Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to the Penny Pilot Program, 30346-30349 [E9-14959]

Download as PDF 30346 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices conditions,’’ 4 such as those in the current environment. Nevertheless, OCX believes that for the integrity of the marketplace, that the $5 spread be codified. 2. Statutory Basis The proposed rule change is consistent with Section 6(b)(5) of the Act 5 in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to protect investors and the public interest, and to remove impediments to and perfect the mechanism for a free and open market and a national market system. Further, this proposed rule change is nearly identical to those of the CBOE 6 and the ISE 7 and therefore under Section 6(h)(3)(C), the requirements for listing standards and conditions for trading for security futures must ‘‘be no less restrictive than comparable listing standards for options traded on a national securities exchange * * *.’’ B. Self-Regulatory Organization’s Statement on Burden on Competition OneChicago does not believe that the proposed rule change will have an impact on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Comments on the OneChicago proposed rule change have not been solicited and none has been received. sroberts on PROD1PC70 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change will become effective on June 9, 2009. At any time within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be refilled in accordance with the provisions of Section 19(b)(1) of the Act.8 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: 4 Exchange Rule 515(n)(C)(1). U.S.C. 78f (b)(5). 6 CBOE Rule 8.7(b)(iv)(C). 7 ISE Rule 803(b)(4). 8 15 U.S.C. 78s(b)(1). 5 15 VerDate Nov<24>2008 17:35 Jun 24, 2009 Electronic Comments: • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–OC–2009–02 on the subject line. Paper Comments: • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60146; File No. SR–ISE– 2009–32] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to the Penny Pilot Program June 19, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on June 11, 2009, the International Securities All submissions should refer to File Exchange, LLC (‘‘Exchange’’ or the Number SR–OC–2009–02. This file ‘‘ISE’’) filed with the Securities and number should be included on the Exchange Commission (the ‘‘SEC’’ or the subject line if e-mail is used. To help the ‘‘Commission’’) the proposed rule Commission process and review your change as described in Items I, II, and III below, which items have been comments more efficiently, please use only one method. The Commission will prepared by the self-regulatory post all comments on the Commission’s organization. The Commission is publishing this notice to solicit Internet Web site (https://www.sec.gov/ comments on the proposed rule change rules/sro.shtml). Copies of the from interested persons. submission, all subsequent amendments, all written statements I. Self-Regulatory Organization’s with respect to the proposed rule Statement of the Terms of Substance of change that are filed with the the Proposed Rule Change Commission, and all written The ISE proposes to amend its rules communications relating to the relating to a pilot program to quote and proposed rule change between the to trade certain options in pennies. The Commission and any person, other than text of the proposed rule change is as those that may be withheld from the follows, with deletions in [brackets] and public in accordance with the additions in italics: provisions of 5 U.S.C. 552, will be Rule 710. Minimum Trading available for inspection and copying in Increments the Commission’s Public Reference Room, 100 F Street, NE., Washington, (a) The Board may establish minimum DC 20549, on official business days trading increments for options traded on between the hours of 10 a.m. and 3 p.m. the Exchange. Such changes by the Copies of the filing also will be available Board will be designated as a stated policy, practice, or interpretation with for inspection and copying at the respect to the administration of this principal office of the Exchange. All Rule 710 within the meaning of comments received will be posted subparagraph (3)(A) of Section 19(b) of without change; the Commission does the Exchange Act and will be filed with not edit personal identifying the SEC as a rule change for information from submissions. You effectiveness upon filing. Until such should submit only information that you wish to make available publicly. All time as the Board makes a change in the increments, the following principles submissions should refer to File shall apply: Number SR–OC–2009–02 and should be (1) if the options contract is trading at submitted on or before July 16, 2009. less than $3.00 per option, $.05; and For the Commission, by the Division of (2) if the options contract is trading at Trading and Markets, pursuant to delegated $3.00 per option or higher, $.10. authority.9 (b) Minimum trading increments for dealings in options contracts other than Florence E. Harmon, those specified in paragraph (a) may be Deputy Secretary. fixed by the Exchange from time to time [FR Doc. E9–14958 Filed 6–24–09; 8:45 am] for options contracts of a particular BILLING CODE 8010–01–P series. 