Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Quarterly Options Series Pilot Program To Permit the Listing of Additional Series, 12783-12786 [E8-4599]

Download as PDF pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 73, No. 47 / Monday, March 10, 2008 / Notices company (‘‘acquiring company’’) may acquire securities of another investment company (‘‘acquired company’’) if such securities represent more than 3% of the acquired company’s outstanding voting stock or more than 5% of the acquiring company’s total assets, or if such securities, together with the securities of other investment companies, represent more than 10% of the acquiring company’s total assets. Section 12(d)(1)(B) of the Act provides that no registered open-end investment company may sell its securities to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company’s voting stock, or cause more than 10% of the acquired company’s voting stock to be owned by investment companies. 2. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) will not apply to securities of an acquired company purchased by an acquiring company if: (i) The acquiring company and acquired company are part of the same group of investment companies; (ii) the acquiring company holds only securities of acquired companies that are part of the same group of investment companies, government securities, and short-term paper; (iii) the aggregate sales loads and distribution-related fees of the acquiring company and the acquired company are not excessive under rules adopted pursuant to section 22(b) or section 22(c) of the Act by a securities association registered under section 15A of the Exchange Act or by the Commission; and (iv) the acquired company has a policy that prohibits it from acquiring securities of registered open-end management investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the Act. 3. Rule 12d1–2 under the Act permits a registered open-end investment company or a registered unit investment trust that relies on section 12(d)(1)(G) of the Act to acquire, in addition to securities issued by another registered investment company in the same group of investment companies, government securities, and short-term paper: (1) Securities issued by an investment company that is not in the same group of investment companies, when the acquisition is in reliance on section 12(d)(1)(A) or 12(d)(1)(F) of the Act; (2) securities (other than securities issued by an investment company); and (3) securities issued by a money market fund, when the investment is in reliance on rule 12d1–1 under the Act. For the purposes of rule 12d1–2, ‘‘securities’’ means any security as defined in section 2(a)(36) of the Act. VerDate Aug<31>2005 16:39 Mar 07, 2008 Jkt 214001 4. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction from any provisions of the Act, or from any rule under the Act, if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policies and provisions of the Act. 5. Applicants state that the proposed arrangement would comply with the provisions of rule 12d1–2 under the Act, but for the fact that the Funds of Funds may invest a portion of their assets in Other Investments. Applicants request an order under section 6(c) of the Act for an exemption from rule 12d1–2(a) to allow the Funds of Funds to invest in Other Investments. Applicants assert that permitting the Funds of Funds to invest in Other Investments as described in the application would not raise any of the concerns that the requirements of section 12(d)(1) were designed to address. Applicants’ Conditions Applicants agree that the order granting the requested relief will be subject to the following conditions: 1. Before approving any advisory contract under section 15 of the Act, the board of trustees of a Fund of Funds, including a majority of the trustees who are not interested persons, as defined in section 2(a)(19) of the Act, will find that the advisory fees, if any, charged under the contract are based on services provided that are in addition to, rather than duplicative of, services provided pursuant to any Underlying Fund’s advisory contract or the advisory contract of any other investment company in which the Funds of Funds may invest. Such a finding, and the basis upon which it was made, will be recorded fully in the minute books of the Fund of Funds. 