Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto To Permit the Listing and Trading of Quarterly Options Series, 31246-31249 [E6-8435]

Download as PDF 31246 Federal Register / Vol. 71, No. 105 / Thursday, June 1, 2006 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–ISE–2006–23 on the subject line. wwhite on PROD1PC61 with NOTICES Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–ISE–2006–23. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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 Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–ISE–2006–23 and should be submitted on or before June 22, 2006. period to commence on May 18, 2006, the date on which the ISE submitted Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C). 13 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 19:10 May 31, 2006 Jkt 208001 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6–8434 Filed 5–31–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53857; File No. SR–ISE– 2006–24] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto To Permit the Listing and Trading of Quarterly Options Series May 24, 2006. 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 2, 2006, 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 substantially prepared by the Exchange. The Exchange filed Amendment No. 1 to the proposed rule change on May 17, 2006.3 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 proposes to amend its rules in order to list option series that expire at the close of business on the last business day of a calendar quarter. This rule change is being proposed on a pilot basis for one year. The text of the proposed rule change, as amended, is set forth below. Proposed new language is in italics; deletions are in [brackets]. * * * * * Rule 100. Definitions (a) The following terms, when used in these Rules, shall have the meanings specified in this Chapter 1, unless the context indicates otherwise. Any term defined in Article I of the Constitution and not otherwise defined in this Chapter shall have the meaning assigned in Article I of the Constitution. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 In Amendment No. 1, a partial amendment, the Exchange made minor modifications to the proposed rule text. 2 17 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 (1) through (34) No change. (35) The term ‘‘Quarterly Options Series’’ means a series in an options class that is approved for listing and trading on the Exchange in which the series is opened for trading on any business day and that expires at the close of business on the last business day of a calendar quarter. (35) through (44) Renumbered as (36) through (45). * * * * * Rule 504. Series of Options Contracts Open for Trading (a) After a particular class of options has been approved for listing and trading on the Exchange, the Exchange from time to time may open for trading series of options in that class. Only options contracts in series of options currently open for trading may be purchased or written on the Exchange. Prior to the opening of trading in a given series, the Exchange will fix the expiration month, year and exercise price of that series. For Short Term Option Series, the Exchange will fix a specific expiration date and exercise price, as provided in Supplementary Material .02. For Quarterly Options Series, the Exchange will fix a specific expiration date and exercise price, as provided in Supplementary Material .03. (b) through (h) No change. Supplementary Material to Rule 504 .01 No change. .02 No change. .03 Quarterly Options Series Pilot Program: For a one-year pilot period, the Exchange may list and trade options series that expire at the close of business on the last business day of a calendar quarter (‘‘Quarterly Options Series’’). The Exchange may list Quarterly Options Series for up to five (5) currently listed options classes that are either index options or options on exchange traded funds. In addition, the Exchange may also list Quarterly Options Series on any options classes that are selected by other securities exchanges that employ a similar pilot program under their respective rules. The one-year pilot will commence the day the Exchange first initiates trading in a Quarterly Options Series, which shall be no later than July 24, 2006. (a) The Exchange will list series that expire at the end of the next consecutive four (4) calendar quarters, as well as the fourth quarter of the next calendar year. For example, if the Exchange is trading Quarterly Options Series in the month of May 2006, it will list series that expire at the end of the second, third and fourth quarters of 2006, as well as the E:\FR\FM\01JNN1.SGM 01JNN1 Federal Register / Vol. 71, No. 105 / Thursday, June 1, 2006 / Notices first and fourth quarters of 2007. Following the second quarter 2006 expiration, the Exchange will add series that expire at the end of the second quarter of 2007. (b) The Exchange will not list a Short Term Option Series on an options class whose expiration coincides with that of a Quarterly Options Series on that same options class. (c) The strike price of each Quarterly Options Series will be fixed at a price per share, with at least two strike prices above and two strike prices below the value of the underlying security at about the time that a Quarterly Options Series is opened for trading on the Exchange. Additional Quarterly Options Series of the same class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the market price of the underlying security moves substantially from the initial exercise price or prices. The opening of new Quarterly Options Series shall not affect the series