1 15 9 17 Jkt 217001 PO 00000 CFR 200.30–3(a)(12). Frm 00083 Fmt 4703 2 17 Sfmt 4703 E:\FR\FM\25JNN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 25JNN1 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices (c) Notwithstanding the above, the Exchange may trade in the minimum variation of the primary market in the underlying security. Supplementary Material to Rule 710 .01 Notwithstanding any other provision of this Rule 710, the Exchange will operate a pilot program to permit options classes to be quoted and traded in: [increments as low as $.01.] (a) $.01 increments if the options contract is trading at less than $1.00 per option; (b) $.05 increments if the options contract is trading between $1.00 and $3.00 per option; and (c) $.10 increments if the options contract is trading at higher than $3.00 per option. The Exchange will specify which options trade in such pilot, and in what increments, in Regulatory Information Circulars filed with the Commission pursuant to Rule 19b–4 under the Exchange Act and distributed to Members. .02 No Change. * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change 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 self regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change sroberts on PROD1PC70 with NOTICES 1. Purpose On January 24, 2007, the SEC approved ISE’s rule filing, SR–ISE– 2006–62, which initiated a pilot program to quote and to trade certain options in penny increments (the ‘‘Penny Pilot Program’’).3 Under the Penny Pilot Program, the minimum price variation for all participating options classes, except for the Nasdaq100 Index Tracking Stock (‘‘QQQQ’’), is 3 See Securities Exchange Act Release No. 55161 (January 24, 2007), 72 FR 4754 (February 1, 2007) (the ‘‘Initial Filing’’). The Penny Pilot Program was subsequently extended for an additional two month period, until September 27, 2007. See Securities Exchange Act Release No. 56151 (July 26, 2007), 72 FR 42452 (August 2, 2007). VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 $0.01 for all quotations in options series that are quoted at less than $3 per contract and $0.05 for all quotations in options series that are quoted at $3 per contract or greater. The QQQQs are quoted in $0.01 increments for all options series. Through subsequent expansions, the Penny Pilot now consists of 63 underlying securities.4 The Penny Pilot Program is scheduled to expire on July 3, 2009. ISE now proposes to extend the Penny Pilot Program through December 31, 2010. The Exchange also proposes to expand the number of issues included in the Penny Pilot Program to include the top 300 most actively traded multiply listed options classes that are not currently a part of the Penny Pilot Program. ISE is prepared to further expand the Penny Pilot Program to all ISE listed symbols at the end of the proposed extension, subject to the performance of the expanded pilot, as proposed by this rule change. Under this proposal, these additional classes will be determined based on their national average daily volume over a six month period immediately preceding their inclusion in the Penny Pilot Program.5 The Exchange notes that it will submit proposed rule changes pursuant to Rule 19b–4 under the Exchange Act announcing the names of the options classes selected to participate in the Penny Pilot Program.6 The Exchange represents that after the addition of the 300 options classes, as proposed under this rule change, it has the necessary system capacity to support the listing of additional series under the Penny Pilot Program. The Exchange proposes to extend the existing Penny Pilot Program until October 1, 2009 and then phase in the additional classes to the Penny Pilot Program over four successive quarters. Specifically, the Exchange proposes to add 35 classes in October 2009 and in January 2010 followed by an additional 115 classes both in April 2010 and in July 2010, each group to be effective for trading on the Monday ten days after Expiration Friday. Thus, the quarterly additions would be effective on October 4 See Securities Exchange Act Release Nos. 56564 (September 27, 2007), 72 FR 56412 (October 3, 2007) and 57508 (March 17, 2008), 73 FR 15243 (March 21, 2008). 5 The Exchange will not include options classes in which the issuer of the underlying security is subject to an announced merger or is in the process of being acquired by another company, or if the issuer is in bankruptcy. For purposes of assessing national average daily volume, the Exchange will use data compiled and disseminated by the Options Clearing Corporation. 6 ISE will also issue a Regulatory Information Circular, which will be published on its Web site, identifying the options classes added to the Penny Pilot Program. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 30347 26, 2009; January 25, 2010; April 26, 2010; and July 26, 2010.7 The above roll-out schedule contemplates the launch of the new Linkage Plan, which is scheduled to occur on August 31, 2009. ISE believes that the new Linkage Plan should be implemented before the current Penny Pilot Program is expanded because intermarket sweep orders (ISOs) will be available in the new Linkage Plan, which will allow market participants to access simultaneously better priced quotations across all options exchanges. During the course of the Penny Pilot Program, ISE has thoroughly analyzed the impact of trading options in penny increments. ISE has also submitted reports to the SEC describing its findings. For the most part, the Penny Pilot Program has continued without any operational issues. The quoted spread tightened in the year following introduction of pennies, but widened for phase 1 and 2 symbols in the past six months. The size available at the BBO, however, has decreased