2. Each Fund of Funds will comply with all provisions of rule 12d1–2 under the Act, except for paragraph (a)(2), to the extent that it restricts any Fund of Funds from investing in Other Investments as described in the application. For the Commission, by the Division of Investment Management, under delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E8–4616 Filed 3–7–08; 8:45 am] BILLING CODE 8011–01–P PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 12783 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57425; File No. SR–ISE– 2008–19] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Quarterly Options Series Pilot Program To Permit the Listing of Additional Series March 4, 2008. 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 March 3, 2008, the International Securities Exchange, LLC (‘‘Exchange’’ or ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Exchange has designated this proposal as non-controversial under Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to amend Supplementary Material .03 to Rule 504, Quarterly Options Series Pilot Program, to permit the Exchange to list strike prices for Quarterly Options Series (‘‘QOS’’) in exchange traded fund (‘‘ETF’’) options that fall within a percentage range (30%) above and below the price of the underlying ETF. Additionally, upon demonstrated customer interest, the Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the ETF. Market Makers trading for their own account will not be considered when determining customer interest under this provision. In addition to the initial listed series, the Exchange may list up to sixty (60) additional series per expiration month for each QOS in ETF options. Further, the proposal includes a delisting program to be undertaken by the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 E:\FR\FM\10MRN1.SGM 10MRN1 12784 Federal Register / Vol. 73, No. 47 / Monday, March 10, 2008 / Notices Exchange in connection with QOS in ETF options. The text of the proposed rule change is available on the Exchange’s Web site (https://www.ise.com), at the Exchange’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 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 purpose of this rule filing is to amend Supplementary Material .03 to Rule 504, Quarterly Options Series Pilot Program to allow the Exchange to open additional strike prices of QOS in ETF options that are within thirty percent (30%) above or below the closing price of the underlying ETF on the preceding business day. Additionally, upon demonstrated customer interest, the Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the underlying ETF. Market Makers trading for their own account will not be considered when determining customer interest under this provision. The Exchange will be permitted to list up to sixty (60) additional series per expiration month for each QOS in ETF options. On May 2, 2006, the Exchange filed with the Commission a pilot program proposal to permit the listing and trading of QOS in options on indexes or options on ETFs that satisfy the applicable listing criteria under ISE rules.5 QOS trade based on calendar quarters that end in March, June, September and December. The Exchange lists QOS that expire at the end of the next consecutive four calendar quarters, as well as the fourth October 2007 quarter of the next calendar year. For example, if the Exchange were trading QOS in iShares Russell 2000 Index Fund (‘‘IWM’’) in the month of April 2008, it would list series at the end of the second quarter 2008 (June), third quarter 2008 (September), fourth quarter 2008 (December) and first quarter 2009 (March) and fourth quarter 2009 (December). Currently, the Exchange lists QOS in five ETF options: (1) Nasdaq–100 Index Tracking Stock (‘‘QQQQ’’); (2) IWM; (3) DIAMONDS Trust, Series 1 (‘‘DIA’’); (4) Standard & Poor’s Depository Receipts/ SPDRs (‘‘SPY’’); and (5) Energy Select SPDR (‘‘XLE’’). The average trading volume and total volume for QOS in IWM options significantly exceeds the volumes for QOS in other ETF options that are listed and traded on the Exchange. The chart below provides trading volume figures for the fourth quarter in 2007, demonstrating that QOS in IWM options are by far the most popular and heavily traded QOS on the Exchange. November 2007 December 2007 QOS ADV IWM .................................................................................. QQQQ .............................................................................. SPY .................................................................................. DIA ................................................................................... XLE .................................................................................. 