Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding the Short Term Option Series Program, 72426-72428 [2012-29313]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 234 (Wednesday, December 5, 2012)]
[Notices]
[Pages 72426-72428]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29313]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68318; File No. SR-ISE-2012-90]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Regarding the Short Term Option Series Program

November 29, 2012.
    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 November 21, 2012, the International

[[Page 72427]]

Securities Exchange, LLC (the ``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 
prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules to expand the number of 
expirations available under the Short Term Option Series Program 
(``STOS Program''), to allow for the Exchange to delist certain series 
in the STOS that do not have open interest and to expand the number of 
series in STOS under limited circumstances. The text of the proposed 
rule change is available on the Exchange's Web site www.ise.com, at the 
principal office of the Exchange, 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 self-regulatory organization 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 the proposal is to amend ISE rules to provide for 
the ability to open up to five consecutive expirations under the Short 
Term Option Series Program (``STOS Program'') for trading on the 
Exchange, to allow for the Exchange to delist certain series in the 
STOS that do not have open interest and to expand the number of series 
in STOS under limited circumstances when there are no series at least 
10% but not more than 30% away from the current price of the underlying 
security.\3\
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    \3\ On July 12, 2005, the Commission approved the STOS Program 
on a pilot basis. See Securities Exchange Act Release No. 52012 
(July 12, 2005), 70 FR 41246 (July 19, 2005) (SR-ISE-2005-17). The 
STOS Program was made permanent on July 1, 2010. See Securities 
Exchange Act Release No. 62444 (July 2, 2010), 75 FR 39595 (July 9, 
2010) (SR-ISE-2010-72).
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    This filing is based on filings previously submitted by NYSE Arca, 
Inc. (``Arca'') and NYSE MKT LLC (``MKT''), which the Commission 
recently approved.\4\
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    \4\ See Securities Exchange Act Release Nos. 68190 (November 8, 
2012)
    (SR-NYSEArca-2012-95); 68191 (November 8, 2012) (SR-NYSEMKT-
2012-42).
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    Currently, the Exchange may select up to 30 currently listed option 
classes on which STOS options may be opened in the STOS Program and the 
Exchange may also match any option classes that are selected by other 
securities exchanges that employ a similar program under their 
respective rules.\5\ For each option class eligible for participation 
in the STOS Program, the Exchange may open up to 30 Short Term Option 
Series for each expiration date in that class.\6\ Under the current 
rule, STOS options expire the following week.
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    \5\ See ISE Rule 504, Supplementary Material .02(a).
    \6\ See ISE Rule 504, Supplementary Material .02(c) and (d).
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    This proposal seeks to allow the Exchange to open STOS option 
series for up to five consecutive week expirations. The Exchange 
intends to add a maximum of five consecutive week expirations under the 
STOS Program, however it will not add a STOS expiration in the same 
week that a monthly options series expires or, in the case of Quarterly 
Option Series, on an expiration that coincides with an expiration of 
Quarterly Option Series on the same class. In other words, the total 
number of consecutive expirations will be five, including any existing 
monthly or quarterly expirations.\7\ The Exchange notes that the STOS 
Program has been well-received by market participants, in particular by 
retail investors.\8\ The Exchange believes that the current proposed 
revision to the STOS Program will permit the Exchange to meet increased 
customer demand and provide market participants with the ability to 
hedge in a greater number of option classes and series.
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    \7\ For example, if quarterly options expire week 1 and monthly 
options expire week 3 from
    now, the proposal would allow the following expirations: week 1 
quarterly, week 2 STOS, week 3 monthly, week 4 STOS, and week 5 
STOS. If quarterly options expire week 3 and monthly options expire 
week 5, the following expirations would be allowed: week 1 STOS, 
week 2 STOS, week 3 quarterly, week 4 STOS, and week 5 monthly.
    \8\ Since the STOS Program has been adopted, it has seen rapid 
acceptance among industry participants as evidenced by the expansion 
of the number of classes eligible for the STOS Program. See 
Securities Exchange Act Release No. 66432 (February 21, 2012), 77 FR 
11614 (February 27, 2012 (SR-ISE-2012-08).
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority have the necessary systems capacity 
to handle the potential additional traffic associated with trading of 
an expanded number of expirations that participate in the STOS Program.
    In addition, the Exchange is proposing to add new language to 
Supplementary Material .02 to ISE Rule 504 and Supplementary Material 
.01 to ISE Rule 2009 to allow the Exchange, in the event that the 
underlying security has moved such that there are no series that are at 
least 10% above or below the current price of the underlying security, 
to delist series with no open interest in both the call and the put 
series having a: (i) strike higher than the highest strike price with 
open interest in the put and/or call series for a given expiration 
month; and (ii) strike lower than the lowest strike price with open 
interest in the put and/or the call series for a given expiration 
month, so as to list series that are at least 10% but not more than 30% 
above or below the current price of the underlying security. Further, 
in the event that all existing series have open interest and there are 
no series at least 10% above or below the current price of the 
underlying security, the Exchange may list additional series, in excess 
of the 30 allowed currently under current ISE Rules 504 and 2009, that 
are at least 10% and not more than 30% above or below the current price 
of the underlying security. This change is being proposed 
notwithstanding the current cap of 30 series per class under the STOS 
Program.
    The Exchange believes that it is important to allow investors to 
roll existing option positions and ensuring that there are always 
series at least 10% but not more than 30% above or below the current 
price of the underlying security will allow investors the flexibility 
they need to roll existing positions.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \9\ in general, and furthers the objectives of 
Section 6(b)(5),\10\ in particular, in that it 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

[[Page 72428]]

system and, in general, to protect investors and the public interest.
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    \9\ 15 U.S.C. 78f (b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that expanding the STOS Program will result 
in a continuing benefit to investors by giving them more flexibility to 
closely tailor their investment decisions and hedging decisions in a 
greater number of securities. The Exchange also believes that expanding 
the STOS Program will provide the investing public and other market 
participants with additional opportunities to hedge their investment 
thus allowing these investors to better manage their risk exposure. 
While the expansion of the STOS Program will generate additional quote 
traffic, the Exchange does not believe that this increased traffic will 
become unmanageable since the proposal remains limited to a fixed 
number of expirations.
    The Exchange believes that the ability to delist certain series 
with no open interest in both the call and the put series will benefit 
investors by devoting the current cap in the number of series to those 
series that are more closely tailored to the investment decisions and 
hedging decisions of investors.

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

    ISE does not believe that this proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Exchange Act. In this regard and as 
indicated above, the Exchange notes that the rule change is being 
proposed as a competitive response to filings recently submitted by 
Arca and MKT and approved by the Commission. ISE believes this proposed 
rule change is necessary to permit fair competition among the options 
exchanges and to establish uniform rules regarding the STOS Program.

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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to those of 
other exchanges that have been approved by the Commission and permit 
such exchanges to open up to five consecutive expirations under their 
respective STOS Programs as well as allow for the exchanges to delist 
any series in the STOS Programs that do not have open interest and 
expand the number of series per class permitted in the STOS Programs 
under limited circumstances.\13\ Therefore, the Commission designates 
the proposal operative upon filing.\14\
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    \13\ See supra note 4.
    \14\ 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 summarily may temporarily suspend such 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 email to rule-comments@sec.gov. Please 
include File Number SR-ISE-2012-90 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-2012-90. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2012-90 and should be 
submitted on or before December 26, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29313 Filed 12-4-12; 8:45 am]
BILLING CODE 8011-01-P