significantly since the start of the Penny Pilot Program, while trading volume has increased. Despite the increase in the number of quotes that is in large part attributed to the Penny Pilot Program, ISE is supportive of an expanded Penny Pilot Program but one that is measured. Quoting options in penny increments also significantly increases quotation traffic and imposes significant costs on exchanges, market makers and other market participants. Thus, ISE believes that a focused expansion where there would be the most benefit is the responsible and prudent way to proceed. Accordingly, ISE proposes to expand the Penny Pilot Program by adopting three ‘‘breakpoints,’’ as follows: • $0.01 increments for options contracts trading at less than $1.00 per option; • $0.05 increments for options contracts trading between $1.00 and $3.00 per option; and • $0.10 increments for options contracts trading higher than $3.00 per option. ISE believes an expansion with these tiers will allow the industry to manage the large number of quotes generated in high-priced series that have little, if any, trading volume, and which thus far have been excluded from the Penny Pilot 7 For purposes of identifying the issues to be added per quarter, the Exchange shall use data from the prior six calendar months immediately preceding the implementation month. For example, the quarterly additions to be added on October 26, 2009 shall be determined using data from the sixth month period ending September 30, 2009. E:\FR\FM\25JNN1.SGM 25JNN1 sroberts on PROD1PC70 with NOTICES 30348 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices Program due to their high quotation rates. If these options were migrated to pennies indiscriminately, the number of quotes sent to OPRA for these series would double. By retaining these tiers, ISE believes that the number of quotes generated by high priced series will be manageable and adequate liquidity will be maintained in higher priced option series. ISE’s proposal would also apply to the QQQQs, which are currently quoted in $0.01 increments for all options series. The Penny Pilot Program generally has been beneficial to retail investors and ISE believes its proposal would preserve the benefits of penny trading for lower-priced, more retail-oriented contracts. Institutional investors, on the other hand, have been disadvantaged with the lack of liquidity at the inside in the classes that are currently in the pilot and the Exchange believes its proposal will serve to increase the displayed liquidity for options trading above $1.00. As proposed in the Initial Filing, ISE represents that options trading in penny increments will not be eligible for split pricing, as permitted under ISE Rule 716. In the Initial Filing, the Exchange also made references to quote mitigation strategies that are currently in place and proposed to apply them to the Penny Pilot Program. The Exchange proposes to continue applying those quote mitigation strategies during the extension of the Penny Pilot Program, as contemplated by this rule filing. Specifically, as proposed in Rule 804, ISE will continue to utilize a holdback timer that delays quotation updates for up to, but not longer than, one second. The Exchange’s monitoring and delisting policies, as proposed in the Initial Filing, shall also continue to apply. The Exchange agrees to submit semiannual reports to the Commission analyzing the Penny Pilot Program for the following time periods: • July 1, 2009–December 31, 2009. • January 1, 2010–June 30, 2010. • July 1, 2010–December 31, 2010. The Exchange anticipates its report will analyze the impact of penny pricing on market quality and options system capacity. The Exchange will submit the report within one month following the end of the period being analyzed. ISE believes in a measured extension and expansion of the Penny Pilot Program. A properly thought out plan will serve to benefit public customers by providing them with penny quoting and trading in a greater number of actively traded securities. While an expansion of the Penny Pilot Program will lead to greater quotation traffic and confront VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 exchanges with systems capacity issues, the Exchange believes that the benefits of the Penny Pilot Program outweigh these costs. 2. Statutory Basis The basis under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) for this proposed rule change is found in Section 6(b)(5), in that the proposed rule change is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. In particular, the proposed rule change allows for a measured expansion of the Penny Pilot Program for the benefit of market participants. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. In addition, the Commission seeks comment on the following issues: 1. The Commission requests comment specifically on the extent and cost of the PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 impact, if any, to market participants’ technological systems and platforms to accommodate ISE’s proposed change in breakpoints for option classes included in the Penny Pilot. 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 Number SR–ISE–2009–32 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2009–32. 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 the filing will also be available for inspection and copying at the principal office of the self-regulatory organization. 