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]
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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.
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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]
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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
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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
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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.
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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?
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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.
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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).
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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
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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.
----------------------------------------------------------------------------------------------------------------
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\
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\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.
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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.
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\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.
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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\
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\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).
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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.
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\9\ 15 U.S.C. 78(f)(b)(5).
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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.
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\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).
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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.
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\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).
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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\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-4599 Filed 3-7-08; 8:45 am]
BILLING CODE 8011-01-P