19,132 7,943 3,740 709 778 Total vol. ADV 440,035 182,689 86,022 16,314 17,901 Total vol. 23,529 12,510 15,067 1,671 6,141 494,107 262,707 316,399 35,092 128,966 ADV 28,970 18,856 19,984 2,202 1,925 Total vol. 579,399 377,123 399,686 44,043 38,507 pwalker on PROD1PC71 with NOTICES Over time, the Exchange has continually received requests from market participants to add additional strike prices for QOS in IWM options that would be outside of the price range for setting strikes as provided under Supplementary Material .03 to Rule 504 (hereinafter ‘‘+/¥$5 range’’).6 Investors and other market participants have advised the Exchange that they are buying and selling QOS in IWM options to trade volatility. In order to adequately replicate the desired volatility exposure, these market participants need to trade several IWM options series, many having strike prices that fall outside of the +/¥$5 range currently allowed under the QOS rules. In addition, other participants have advised the Exchange that their investment strategies involve trading options tied to a particular option ‘‘delta,’’ 7 rather than a particular level of the underlying security or index. At issue is the fact that delta depends on both the relative difference between the level of the underlying security or index and the option strike price, and time to expiration. For example, with IWM trading at $85 per share, the strike price corresponding to a ‘‘25-delta’’ IWM call (i.e., a call option with a delta of 25) with one month to expiration would be 89. However, the strike price corresponding to a ‘‘25-delta’’ IWM call with 3 months to expiration would be 93, and the strike price of a ‘‘25-delta’’ IWM call with 1 year to expiration would be 106. In short, ISE has been advised that the +/¥$5 range for QOS in IWM options is insufficient to satisfy customer demand. In order to meet customer demand, the Exchange proposes to amend Supplementary Material .03 to Rule 504, which governs the Quarterly Options Series Pilot Program. Specifically, the Exchange proposes to revise Supplementary Material .03 to Rule 504 to allow the Exchange to open 5 See Securities Exchange Act Release No. 54113 (July 7, 2006), 71 FR 39694 (July 13, 2006) (SR–ISE– 2006–24) (‘‘Pilot Program Approval Order’’). Under the pilot program, the Exchange lists QOS in up to five currently listed option classes that are either options on ETFs or indexes. The Exchange also is permitted to list QOS in any options class that is selected by other securities exchanges that employ a similar pilot program under their respective rules. 6 Supplementary Material .03 to Rule 504 provides that the Exchange shall list strike prices for a QOS that are within $5 from the closing price of the underlying on the preceding day. 7 ‘‘Delta’’ is a measure of how an option price will change in response to a $1 price change in the underlying security or index. For example, an ABC option with a delta of ‘‘50’’ can be expected to change by $0.50 in response to a $1 change in the price of ABC. VerDate Aug<31>2005 16:39 Mar 07, 2008 Jkt 214001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 E:\FR\FM\10MRN1.SGM 10MRN1 Federal Register / Vol. 73, No. 47 / Monday, March 10, 2008 / Notices additional strike prices of QOS in ETF options that are within thirty percent (30%) above or below the closing price of the underlying ETF Shares as defined in Rule 502(h) on the preceding business day. The Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the underlying ETF, 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 will not be considered when determining customer interest under this proposed provision. The Exchange will be permitted to list up to sixty (60) additional series per expiration month for each QOS in ETF options. The Exchange also is proposing to add new paragraph (g) to Supplementary Material .03 to Rule 504, which will set forth a delisting policy. Specifically, with respect to QOS in ETF options, the Exchange will, on a monthly basis, review series that are outside a range of five (5) strikes above and five (5) strikes below the current price of the underlying ETF, and delist series with no open interest in both the put and the call series having a: (1) Strike higher than the highest strike price with open interest in the put and/or call series for a given expiration month; or (2) strike lower than the lowest strike price with open interest in the put and/or call series for a given expiration month. To illustrate how the proposed delisting program will work, assume that IWM closed at $70 on the day the Exchange conducts the monthly review of QOS in ETF options. Series having strike prices above $75 and below $65 would be reviewed by the Exchange for possible delisting. Assume that the Exchange lists the following QOS in IWM options that expire in June 2008: Calls—Jun 08 exp Open Interest? pwalker on PROD1PC71 with NOTICES Strike 62 ........... 