of options of the same class previously opened. (d) The interval between strike prices on Quarterly Options Series shall be the same as the interval for strike prices for series in that same options class that expire in accordance with the normal monthly expiration cycle. * * * * * Rule 2001. Definitions (a) through (k) No change. (l) The term ‘‘Quarterly Options Series’’ means, for the purposes of Chapter 20, a series in an index options class that is approved for listing and trading on the Exchange in which the series is opened for trading on any business day and that expires at the close of business on the last business day of a calendar quarter. (l) through (n) Renumbered as (m) through (o). * * * * * wwhite on PROD1PC61 with NOTICES Rule 2004. Position Limits for BroadBased Index Options (a) through (c) No change. (d) Positions in Short Term Option Series and Quarterly Options Series shall be aggregated with positions in options contracts on the same index. * * * * * Rule 2005. Position Limits for Industry Index Options (a) through (c) No change. (d) Positions in Short Term Option Series and Quarterly Options Series shall be aggregated with positions in options contracts on the same index. * * * * * VerDate Aug<31>2005 19:10 May 31, 2006 Jkt 208001 31247 such series of options is first opened for trading on the Exchange. The term ‘‘reasonably related to the current index (a) through (e) No change. value of the underlying index’’ means Supplementary Material to Rule 2009 that the exercise price is within thirty percent (30%) of the current index .01 No change. value. The Exchange may also open for .02 Quarterly Options Series Pilot trading additional Quarterly Options Program: Notwithstanding the Series that are more than thirty percent restriction in Rule 2009(a)(3), for a oneyear pilot period, the Exchange may list (30%) away from the current index value, provided that demonstrated and trade options series that expire at the close of business on the last business customer interest exists for such series, as expressed by institutional, corporate, day of a calendar quarter (‘‘Quarterly Options Series’’). The Exchange may list or individual customers or their brokers. Market-makers trading for their own Quarterly Options Series for up to five account shall not be considered when (5) currently listed options classes that determining customer interest under are either index options or options on this provision. exchange traded funds. In addition, the (e) The interval between strike prices Exchange may also list Quarterly on Quarterly Options Series shall be the Options Series on any options classes same as the interval for strike prices for that are selected by other securities series in that same options class that exchanges that employ a similar pilot expire in accordance with the normal program under their respective rules. monthly expiration cycle. The one-year pilot will commence the * * * * * day the Exchange first initiates trading in a Quarterly Options Series, which II. Self-Regulatory Organization’s shall be no later than July 24, 2006. Statement of the Purpose of, and (a) The Exchange will list series that Statutory Basis for, the Proposed Rule expire at the end of the next consecutive Change four (4) calendar quarters, as well as the In its filing with the Commission, the fourth quarter of the next calendar year. Exchange included statements For example, if the Exchange is trading concerning the purpose of and basis for Quarterly Options Series in the month the proposed rule change and discussed of May 2006, it will list series that expire any comments it received on the at the end of the second, third and proposed rule change. The text of these fourth quarters of 2006, as well as the statements may be examined at the first and fourth quarters of 2007. places specified in Item IV below. The Following the second quarter 2006 Exchange has prepared summaries, set expiration, the Exchange will add series forth in sections A, B, and C below, of that expire at the end of the second the most significant aspects of such quarter of 2007. statements. (b) The Exchange will not list a Short A. Self-Regulatory Organization’s Term Option Series on an options class Statement of the Purpose of, and whose expiration coincides with that of a Quarterly Options Series on that same Statutory Basis for, the Proposed Rule Change options class. (c) Quarterly Options Series shall be 1. Purpose P.M. settled. The Exchange proposes to amend its (d) The strike price of each Quarterly rules to accommodate the listing of Options Series will be fixed at a price per share, with at least two strike prices option series that would expire at the close of business on the last business above and two strike prices below the value of the underlying security at about day of a calendar quarter (‘‘Quarterly the time that a Quarterly Options Series Options Series’’). Specifically, Quarterly Options Series could be opened in any is opened for trading on the Exchange. approved option class 4 on a business The Exchange may open for trading day (‘‘Quarterly Options Opening Date’’) additional Quarterly Options Series of the same class if the current index value and would expire at the close of business on the last business day of a of the underlying index moves calendar quarter (‘‘Quarterly Options substantially from the exercise price of Expiration Date’’). Specifically, the those Quarterly Options Series that already have been opened for trading on Exchange would list series that expire at the Exchange. The exercise price of each the end of the next four consecutive calendar quarters, as well as the fourth Quarterly Options