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– 2009–32 and should be submitted on or before July 16, 2009. E:\FR\FM\25JNN1.SGM 25JNN1 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–14959 Filed 6–24–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60140; File No. SR– NYSEAmex-2009–27] Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to WAIT Modifiers, PNP Plus Orders, and Attributable Orders June 18, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on June 8, 2009, NYSE Amex LLC (‘‘NYSE Amex’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. sroberts on PROD1PC70 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 900.3NY to (i) offer the ‘‘WAIT’’ order modifier for use with orders entered into the NYSE Amex System; (ii) allow the use of attributable orders (iii) offer PNP Plus orders. The WAIT modifier is designed to enhance compliance with the order exposure requirement of NYSE Amex Rule 935NY. Attributable orders allow users to voluntarily display their firm IDs on the orders. PNP Plus orders allow Users greater control over the circumstances of order execution. The text of the proposed rule change is attached as Exhibit 5 to the 19b–4 form. A copy of this filing is available on the Exchange’s Web site at https://www.nyse.com, at the Exchange’s principal office and at the Commission’s Public Reference Room. 8 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose WAIT Orders On May 21, 2009, the Securities and Exchange Commission approved NYSE Amex’s proposal to reduce the order exposure requirement of Rule 935NY from three seconds to one second.3 Rule 935NY prohibits Users from executing as principal orders they represent as agent unless (i) agency orders are first exposed on the Exchange for at least one (1) second or (ii) the User has been bidding or offering on the Exchange for at least one (1) second prior to receiving an agency order that is executable against such bid or offer. This Rule insures that a User does not gain at the expense of customers by depriving them of the opportunity to interact with orders in the NYSE Amex System. Users that enter agency orders into the NYSE Amex System have noted the proposal by the NASDAQ Options Market (‘‘NOM’’) for a WAIT order modifier,4 and have asked the Exchange to develop an automated mechanism that permits them to enter orders into the NYSE Amex System as soon as the orders are received but that also prevents them from interacting with their own agency orders in violation of the order exposure requirement. NYSE Amex believes this is an efficient use of resources because it will allow NYSE Amex to program its System once rather than have multiple Users re-program their systems. 3 See Exchange Act Release No. 59956 (May 21, 2009), 74 FR 25782 (May 29, 2009) (SR– NYSEAmex-2009–15) (Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, Amending Rule 935NY—Order Exposure Requirements to Reduce the Exposure Periods from Three Seconds to One Second). 4 See Exchange Act Release No. 59557 (March 11, 2009), 74 FR 11389 (March 17, 2009) (SR– NASDAQ–2009–017). PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 30349 In order to accomplish that request, NYSE Amex has developed the ‘‘WAIT’’ modifier which can be appended to an order prior to entry into the NYSE Amex System. The WAIT modifier will instruct the System to wait precisely one second from the time of order entry before processing the order in accordance with the other instructions attached to that order. Upon expiration of the one-second WAIT period, the System will time stamp, route, display, or execute the order in accordance with the entering party’s other order entry instructions. Thus, the WAIT modifier does not affect the existing display, routing, or execution priorities of the NYSE Amex System or any other obligations of Users as set forth in the NYSE Amex rules. Orders designated with the WAIT modifier are independent of all other orders, including an agency order that is being exposed pursuant to Rule 935NY. WAIT orders are not associated or in any way linked to another order entered into the System, as is the case with certain facilitation orders at other options exchanges. The System will process the WAIT order even if a customer order entered into the System simultaneously with the WAIT order has been executed or cancelled during the WAIT second, unless the WAIT order itself is modified or cancelled pursuant to System rules. As a result, there is no guarantee that an order designated as WAIT will execute against another specific order. Use of the WAIT modifier is completely voluntary. Attributable Orders The Exchange proposes to modify Rule 900.3NY (Orders Defined) to allow for the submission of attributable orders. These orders allow users to voluntarily display their firm IDs on the orders.5 The NASDAQ Options Market, LLC (‘‘NOM’’) currently allows its participants to submit attributable orders (See NOM Chapter VI, Section (1)(d)(1)).6 As proposed, the Exchange may limit the processes for which attributable orders will be available. This proposal is responsive to requests by Exchange Users who believe that enhanced executions may be obtained if Firm ID is allowed on orders (on a voluntary basis). 5 A Firm ID is a 5 character identification code (letters and/or numbers) Each ATP Holder is assigned its own unique Firm ID. 6 The Chicago Board Options Exchange (‘‘CBOE’’) also allows attributable orders. See Exchange Act Release No, 58394 (August 20, 2008), 73 FR 50379 (August 26, 2008) (SR–CBOE–2008–85) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Adopting A New Order Type). E:\FR\FM\25JNN1.SGM 25JNN1