63 ........... 64 ........... ***** 76 ........... 77 ........... 78 ........... 79 ........... 80 ........... 81 ........... 82 ........... 83 ........... 84 ........... 85 ........... 86 ........... 87 ........... No No Yes ***** Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes VerDate Aug<31>2005 Puts—Jun 08 exp Open Interest? Strike 62 .......... 63 .......... 64 .......... ***** 76 .......... 77 .......... 78 .......... 79 .......... 80 .......... 81 .......... 82 .......... 83 .......... 84 .......... 85 .......... 86 .......... 87 .......... 16:39 Mar 07, 2008 No. Yes. Yes. ***** Yes. Yes. Yes. Yes. Yes. Yes. Yes. No. No. Yes. No. Yes. Jkt 214001 Calls—Jun 08 exp Strike 88 89 90 91 92 93 ........... ........... ........... ........... ........... ........... Open Interest? Yes Yes Yes No No No Puts—Jun 08 exp Strike 88 89 90 91 92 93 .......... .......... .......... .......... .......... .......... Open Interest? Yes. No. No. No. No. No. The Exchange would delist the first series listed above, as well as the last three: $62, $91, $92 and $93. The Exchange would not, however, delist the $83 and $84 series because there are series having open interest with strike prices higher than these two series. In addition, the Exchange would not delist the $63 series because there is open interest in the put series. Notwithstanding the proposed delisting policy, customer requests to add strikes and/or maintain strikes in QOS in ETF options in series eligible for delisting shall be granted. Further, in connection with the proposed delisting policy, if the Exchange identifies series for delisting, the Exchange shall notify other options exchanges with similar delisting policies regarding eligible series for listing, and shall work with such other exchanges to develop a uniform list of series to be delisted, so as to ensure uniform series delisting of multiply listed QOS in ETF options. It is expected that all options exchanges that have a QOS Pilot Program will adopt the proposed delisting policy. The Exchange represents that it has the necessary systems capacity to support new options series that will result from this proposal. Further, as proposed, the Exchange notes that this rule change will become part of the pilot program and, going forward, will be considered by the Commission when the Exchange seeks to renew or make permanent the pilot program in the future.8 2. Statutory Basis Because the additional new series can be added without presenting capacity problems and because the Exchange has proposed a delisting policy with respect to QOS in ETF options, the Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder. Specifically, the Exchange believes the proposed rule change is consistent with Section 6(b)(5)9 of the Act’s requirements that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that 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 The Exchange has designated the proposed rule change as one that: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) does not become operative for 30 days from the date of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. Therefore, the foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 10 and subparagraph (f)(6) of Rule 19b–4 thereunder.11 The Exchange notes that the proposed rule change is based on a similar proposal recently approved by the Commission.12 The Exchange has asked the Commission to waive the operative delay to permit the proposed 9 15 U.S.C. 78(f)(b)(5). U.S.C. 78s(b)(3)(A). 11 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has fulfilled this requirement. 12 See Securities Exchange Act Release No. 34– 57410 (March 3, 2008) (SR–CBOE–2007–96). 10 15 8 To the extent the Commission views the proposed rule change as an expansion of the pilot program, thus triggering the requirement under the terms of the Pilot Program Approval Order that the Exchange submit a pilot program report, the Exchange notes that it submitted a report on June 27, 2007, in connection with its filing to extend the pilot program through July 10, 2008. See Securities Exchange Act Release No. 56031 (July 9, 2007), 72 FR 38637 (July 13, 2007) (Notice of Filing and Immediate Effectiveness of SR–ISE–2007–53). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 12785 E:\FR\FM\10MRN1.SGM 10MRN1 12786 Federal Register / Vol. 73, No. 47 / Monday, March 10, 2008 / Notices rule change to become operative prior to the 30th day after filing. The Commission has determined that waiving the 30-day operative delay of the Exchange’s proposal is consistent with the protection of investors and the public interest and will promote competition because such waiver will allow the Exchange to list additional series in Quarterly Options at the same time as other exchanges.13 Therefore, the Commission designates the proposal operative upon filing. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–ISE–2008–19 on the subject line. 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 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–2008–19 and should be submitted on or before March 31, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–4599 Filed 3–7–08; 8:45 am] BILLING CODE 8011–01–P pwalker on PROD1PC71 with NOTICES 16:39 Mar 07, 2008 Jkt 214001 Homeowners With Credit Available Elsewhere ......................... Homeowners Without Credit Available Elsewhere .................. Businesses With Credit Available Elsewhere ................................. Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere .................. Other (Including Non-Profit Organizations) With Credit Available Elsewhere ................................. Businesses and Non-Profit Organizations Without Credit Available Elsewhere ......................... 5.875 2.937 8.000 4.000 5.250 4.000 [Disaster Declaration # 11182 and # 11183] Missouri Disaster # MO–00021 (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) U.S. Small Business Administration. ACTION: Notice. Dated: March 3, 2008. Steven C. Preston, Administrator. [FR Doc. E8–4581 Filed 3–7–08; 8:45 am] SMALL BUSINESS ADMINISTRATION AGENCY: SUMMARY: This is a notice of an Administrative declaration of a disaster for the State of Missouri dated 03/03/ • Send paper comments in triplicate 2008. to Nancy M. Morris, Secretary, Incident: Severe Storms, Tornadoes, Securities and Exchange Commission, High Winds, Hail and Flooding. 100 F Street, NE., Washington, DC Incident Period: 01/07/2008 through 20549–1090. 01/10/2008. All submissions should refer to File DATES: Effective Date: 03/03/2008. Number SR–ISE–2008–19. This file Physical Loan Application Deadline number should be included on the subject line if e-mail is used. To help the Date: 05/02/2008. Economic Injury (EIDL) Loan Commission process and review your Application Deadline Date: 12/03/2008. comments more efficiently, please use only one method. The Commission will ADDRESSES: Submit completed loan post all comments on the Commission’s applications to: U.S. Small Business Administration, Processing and Internet Web site (https://www.sec.gov/ Disbursement Center, 14925 Kingsport rules/sro.shtml). Copies of the Road, Fort Worth, TX 76155. submission, all subsequent amendments, all written statements FOR FURTHER INFORMATION CONTACT: A. with respect to the proposed rule Escobar, Office of Disaster Assistance, change that are filed with the U.S. Small Business Administration, Commission, and all written 409 3rd Street, SW., Suite 6050, communications relating to the Washington, DC 20416. proposed rule change between the SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the Administrator’s disaster declaration, VerDate Aug<31>2005 Percent The number assigned to this disaster for physical damage is 11182 B and for economic injury is 11183 0. The State which received an EIDL Declaration # is lll Missouri. Paper Comments proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Webster. Contiguous Counties: Missouri: Christian, Dallas, Douglas, Greene, Laclede, Wright. The Interest Rates are: BILLING CODE 8025–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57421; File No. SR– NYSEArca–2008–24] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Amending Its Schedule of Fees and Charges Applicable to the Option Strategy Executions Pilot Program March 3, 2008. 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 February 26, 2008, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule 1 15 14 17 PO 00000 CFR 200.30–3(a)(12). Frm 00085 Fmt 4703 Sfmt 4703 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\10MRN1.SGM 10MRN1