Series opened for trading on the Exchange shall be 4 Quarterly Options Series may be opened in reasonably related to the current index options on indexes or options on Exchange Traded value of the underlying index to which Fund (‘‘ETFs’’) that satisfy the applicable listing criteria under ISE rules. such series relates at or about the time Rule 2009. Terms of Index Options Contracts PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1 wwhite on PROD1PC61 with NOTICES 31248 Federal Register / Vol. 71, No. 105 / Thursday, June 1, 2006 / Notices quarter of the next calendar year. For example, if the Exchange were trading Quarterly Options Series in the month of May 2006, it would list series that expire at the end of the second, third and fourth quarters of 2006, as well as the first and fourth quarters of 2007. Following the second quarter 2006 expiration, the Exchange would add series that expire at the end of the second quarter of 2007. Quarterly Options Series listed on currently approved option classes would be P.M. settled and, in all other respects, would settle in the same manner as do the monthly expiration series in the same option class. The proposed rule change would allow the Exchange to open up to five currently listed option classes that are either index options or options on ETFs. The strike price for each series would be fixed at a price per share, with at least two strike prices above and two strike prices below the value of the underlying security at about the time that a Quarterly Options Series is opened for trading on the Exchange. The proposal would permit the Exchange to open for trading additional Quarterly Options Series of the same class if the current index value of the underlying index moves substantially from the exercise price of those Quarterly Options Series already opened for trading on the Exchange. The exercise price of each Quarterly Options Series opened for trading on the Exchange would be required to be reasonably related to the current index value of the underlying index to which such series relates at or about the time such series of options were first opened for trading on the Exchange. The term ‘‘reasonably related to the current index value of the underlying index’’ means that the exercise price is within thirty percent of the current index value. The Exchange would also be permitted to open for trading additional Quarterly Options Series that are more than thirty percent away from the current index value, provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate, or individual customers or their brokers. Market-makers trading for their own account would not be considered when determining customer interest under this provision. Because monthly option series expire on the third Friday of their expiration month, a Quarterly Options Series, which would expire on the last business day of the quarter, could never expire in the same week in which a monthly option series in the same class expires. The same, however, is not the case for Short Term Option Series. Quarterly VerDate Aug<31>2005 19:10 May 31, 2006 Jkt 208001 Options Series and Short Term Option Series on the same option class could potentially expire concurrently under the proposal.5 Therefore, to avoid any confusion in the marketplace, the proposal stipulates that the Exchange may not list a Short Term Option Series that expires at the end of the day on the same day as a Quarterly Options Series in the same option class expires. In other words, the proposed rules would not permit the Exchange to list a P.M.settled Short Term Option Series on an ETF or an index that would expire on a Friday that is the last business day of a calendar quarter if a Quarterly Options Series on that ETF or index were scheduled to expire on that day. However, the proposed rules would permit the Exchange to list an A.M.settled Short Term Option Series and a P.M.-settled Quarterly Options Series in the same option class that both expire on the same day (i.e., on a Friday that is the last business day of the calendar quarter). The Exchange believes that the concurrent listing of an A.M.-settled Short Term Option Series and a P.M.settled Quarterly Options Series on the same underlying ETF or index that expire on the same day would not tend to cause the same confusion as would P.M.-settled short term and quarterly series in the same option class, and would provide investors with an additional hedging mechanism. Finally, the interval between strike prices on Quarterly Options Series would be the same as the interval for strike price for series in the same option class that expires in accordance with the normal monthly expiration cycles. The Exchange believes that Quarterly Options Series would provide investors with a flexible and valuable tool to manage risk exposure, minimize capital outlays, and be more responsive to the timing of events affecting the securities that underlie options contracts. At the same time, the Exchange is cognizant of the need to be cautious in introducing a product that can increase the number of outstanding strike prices. For that reason, the Exchange proposes to employ a limited pilot program (‘‘Pilot Program’’) for Quarterly Options Series. Under the terms of the Pilot Program, the Exchange could select up to five option classes on which Quarterly Options Series may be opened on any Quarterly Options Opening Date. The Exchange would also be allowed to list those Quarterly Options Series on any option class that is selected by another securities exchange with a similar Pilot Program under its rules. The Exchange 5 The Exchange currently does not have any Short Term Option Series listed for trading. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 believes that limiting the number of option classes in which Quarterly Options Series may be opened would help to ensure that the addition of the new series through this Pilot Program would have only a negligible impact on the Exchange’s and Option Price Reporting Authority’s (‘‘OPRA’’) quoting capacity. Also, limiting the term of the Pilot Program for a period of one year will allow the Exchange and the Commission to determine whether the Pilot Program should be extended, expanded, and/or made permanent. If the Exchange were to propose an extension or an expansion of the Pilot Program, or were the Exchange to propose to make the Pilot Program permanent, the Exchange would submit, along with any filing proposing such amendments to the Pilot Program, a Pilot Program Report (‘‘Report’’) that will provide an analysis of the Pilot Program covering the entire period during which the Pilot Program was in effect. The Report would include, at a minimum: (1) Data and written analysis on the open interest and trading volume in the classes for which Quarterly Options Series were opened; (2) an assessment of the appropriateness of the option classes selected for the Pilot Program; (3) an assessment of the impact of the Pilot Program on the capacity on ISE, OPRA and on market data vendors (to the extent data from market data vendors is available); (4) any capacity problems or other problems that arose during the operation of the Pilot Program and how ISE addressed such problems; (5) any complaints that ISE received during the operation of the Pilot Program and how ISE addressed them; and (6) any additional information that would assist the Commission in assessing the operation of the Pilot Program. The Exchange must submit the Report to the Commission at least sixty days prior to the expiration date of the Pilot Program. Alternately, at the end of the Pilot Program, if the Exchange determines not to propose an extension or an expansion of the Pilot Program, or if the Commission determines not to extend or expand the Pilot Program, the Exchange would no longer list any additional Quarterly Options Series and would limit all existing open interest in Quarterly Options Series to closing transactions only. Finally, the Exchange represents that it has the necessary systems capacity to support the new option series that would result from the introduction of Quarterly Options Series. The Exchange has provided to the Commission information in a confidential E:\FR\FM\01JNN1.SGM 01JNN1 Federal Register / Vol. 71, No. 105 / Thursday, June 1, 2006 / Notices Electronic Comments submission that supports its system capacity representations. 2. Statutory Basis The Exchange believes that the introduction of Quarterly Options Series will attract order flow to the Exchange, increase the variety of listing options available to investors, and provide investors with a valuable hedging tool. Accordingly, the Exchange believes the proposed rule change is consistent with Section 6(b) of the Act 6 in general, and furthers the objectives of Section 6(b)(5) of the Act 7 in particular, in that it is designed to promote just and equitable principles of trade and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would 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 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 self-regulatory organization 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. wwhite on PROD1PC61 with NOTICES 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: 6 15 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Aug<31>2005 19:10 May 31, 2006 • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–ISE–2006–24 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53861; File No. SR–NSX– 2006–05] Self-Regulatory Organizations; National Stock Exchange; Order Granting Approval to Proposed Rule Change To Prohibit Tape Shredding Paper Comments May 24, 2006. • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2006–24. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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 Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE–2006–24 and should be submitted on or before June 22, 2006. I. Introduction For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6–8435 Filed 5–31–06; 8:45 am] On April 4, 2006, National Stock ExchangeSM (‘‘NSX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to prohibit tape shredding. The proposed rule change was published for comment in the Federal Register on April 24, 2006.3 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal The Exchange proposed to add an interpretation to Rule 3.1, which identifies the splitting of any order into multiple smaller orders (‘‘tape shredding’’) for any purpose other than best execution as contrary to the high standards of commercial honor and just and equitable principles of trade. III. Discussion and Commission Findings The Commission has reviewed carefully the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,4 particularly section 6(b)(5) of the Act which, among other things, requires that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating securities transactions, to remove impediments to and to perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest.5 The Commission believes that the proposed rule change 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 53663 (April 17, 2006), 71 FR 21063. 4 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). BILLING CODE 8010–01–P 2 17 8 17 Jkt 208001 31249 PO 00000 CFR 200.30–3(a)(12). Frm 00108 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1