Agencies

[Federal Register Volume 74, Number 121 (Thursday, June 25, 2009)]
[Notices]
[Pages 30346-30349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-14959]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60146; File No. SR-ISE-2009-32]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the Penny 
Pilot Program

June 19, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on June 11, 2009, the International Securities Exchange, LLC 
(``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (the ``SEC'' or the ``Commission'') the proposed rule change 
as described in Items I, II, and III below, which items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 its rules relating to a pilot program to 
quote and to trade certain options in pennies. The text of the proposed 
rule change is as follows, with deletions in [brackets] and additions 
in italics:

Rule 710. Minimum Trading Increments

    (a) The Board may establish minimum trading increments for options 
traded on the Exchange. Such changes by the Board will be designated as 
a stated policy, practice, or interpretation with respect to the 
administration of this Rule 710 within the meaning of subparagraph 
(3)(A) of Section 19(b) of the Exchange Act and will be filed with the 
SEC as a rule change for effectiveness upon filing. Until such time as 
the Board makes a change in the increments, the following principles 
shall apply:
    (1) if the options contract is trading at less than $3.00 per 
option, $.05; and
    (2) if the options contract is trading at $3.00 per option or 
higher, $.10.
    (b) Minimum trading increments for dealings in options contracts 
other than those specified in paragraph (a) may be fixed by the 
Exchange from time to time for options contracts of a particular 
series.

[[Page 30347]]

    (c) Notwithstanding the above, the Exchange may trade in the 
minimum variation of the primary market in the underlying security.

Supplementary Material to Rule 710

    .01 Notwithstanding any other provision of this Rule 710, the 
Exchange will operate a pilot program to permit options classes to be 
quoted and traded in: [increments as low as $.01.]
    (a) $.01 increments if the options contract is trading at less than 
$1.00 per option;
    (b) $.05 increments if the options contract is trading between 
$1.00 and $3.00 per option; and
    (c) $.10 increments if the options contract is trading at higher 
than $3.00 per option.
    The Exchange will specify which options trade in such pilot, and in 
what increments, in Regulatory Information Circulars filed with the 
Commission pursuant to Rule 19b-4 under the Exchange Act and 
distributed to Members.
    .02 No Change.
* * * * *

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change 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 self regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant parts of such statements.