Agencies

[Federal Register Volume 73, Number 47 (Monday, March 10, 2008)]
[Notices]
[Pages 12783-12786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-4599]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57425; File No. SR-ISE-2008-19]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change to Amend the Quarterly Options Series Pilot Program To Permit 
the Listing of Additional Series

March 4, 2008.
    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 March 3, 2008, the International Securities Exchange, LLC 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been substantially prepared by 
the Exchange. The Exchange has designated this proposal as non-
controversial under Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend Supplementary Material .03 to Rule 504, 
Quarterly Options Series Pilot Program, to permit the Exchange to list 
strike prices for Quarterly Options Series (``QOS'') in exchange traded 
fund (``ETF'') options that fall within a percentage range (30%) above 
and below the price of the underlying ETF. Additionally, upon 
demonstrated customer interest, the Exchange also will be permitted to 
open additional strike prices of QOS in ETF options that are more than 
30% above or below the current price of the ETF. Market Makers trading 
for their own account will not be considered when determining customer 
interest under this provision. In addition to the initial listed 
series, the Exchange may list up to sixty (60) additional series per 
expiration month for each QOS in ETF options. Further, the proposal 
includes a delisting program to be undertaken by the

[[Page 12784]]

Exchange in connection with QOS in ETF options.
    The text of the proposed rule change is available on the Exchange's 
Web site (https://www.ise.com), at the Exchange's principal office, and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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 purpose of this rule filing is to amend Supplementary Material 
.03 to Rule 504, Quarterly Options Series Pilot Program to allow the 
Exchange to open additional strike prices of QOS in ETF options that 
are within thirty percent (30%) above or below the closing price of the 
underlying ETF on the preceding business day. Additionally, upon 
demonstrated customer interest, the Exchange also will be permitted to 
open additional strike prices of QOS in ETF options that are more than 
30% above or below the current price of the underlying ETF. Market 
Makers trading for their own account will not be considered when 
determining customer interest under this provision. The Exchange will 
be permitted to list up to sixty (60) additional series per expiration 
month for each QOS in ETF options.
    On May 2, 2006, the Exchange filed with the Commission a pilot 
program proposal to permit the listing and trading of QOS in options on 
indexes or options on ETFs that satisfy the applicable listing criteria 
under ISE rules.\5\ QOS trade based on calendar quarters that end in 
March, June, September and December. The Exchange lists QOS that expire 
at the end of the next consecutive four calendar quarters, as well as 
the fourth quarter of the next calendar year. For example, if the 
Exchange were trading QOS in iShares Russell 2000 Index Fund (``IWM'') 
in the month of April 2008, it would list series at the end of the 
second quarter 2008 (June), third quarter 2008 (September), fourth 
quarter 2008 (December) and first quarter 2009 (March) and fourth 
quarter 2009 (December).
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    \5\ See Securities Exchange Act Release No. 54113 (July 7, 
2006), 71 FR 39694 (July 13, 2006) (SR-ISE-2006-24) (``Pilot Program 
Approval Order''). Under the pilot program, the Exchange lists QOS 
in up to five currently listed option classes that are either 
options on ETFs or indexes. The Exchange also is permitted to list 
QOS in any options class that is selected by other securities 
exchanges that employ a similar pilot program under their respective 
rules.
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    Currently, the Exchange lists QOS in five ETF options: (1) Nasdaq-
100 Index Tracking Stock (``QQQQ''); (2) IWM; (3) DIAMONDS Trust, 
Series 1 (``DIA''); (4) Standard & Poor's Depository Receipts/SPDRs 
(``SPY''); and (5) Energy Select SPDR (``XLE''). The average trading 
volume and total volume for QOS in IWM options significantly exceeds 
the volumes for QOS in other ETF options that are listed and traded on 
the Exchange. The chart below provides trading volume figures for the 
fourth quarter in 2007, demonstrating that QOS in IWM options are by 
far the most popular and heavily traded QOS on the Exchange.

 
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                                          October 2007              November 2007             December 2007
                QOS                -----------------------------------------------------------------------------
                                        ADV       Total vol.      ADV       Total vol.      ADV       Total vol.
----------------------------------------------------------------------------------------------------------------
IWM...............................       19,132      440,035       23,529      494,107       28,970      579,399
QQQQ..............................        7,943      182,689       12,510      262,707       18,856      377,123
SPY...............................        3,740       86,022       15,067      316,399       19,984      399,686
DIA...............................          709       16,314        1,671       35,092        2,202       44,043
XLE...............................          778       17,901        6,141      128,966        1,925       38,507
----------------------------------------------------------------------------------------------------------------

    Over time, the Exchange has continually received requests from 
market participants to add additional strike prices for QOS in IWM 
options that would be outside of the price range for setting strikes as 
provided under Supplementary Material .03 to Rule 504 (hereinafter ``+/
-$5 range'').\6\
---------------------------------------------------------------------------

    \6\ Supplementary Material .03 to Rule 504 provides that the 
Exchange shall list strike prices for a QOS that are within $5 from 
the closing price of the underlying on the preceding day.
---------------------------------------------------------------------------