Agencies

[Federal Register Volume 71, Number 105 (Thursday, June 1, 2006)]
[Notices]
[Pages 31246-31249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-8435]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53857; File No. SR-ISE-2006-24]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 
Thereto To Permit the Listing and Trading of Quarterly Options Series

May 24, 2006.
    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 2, 2006, 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 substantially prepared by the 
Exchange. The Exchange filed Amendment No. 1 to the proposed rule 
change on May 17, 2006.\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, a partial amendment, the Exchange made 
minor modifications to the proposed rule text.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend its rules in order to list option series 
that expire at the close of business on the last business day of a 
calendar quarter. This rule change is being proposed on a pilot basis 
for one year. The text of the proposed rule change, as amended, is set 
forth below. Proposed new language is in italics; deletions are in 
[brackets].
* * * * *

Rule 100. Definitions

    (a) The following terms, when used in these Rules, shall have the 
meanings specified in this Chapter 1, unless the context indicates 
otherwise. Any term defined in Article I of the Constitution and not 
otherwise defined in this Chapter shall have the meaning assigned in 
Article I of the Constitution.
    (1) through (34) No change.
    (35) The term ``Quarterly Options Series'' means a series in an 
options class that is approved for listing and trading on the Exchange 
in which the series is opened for trading on any business day and that 
expires at the close of business on the last business day of a calendar 
quarter.
    (35) through (44) Renumbered as (36) through (45).
* * * * *

Rule 504. Series of Options Contracts Open for Trading

    (a) After a particular class of options has been approved for 
listing and trading on the Exchange, the Exchange from time to time may 
open for trading series of options in that class. Only options 
contracts in series of options currently open for trading may be 
purchased or written on the Exchange. Prior to the opening of trading 
in a given series, the Exchange will fix the expiration month, year and 
exercise price of that series. For Short Term Option Series, the 
Exchange will fix a specific expiration date and exercise price, as 
provided in Supplementary Material .02. For Quarterly Options Series, 
the Exchange will fix a specific expiration date and exercise price, as 
provided in Supplementary Material .03.
    (b) through (h) No change.

Supplementary Material to Rule 504

    .01 No change.
    .02 No change.
    .03 Quarterly Options Series Pilot Program: For a one-year pilot 
period, the Exchange may list and trade options series that expire at 
the close of business on the last business day of a calendar quarter 
(``Quarterly Options Series''). The Exchange may list Quarterly Options 
Series for up to five (5) currently listed options classes that are 
either index options or options on exchange traded funds. In addition, 
the Exchange may also list Quarterly Options Series on any options 
classes that are selected by other securities exchanges that employ a 
similar pilot program under their respective rules. The one-year pilot 
will commence the day the Exchange first initiates trading in a 
Quarterly Options Series, which shall be no later than July 24, 2006.
    (a) The Exchange will list series that expire at the end of the 
next consecutive four (4) calendar quarters, as well as the fourth 
quarter of the next calendar year. For example, if the Exchange is 
trading Quarterly Options Series in the month of May 2006, it will list 
series that expire at the end of the second, third and fourth quarters 
of 2006, as well as the