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

1. Purpose
    On January 24, 2007, the SEC approved ISE's rule filing, SR-ISE-
2006-62, which initiated a pilot program to quote and to trade certain 
options in penny increments (the ``Penny Pilot Program'').\3\ Under the 
Penny Pilot Program, the minimum price variation for all participating 
options classes, except for the Nasdaq-100 Index Tracking Stock 
(``QQQQ''), is $0.01 for all quotations in options series that are 
quoted at less than $3 per contract and $0.05 for all quotations in 
options series that are quoted at $3 per contract or greater. The QQQQs 
are quoted in $0.01 increments for all options series. Through 
subsequent expansions, the Penny Pilot now consists of 63 underlying 
securities.\4\ The Penny Pilot Program is scheduled to expire on July 
3, 2009. ISE now proposes to extend the Penny Pilot Program through 
December 31, 2010.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 55161 (January 24, 
2007), 72 FR 4754 (February 1, 2007) (the ``Initial Filing''). The 
Penny Pilot Program was subsequently extended for an additional two 
month period, until September 27, 2007. See Securities Exchange Act 
Release No. 56151 (July 26, 2007), 72 FR 42452 (August 2, 2007).
    \4\ See Securities Exchange Act Release Nos. 56564 (September 
27, 2007), 72 FR 56412 (October 3, 2007) and 57508 (March 17, 2008), 
73 FR 15243 (March 21, 2008).
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    The Exchange also proposes to expand the number of issues included 
in the Penny Pilot Program to include the top 300 most actively traded 
multiply listed options classes that are not currently a part of the 
Penny Pilot Program. ISE is prepared to further expand the Penny Pilot 
Program to all ISE listed symbols at the end of the proposed extension, 
subject to the performance of the expanded pilot, as proposed by this 
rule change.
    Under this proposal, these additional classes will be determined 
based on their national average daily volume over a six month period 
immediately preceding their inclusion in the Penny Pilot Program.\5\ 
The Exchange notes that it will submit proposed rule changes pursuant 
to Rule 19b-4 under the Exchange Act announcing the names of the 
options classes selected to participate in the Penny Pilot Program.\6\ 
The Exchange represents that after the addition of the 300 options 
classes, as proposed under this rule change, it has the necessary 
system capacity to support the listing of additional series under the 
Penny Pilot Program.
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    \5\ The Exchange will not include options classes in which the 
issuer of the underlying security is subject to an announced merger 
or is in the process of being acquired by another company, or if the 
issuer is in bankruptcy. For purposes of assessing national average 
daily volume, the Exchange will use data compiled and disseminated 
by the Options Clearing Corporation.
    \6\ ISE will also issue a Regulatory Information Circular, which 
will be published on its Web site, identifying the options classes 
added to the Penny Pilot Program.
---------------------------------------------------------------------------

    The Exchange proposes to extend the existing Penny Pilot Program 
until October 1, 2009 and then phase in the additional classes to the 
Penny Pilot Program over four successive quarters. Specifically, the 
Exchange proposes to add 35 classes in October 2009 and in January 2010 
followed by an additional 115 classes both in April 2010 and in July 
2010, each group to be effective for trading on the Monday ten days 
after Expiration Friday. Thus, the quarterly additions would be 
effective on October 26, 2009; January 25, 2010; April 26, 2010; and 
July 26, 2010.\7\ The above roll-out schedule contemplates the launch 
of the new Linkage Plan, which is scheduled to occur on August 31, 
2009. ISE believes that the new Linkage Plan should be implemented 
before the current Penny Pilot Program is expanded because intermarket 
sweep orders (ISOs) will be available in the new Linkage Plan, which 
will allow market participants to access simultaneously better priced 
quotations across all options exchanges.
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    \7\ For purposes of identifying the issues to be added per 
quarter, the Exchange shall use data from the prior six calendar 
months immediately preceding the implementation month. For example, 
the quarterly additions to be added on October 26, 2009 shall be 
determined using data from the sixth month period ending September 
30, 2009.
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    During the course of the Penny Pilot Program, ISE has thoroughly 
analyzed the impact of trading options in penny increments. ISE has 
also submitted reports to the SEC describing its findings. For the most 
part, the Penny Pilot Program has continued without any operational 
issues. The quoted spread tightened in the year following introduction 
of pennies, but widened for phase 1 and 2 symbols in the past six 
months. The size available at the BBO, however, has decreased 
significantly since the start of the Penny Pilot Program, while trading 
volume has increased.
    Despite the increase in the number of quotes that is in large part 
attributed to the Penny Pilot Program, ISE is supportive of an expanded 
Penny Pilot Program but one that is measured. Quoting options in penny 
increments also significantly increases quotation traffic and imposes 
significant costs on exchanges, market makers and other market 
participants. Thus, ISE believes that a focused expansion where there 
would be the most benefit is the responsible and prudent way to 
proceed. Accordingly, ISE proposes to expand the Penny Pilot Program by 
adopting three ``breakpoints,'' as follows:
     $0.01 increments for options contracts trading at less 
than $1.00 per option;
     $0.05 increments for options contracts trading between 
$1.00 and $3.00 per option; and
     $0.10 increments for options contracts trading higher than 
$3.00 per option.
    ISE believes an expansion with these tiers will allow the industry 
to manage the large number of quotes generated in high-priced series 
that have little, if any, trading volume, and which thus far have been 
excluded from the Penny Pilot