    Investors and other market participants have advised the Exchange 
that they are buying and selling QOS in IWM options to trade 
volatility. In order to adequately replicate the desired volatility 
exposure, these market participants need to trade several IWM options 
series, many having strike prices that fall outside of the +/-$5 range 
currently allowed under the QOS rules.
    In addition, other participants have advised the Exchange that 
their investment strategies involve trading options tied to a 
particular option ``delta,'' \7\ rather than a particular level of the 
underlying security or index. At issue is the fact that delta depends 
on both the relative difference between the level of the underlying 
security or index and the option strike price, and time to expiration. 
For example, with IWM trading at $85 per share, the strike price 
corresponding to a ``25-delta'' IWM call (i.e., a call option with a 
delta of 25) with one month to expiration would be 89. However, the 
strike price corresponding to a ``25-delta'' IWM call with 3 months to 
expiration would be 93, and the strike price of a ``25-delta'' IWM call 
with 1 year to expiration would be 106. In short, ISE has been advised 
that the +/-$5 range for QOS in IWM options is insufficient to satisfy 
customer demand.
---------------------------------------------------------------------------

    \7\ ``Delta'' is a measure of how an option price will change in 
response to a $1 price change in the underlying security or index. 
For example, an ABC option with a delta of ``50'' can be expected to 
change by $0.50 in response to a $1 change in the price of ABC.
---------------------------------------------------------------------------

    In order to meet customer demand, the Exchange proposes to amend 
Supplementary Material .03 to Rule 504, which governs the Quarterly 
Options Series Pilot Program. Specifically, the Exchange proposes to 
revise Supplementary Material .03 to Rule 504 to allow the Exchange to 
open

[[Page 12785]]

additional strike prices of QOS in ETF options that are within thirty 
percent (30%) above or below the closing price of the underlying ETF 
Shares as defined in Rule 502(h) on the preceding business day. The 
Exchange also will be permitted to open additional strike prices of QOS 
in ETF options that are more than 30% above or below the current price 
of the underlying ETF, 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 will not be considered when determining customer interest 
under this proposed provision. The Exchange will be permitted to list 
up to sixty (60) additional series per expiration month for each QOS in 
ETF options.
    The Exchange also is proposing to add new paragraph (g) to 
Supplementary Material .03 to Rule 504, which will set forth a 
delisting policy. Specifically, with respect to QOS in ETF options, the 
Exchange will, on a monthly basis, review series that are outside a 
range of five (5) strikes above and five (5) strikes below the current 
price of the underlying ETF, and delist series with no open interest in 
both the put and the call series having a: (1) Strike higher than the 
highest strike price with open interest in the put and/or call series 
for a given expiration month; or (2) strike lower than the lowest 
strike price with open interest in the put and/or call series for a 
given expiration month.
    To illustrate how the proposed delisting program will work, assume 
that IWM closed at $70 on the day the Exchange conducts the monthly 
review of QOS in ETF options. Series having strike prices above $75 and 
below $65 would be reviewed by the Exchange for possible delisting. 
Assume that the Exchange lists the following QOS in IWM options that 
expire in June 2008:

----------------------------------------------------------------------------------------------------------------
                     Calls--Jun 08 exp                                         Puts--Jun 08 exp
----------------------------------------------------------------------------------------------------------------
                Strike                    Open  Interest?              Strike                Open  Interest?
----------------------------------------------------------------------------------------------------------------
62....................................  No                   62.......................  No.
63....................................  No                   63.......................  Yes.
64....................................  Yes                  64.......................  Yes.
*****                                   *****                *****                      *****
76....................................  Yes                  76.......................  Yes.
77....................................  Yes                  77.......................  Yes.
78....................................  Yes                  78.......................  Yes.
79....................................  Yes                  79.......................  Yes.
80....................................  Yes                  80.......................  Yes.
81....................................  Yes                  81.......................  Yes.
82....................................  Yes                  82.......................  Yes.
83....................................  No                   83.......................  No.
84....................................  No                   84.......................  No.
85....................................  No                   85.......................  Yes.
86....................................  Yes                  86.......................  No.
87....................................  Yes                  87.......................  Yes.
88....................................  Yes                  88.......................  Yes.
89....................................  Yes                  89.......................  No.
90....................................  Yes                  90.......................  No.
91....................................  No                   91.......................  No.
92....................................  No                   92.......................  No.
93....................................  No                   93.......................  No.
----------------------------------------------------------------------------------------------------------------