[[Page 31247]]

first and fourth quarters of 2007. Following the second quarter 2006 
expiration, the Exchange will add series that expire at the end of the 
second quarter of 2007.
    (b) The Exchange will not list a Short Term Option Series on an 
options class whose expiration coincides with that of a Quarterly 
Options Series on that same options class.
    (c) The strike price of each Quarterly Options Series will be fixed 
at a price per share, with at least two strike prices above and two 
strike prices below the value of the underlying security at about the 
time that a Quarterly Options Series is opened for trading on the 
Exchange. Additional Quarterly Options Series of the same class may be 
opened for trading on the Exchange when the Exchange deems it necessary 
to maintain an orderly market, to meet customer demand or when the 
market price of the underlying security moves substantially from the 
initial exercise price or prices. The opening of new Quarterly Options 
Series shall not affect the series of options of the same class 
previously opened.
    (d) The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle.
* * * * *

Rule 2001. Definitions

    (a) through (k) No change.
    (l) The term ``Quarterly Options Series'' means, for the purposes 
of Chapter 20, a series in an index options class that is approved for 
listing and trading on the Exchange in which the series is opened for 
trading on any business day and that expires at the close of business 
on the last business day of a calendar quarter.
    (l) through (n) Renumbered as (m) through (o).
* * * * *

Rule 2004. Position Limits for Broad-Based Index Options

    (a) through (c) No change.
    (d) Positions in Short Term Option Series and Quarterly Options 
Series shall be aggregated with positions in options contracts on the 
same index.
* * * * *

Rule 2005. Position Limits for Industry Index Options

    (a) through (c) No change.
    (d) Positions in Short Term Option Series and Quarterly Options 
Series shall be aggregated with positions in options contracts on the 
same index.
* * * * *

Rule 2009. Terms of Index Options Contracts

    (a) through (e) No change.

Supplementary Material to Rule 2009

    .01 No change.
    .02 Quarterly Options Series Pilot Program: Notwithstanding the 
restriction in Rule 2009(a)(3), for a one-year pilot period, the 
Exchange may list and trade options series that expire at the close of 
business on the last business day of a calendar quarter (``Quarterly 
Options Series''). The Exchange may list Quarterly Options Series for 
up to five (5) currently listed options classes that are either index 
options or options on exchange traded funds. In addition, the Exchange 
may also list Quarterly Options Series on any options classes that are 
selected by other securities exchanges that employ a similar pilot 
program under their respective rules. The one-year pilot will commence 
the day the Exchange first initiates trading in a Quarterly Options 
Series, which shall be no later than July 24, 2006.
    (a) The Exchange will list series that expire at the end of the 
next consecutive four (4) calendar quarters, as well as the fourth 
quarter of the next calendar year. For example, if the Exchange is 
trading Quarterly Options Series in the month of May 2006, it will list 
series that expire at the end of the second, third and fourth quarters 
of 2006, as well as the first and fourth quarters of 2007. Following 
the second quarter 2006 expiration, the Exchange will add series that 
expire at the end of the second quarter of 2007.
    (b) The Exchange will not list a Short Term Option Series on an 
options class whose expiration coincides with that of a Quarterly 
Options Series on that same options class.
    (c) Quarterly Options Series shall be P.M. settled.
    (d) The strike price of each Quarterly Options Series will be fixed 
at a price per share, with at least two strike prices above and two 
strike prices below the value of the underlying security at about the 
time that a Quarterly Options Series is opened for trading on the 
Exchange. The Exchange may open for trading additional Quarterly 
Options Series of the same class if the current index value of the 
underlying index moves substantially from the exercise price of those 
Quarterly Options Series that already have been opened for trading on 
the Exchange. The exercise price of each Quarterly Options Series 
opened for trading on the Exchange shall be reasonably related to the 
current index value of the underlying index to which such series 
relates at or about the time such series of options is first opened for 
trading on the Exchange. The term ``reasonably related to the current 
index value of the underlying index'' means that the exercise price is 
within thirty percent (30%) of the current index value. The Exchange 
may also open for trading additional Quarterly Options Series that are 
more than thirty percent (30%) away from the current index value, 
provided that demonstrated customer interest exists for such series, as 
expressed by institutional, corporate, or individual customers or their 
brokers. Market-makers trading for their own account shall not be 
considered when determining customer interest under this provision.
    (e) The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 accommodate the listing 
of option series that would expire at the close of business on the last 
business day of a calendar quarter (``Quarterly Options Series''). 
Specifically, Quarterly Options Series could be opened in any approved 
option class \4\ on a business day (``Quarterly Options Opening Date'') 
and would expire at the close of business on the last business day of a 
calendar quarter (``Quarterly Options Expiration Date''). Specifically, 
the Exchange would list series that expire at the end of the next four 
consecutive calendar quarters, as well as the fourth

