
---------------------------------------------------------------------------
\12\ Proposed ISE Rule 2002(d)(6) is based on ISE Rule
2002(b)(7).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(7),\13\ each component
security that accounts for at least one percent (1%) of the weight of
the index must have an average daily trading volume, or ADTV, of at
least 90,000 shares over the prior six month period. The Exchange
believes that 90,000 ADTV is reasonable for broad-based indexes, and,
when applied in conjunction with the other listing requirements, will
result in indexes in which the more-heavily weighted components are
sufficiently liquid and not readily subject to manipulation.
---------------------------------------------------------------------------
\13\ Proposed ISE Rule 2002(d)(7) is based on ISE Rule
2002(b)(4).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(8),\14\ no single
component security may account for more than ten percent (10%) of the
weight of an index, and the five highest weighted component securities
in the index may not, in the aggregate, account for more than thirty-
three percent (33%) of the weight of an index. The Exchange believes
that the 10% and 33% weighting concentration caps are reasonable for
broad-based indexes, and, when applied in conjunction with the other
listing requirements, will result in indexes that are not unreasonably
dominated by a few heavily-weighted components.\15\ The Exchange notes
that
[[Page 43484]]
the generic listing standards for narrow-based index options are more
liberal, establishing 30% and 50% weighting concentration caps.
---------------------------------------------------------------------------
\14\ Proposed ISE Rule 2002(d)(8) is based on ISE Rule
2002(b)(6).
\15\ There are a number of broad-based indexes with component
weighting concentrations that approach the limits proposed by the
Exchange. See, for example, as of February 22, 2005, Morgan Stanley
Multinational Company Index--50 components, top 5 account for
33.24%; S&P 100 Index--100 components, top 5 account for 25.02%;
Nasdaq 100 Index--100 components, top 5 account for 24.32%; GSTI
Composite Index--178 components, top 5 account for 33.68%; Dow Jones
Industrial Average Index--30 components; top 5 account for 29.92%;
and Amex Major Market Index--20 components, top 5 account for
37.14%.
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(9),\16\ all component
securities must be ``reported securities,'' as defined in Rule 11Aa3-1
under the Act.\17\
---------------------------------------------------------------------------
\16\ Proposed ISE Rule 2002(d)(9) is based on ISE Rule
2002(b)(8).
\17\ 17 CFR 240.11Aa3-1. A ``reported security'' is defined in
paragraph (a)(4) of this rule as any listed equity security or
NASDAQ security for which transaction reports are required to be
made on a real-time basis pursuant to an effective transaction
reporting plan. A ``transaction reporting plan'' is defined in
paragraph (a)(2) of this rule as ``any plan for collecting,
processing, making available or disseminating transaction reports
with respect to transactions in reported securities filed with the
Commission pursuant to, and meeting the requirements of, this
section.''
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(10),\18\ no more than 20
percent of the securities in the index, by weight, may be comprised of
foreign securities or American depository receipts (``ADRs'') overlying
foreign securities that are not subject to comprehensive surveillance
sharing agreements.
---------------------------------------------------------------------------
\18\ Proposed ISE Rule 2002(d)(10) is based on ISE Rule
2002(b)(9).
---------------------------------------------------------------------------
Under proposed ISE Rule 2002(d)(11),\19\ the current index
value must be widely disseminated at least once every fifteen (15)
seconds by one or more major market data vendors during the time
options on the index are traded on the Exchange.
---------------------------------------------------------------------------
\19\ Proposed ISE Rule 2002(d)(11) is based on ISE Rule
2002(b)(10).
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Under proposed ISE Rule 2002(d)(12),\20\ the Exchange must
reasonably believe that it has adequate system capacity to support the
trading of options on the index. That belief must be based on the
performance of a calculation by the Exchange that takes into account
the Exchange's current Independent System Capacity Advisor (``ISCA'')
allocation and the number of new peak messages per second expected to
be generated by options on such index. The Exchange notes that it
currently performs this calculation for all new broad-based index
options that it lists under its current rules and represents it would
use the same calculation for all broad-based index options listed
pursuant to proposed ISE Rule 2002(d).
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\20\ Proposed ISE Rule 2002(d)(12) is not based on a current ISE
rule, but codifies its current practice with respect to the listing
of a broad-based index option under its current rules.