[[Page 30348]]

Program due to their high quotation rates. If these options were 
migrated to pennies indiscriminately, the number of quotes sent to OPRA 
for these series would double. By retaining these tiers, ISE believes 
that the number of quotes generated by high priced series will be 
manageable and adequate liquidity will be maintained in higher priced 
option series. ISE's proposal would also apply to the QQQQs, which are 
currently quoted in $0.01 increments for all options series.
    The Penny Pilot Program generally has been beneficial to retail 
investors and ISE believes its proposal would preserve the benefits of 
penny trading for lower-priced, more retail-oriented contracts. 
Institutional investors, on the other hand, have been disadvantaged 
with the lack of liquidity at the inside in the classes that are 
currently in the pilot and the Exchange believes its proposal will 
serve to increase the displayed liquidity for options trading above 
$1.00.
    As proposed in the Initial Filing, ISE represents that options 
trading in penny increments will not be eligible for split pricing, as 
permitted under ISE Rule 716. In the Initial Filing, the Exchange also 
made references to quote mitigation strategies that are currently in 
place and proposed to apply them to the Penny Pilot Program. The 
Exchange proposes to continue applying those quote mitigation 
strategies during the extension of the Penny Pilot Program, as 
contemplated by this rule filing. Specifically, as proposed in Rule 
804, ISE will continue to utilize a holdback timer that delays 
quotation updates for up to, but not longer than, one second. The 
Exchange's monitoring and delisting policies, as proposed in the 
Initial Filing, shall also continue to apply.
    The Exchange agrees to submit semi-annual reports to the Commission 
analyzing the Penny Pilot Program for the following time periods:
     July 1, 2009-December 31, 2009.
     January 1, 2010-June 30, 2010.
     July 1, 2010-December 31, 2010.
    The Exchange anticipates its report will analyze the impact of 
penny pricing on market quality and options system capacity. The 
Exchange will submit the report within one month following the end of 
the period being analyzed.
    ISE believes in a measured extension and expansion of the Penny 
Pilot Program. A properly thought out plan will serve to benefit public 
customers by providing them with penny quoting and trading in a greater 
number of actively traded securities. While an expansion of the Penny 
Pilot Program will lead to greater quotation traffic and confront 
exchanges with systems capacity issues, the Exchange believes that the 
benefits of the Penny Pilot Program outweigh these costs.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is found in Section 6(b)(5), in 
that the proposed rule change is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest. In particular, the 
proposed rule change allows for a measured expansion of the Penny Pilot 
Program for the benefit of market participants.

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

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. In addition, the Commission seeks 
comment on the following issues:
    1. The Commission requests comment specifically on the extent and 
cost of the impact, if any, to market participants' technological 
systems and platforms to accommodate ISE's proposed change in 
breakpoints for option classes included in the Penny Pilot.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2009-32 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2009-32. 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 the filing will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-
2009-32 and should be submitted on or before July 16, 2009.


[[Page 30349]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-14959 Filed 6-24-09; 8:45 am]
BILLING CODE 8010-01-P
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