[[Page 31248]]

quarter of the next calendar year. For example, if the Exchange were 
trading Quarterly Options Series in the month of May 2006, it would 
list series that expire at the end of the second, third and fourth 
quarters of 2006, as well as the first and fourth quarters of 2007. 
Following the second quarter 2006 expiration, the Exchange would add 
series that expire at the end of the second quarter of 2007.
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    \4\ Quarterly Options Series may be opened in options on indexes 
or options on Exchange Traded Fund (``ETFs'') that satisfy the 
applicable listing criteria under ISE rules.
---------------------------------------------------------------------------

    Quarterly Options Series listed on currently approved option 
classes would be P.M. settled and, in all other respects, would settle 
in the same manner as do the monthly expiration series in the same 
option class.
    The proposed rule change would allow the Exchange to open up to 
five currently listed option classes that are either index options or 
options on ETFs. The strike price for each series would be fixed at a 
price per share, with at least two strike prices above and two strike 
prices below the value of the underlying security at about the time 
that a Quarterly Options Series is opened for trading on the Exchange. 
The proposal would permit the Exchange to open for trading additional 
Quarterly Options Series of the same class if the current index value 
of the underlying index moves substantially from the exercise price of 
those Quarterly Options Series already opened for trading on the 
Exchange. The exercise price of each Quarterly Options Series opened 
for trading on the Exchange would be required to be reasonably related 
to the current index value of the underlying index to which such series 
relates at or about the time such series of options were first opened 
for trading on the Exchange. The term ``reasonably related to the 
current index value of the underlying index'' means that the exercise 
price is within thirty percent of the current index value. The Exchange 
would also be permitted to open for trading additional Quarterly 
Options Series that are more than thirty percent away from the current 
index value, provided that demonstrated customer interest exists for 
such series, as expressed by institutional, corporate, or individual 
customers or their brokers. Market-makers trading for their own account 
would not be considered when determining customer interest under this 
provision.
    Because monthly option series expire on the third Friday of their 
expiration month, a Quarterly Options Series, which would expire on the 
last business day of the quarter, could never expire in the same week 
in which a monthly option series in the same class expires. The same, 
however, is not the case for Short Term Option Series. Quarterly 
Options Series and Short Term Option Series on the same option class 
could potentially expire concurrently under the proposal.\5\ Therefore, 
to avoid any confusion in the marketplace, the proposal stipulates that 
the Exchange may not list a Short Term Option Series that expires at 
the end of the day on the same day as a Quarterly Options Series in the 
same option class expires. In other words, the proposed rules would not 
permit the Exchange to list a P.M.-settled Short Term Option Series on 
an ETF or an index that would expire on a Friday that is the last 
business day of a calendar quarter if a Quarterly Options Series on 
that ETF or index were scheduled to expire on that day.
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    \5\ The Exchange currently does not have any Short Term Option 
Series listed for trading.
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    However, the proposed rules would permit the Exchange to list an 
A.M.-settled Short Term Option Series and a P.M.-settled Quarterly 
Options Series in the same option class that both expire on the same 
day (i.e., on a Friday that is the last business day of the calendar 
quarter). The Exchange believes that the concurrent listing of an A.M.-
settled Short Term Option Series and a P.M.-settled Quarterly Options 
Series on the same underlying ETF or index that expire on the same day 
would not tend to cause the same confusion as would P.M.-settled short 
term and quarterly series in the same option class, and would provide 
investors with an additional hedging mechanism.
    Finally, the interval between strike prices on Quarterly Options 
Series would be the same as the interval for strike price for series in 
the same option class that expires in accordance with the normal 