    The Exchange would delist the first series listed above, as well as 
the last three: $62, $91, $92 and $93. The Exchange would not, however, 
delist the $83 and $84 series because there are series having open 
interest with strike prices higher than these two series. In addition, 
the Exchange would not delist the $63 series because there is open 
interest in the put series.
    Notwithstanding the proposed delisting policy, customer requests to 
add strikes and/or maintain strikes in QOS in ETF options in series 
eligible for delisting shall be granted.
    Further, in connection with the proposed delisting policy, if the 
Exchange identifies series for delisting, the Exchange shall notify 
other options exchanges with similar delisting policies regarding 
eligible series for listing, and shall work with such other exchanges 
to develop a uniform list of series to be delisted, so as to ensure 
uniform series delisting of multiply listed QOS in ETF options. It is 
expected that all options exchanges that have a QOS Pilot Program will 
adopt the proposed delisting policy.
    The Exchange represents that it has the necessary systems capacity 
to support new options series that will result from this proposal. 
Further, as proposed, the Exchange notes that this rule change will 
become part of the pilot program and, going forward, will be considered 
by the Commission when the Exchange seeks to renew or make permanent 
the pilot program in the future.\8\
---------------------------------------------------------------------------

    \8\ To the extent the Commission views the proposed rule change 
as an expansion of the pilot program, thus triggering the 
requirement under the terms of the Pilot Program Approval Order that 
the Exchange submit a pilot program report, the Exchange notes that 
it submitted a report on June 27, 2007, in connection with its 
filing to extend the pilot program through July 10, 2008. See 
Securities Exchange Act Release No. 56031 (July 9, 2007), 72 FR 
38637 (July 13, 2007) (Notice of Filing and Immediate Effectiveness 
of SR-ISE-2007-53).
---------------------------------------------------------------------------

2. Statutory Basis
    Because the additional new series can be added without presenting 
capacity problems and because the Exchange has proposed a delisting 
policy with respect to QOS in ETF options, the Exchange believes the 
proposed rule change is consistent with the Act and the rules and 
regulations thereunder. Specifically, the Exchange believes the 
proposed rule change is consistent with Section 6(b)(5)\9\ of the Act's 
requirements that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and, in general, to protect investors 
and the public interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------

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

    The Exchange believes that 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

    The Exchange has designated the proposed rule change as one that: 
(1) Does not significantly affect the protection of investors or the 
public interest; (2) does not impose any significant burden on 
competition; and (3) does not become operative for 30 days from the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
Therefore, the foregoing rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\11\ The Exchange notes that the proposed rule change 
is based on a similar proposal recently approved by the Commission.\12\ 
The Exchange has asked the Commission to waive the operative delay to 
permit the proposed

[[Page 12786]]

rule change to become operative prior to the 30th day after filing.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
    \12\ See Securities Exchange Act Release No. 34-57410 (March 3, 
2008) (SR-CBOE-2007-96).
---------------------------------------------------------------------------

    The Commission has determined that waiving the 30-day operative 
delay of the Exchange's proposal is consistent with the protection of 
investors and the public interest and will promote competition because 
such waiver will allow the Exchange to list additional series in 
Quarterly Options at the same time as other exchanges.\13\ Therefore, 
the Commission designates the proposal operative upon filing.
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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 (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File No. SR-ISE-2008-19 on the subject line.

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 Number SR-ISE-2008-19. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. 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-2008-19 and should be 
submitted on or before March 31, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4599 Filed 3-7-08; 8:45 am]
BILLING CODE 8011-01-P
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