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Under proposed ISE Rule 2002(d)(13),\21\ an equal dollar-
weighted index must be rebalanced at least once every calendar quarter.
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\21\ Proposed ISE Rule 2002(d)(13) is based on ISE Rule
2002(b)(11).
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Under proposed ISE Rule 2002(d)(14),\22\ if the index is
maintained by a broker-dealer, it must be calculated by a third-party
who is not a broker-dealer. Further, the broker-dealer must establish
appropriate procedures to ensure that the broker-dealer will not
possess or be able to misuse any informational advantages with respect
to changes in, and adjustments to, an index. Such procedures must
include, for example, the establishment of appropriate informational
barriers.
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\22\ Proposed ISE Rule 2002(d)(14) is based on ISE Rule
2002(b)(12).
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Under proposed ISE Rule 2002(d)(15),\23\ the Exchange must
have written surveillance procedures in place with respect to
surveillance of trading of options on the index.
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\23\ Proposed ISE Rule 2002(d)(15) is not based on a current ISE
rule, but codifies its current practice with respect to the listing
of a broad-based index option under its current rules.
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Generic Maintenance Standards for Broad-Based Index Options Listed
Pursuant to Proposed ISE Rule 2002(d)
Following the listing of a broad-based index option pursuant to
proposed ISE Rule 2002(d), the underlying index must continue to
satisfy the maintenance standards contained in proposed ISE Rule
2002(e) in the manner prescribed in proposed ISE Rule 2002(e). If the
underlying index fails to satisfy the maintenance standards, the
Exchange may not open for trading any additional series of options on
that class of index options unless the continued listing of that class
of index options has been approved by the Commission pursuant to
section 19(b)(2) of the Act. Following are the maintenance standards
contained in proposed ISE Rule 2002(e).
Under proposed ISE Rule 2002(e)(1),\24\ the requirements
of proposed ISE Rule 2002(d)(1)-(3) and (9)-(15) must continue to be
satisfied. In addition, the requirements of proposed ISE Rule
2002(d)(5)-(8) must be satisfied only as of the first day of January
and July of each year. The Exchange believes that these maintenance
standards are reasonable for broad-based indexes in as much as they
strike an appropriate balance between the obligation to continually
monitor and maintain critical attributes of the index, and the
obligation to, at certain intervals, monitor and maintain non-critical
attributes of the index, especially in light of the number of component
securities that comprise broad-based indexes.
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\24\ Proposed ISE Rule 2002(e)(1) is based on ISE Rule
2002(c)(1).
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Under proposed ISE Rule 2002(e)(2),\25\ the number of
component securities in the index may not increase or decrease by more
than ten percent (10%) from the number of component securities in the
index at the time of its initial listing. The Exchange believes that
this maintenance standard is reasonable for broad-based indexes, and,
when applied in conjunction with the other maintenance requirements,
will result in indexes that remain sufficiently broad-based and not
readily subject to manipulation. The Exchange notes that the generic
maintenance standards for narrow-based index options are more liberal,
establishing a 33\1/3\% increase or decrease maximum.
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\25\ Proposed ISE Rule 2002(e)(2) is based on ISE Rule
2002(c)(2).
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Position Limits for Broad-Based Index Options Listed Pursuant to
Proposed ISE Rule 2002(d)
Following the listing of a broad-based index option pursuant to
proposed ISE Rule 2002(d), trading in the broad-based index option
shall be subject to position limits. If the Exchange sought to apply a
different position limit, the Exchange would be required to file a
proposed rule change with the Commission on Form 19b-4 pursuant to
section 19(b)(2) of the Act and obtain Commission approval in order to
apply the different position limit. The position limit for broad-based
index options listed pursuant to proposed ISE rule 2002(d) shall be
25,000 contracts. The Exchange believes that this position limit is
reasonable for broad-based indexes and
[[Page 43485]]
will result in indexes that are not readily subject to manipulation.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirement under section 6(b)(5) \26\ 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.
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\26\ 15 U.S.C. 78f(b)(5).
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B. 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.
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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the ISE consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. 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-2005-27 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-ISE-2005-27. 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 Commission's 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 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 the
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-2005-27 and should be submitted on or before August
17, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3998 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P