monthly expiration cycles.
    The Exchange believes that Quarterly Options Series would provide 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and be more responsive to the timing of 
events affecting the securities that underlie options contracts. At the 
same time, the Exchange is cognizant of the need to be cautious in 
introducing a product that can increase the number of outstanding 
strike prices. For that reason, the Exchange proposes to employ a 
limited pilot program (``Pilot Program'') for Quarterly Options Series. 
Under the terms of the Pilot Program, the Exchange could select up to 
five option classes on which Quarterly Options Series may be opened on 
any Quarterly Options Opening Date. The Exchange would also be allowed 
to list those Quarterly Options Series on any option class that is 
selected by another securities exchange with a similar Pilot Program 
under its rules. The Exchange believes that limiting the number of 
option classes in which Quarterly Options Series may be opened would 
help to ensure that the addition of the new series through this Pilot 
Program would have only a negligible impact on the Exchange's and 
Option Price Reporting Authority's (``OPRA'') quoting capacity. Also, 
limiting the term of the Pilot Program for a period of one year will 
allow the Exchange and the Commission to determine whether the Pilot 
Program should be extended, expanded, and/or made permanent.
    If the Exchange were to propose an extension or an expansion of the 
Pilot Program, or were the Exchange to propose to make the Pilot 
Program permanent, the Exchange would submit, along with any filing 
proposing such amendments to the Pilot Program, a Pilot Program Report 
(``Report'') that will provide an analysis of the Pilot Program 
covering the entire period during which the Pilot Program was in 
effect. The Report would include, at a minimum: (1) Data and written 
analysis on the open interest and trading volume in the classes for 
which Quarterly Options Series were opened; (2) an assessment of the 
appropriateness of the option classes selected for the Pilot Program; 
(3) an assessment of the impact of the Pilot Program on the capacity on 
ISE, OPRA and on market data vendors (to the extent data from market 
data vendors is available); (4) any capacity problems or other problems 
that arose during the operation of the Pilot Program and how ISE 
addressed such problems; (5) any complaints that ISE received during 
the operation of the Pilot Program and how ISE addressed them; and (6) 
any additional information that would assist the Commission in 
assessing the operation of the Pilot Program. The Exchange must submit 
the Report to the Commission at least sixty days prior to the 
expiration date of the Pilot Program.
    Alternately, at the end of the Pilot Program, if the Exchange 
determines not to propose an extension or an expansion of the Pilot 
Program, or if the Commission determines not to extend or expand the 
Pilot Program, the Exchange would no longer list any additional 
Quarterly Options Series and would limit all existing open interest in 
Quarterly Options Series to closing transactions only.
    Finally, the Exchange represents that it has the necessary systems 
capacity to support the new option series that would result from the 
introduction of Quarterly Options Series. The Exchange has provided to 
the Commission information in a confidential

[[Page 31249]]

submission that supports its system capacity representations.
2. Statutory Basis
    The Exchange believes that the introduction of Quarterly Options 
Series will attract order flow to the Exchange, increase the variety of 
listing options available to investors, and provide investors with a 
valuable hedging tool. Accordingly, the Exchange believes the proposed 
rule change is consistent with Section 6(b) of the Act \6\ in general, 
and furthers the objectives of Section 6(b)(5) of the Act \7\ in 
particular, in that it is designed to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
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 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 self-regulatory organization 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2006-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-ISE-2006-24. 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 (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for 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 Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-ISE-2006-24 and should be submitted on or before June 
22, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-8435 Filed 5-31-06; 8:45 am]
BILLING CODE 8010-01-P