Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to the Short Term Option Series Program, 76363-76366 [2013-29890]
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Federal Register / Vol. 78, No. 242 / Tuesday, December 17, 2013 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 13 and Rule 19b–4(f)(2) 14
thereunder. At any time within 60 days
of the filing of such 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:
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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–
EDGA–2013–35 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–EDGA–2013–35. 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–EDGA–
2013–35 and should be submitted on or
before January 7, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–29901 Filed 12–16–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71034; File No. SR–ISE–
2013–69]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change to the Short Term Option
Series Program
December 11, 2013.
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 December
6, 2013, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Supplementary Material .02 to Rule 504
to expand the Short Term Options
Program with respect to non-index
options. The text of the proposed rule
change is available on the Exchange’s
Internet Web site at https://www.ise.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
13 15
U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f)(2).
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76363
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 Exchange is proposing to amend
Supplementary Material .02 to Rule 504
consistent with a recently approved
filing by NASDAQ OMX PHLX, LLC
(‘‘PHLX’’).3 In particular, the Exchange
proposes to expand the Short Term
Options (‘‘STO’’) Program for non-index
options so that the Exchange may:
change the current thirty option class
limitation to fifty option classes on
which STOs may be opened; match the
parameters for opening initial and
additional STO strikes to what is
permissible per the Options Listing
Procedures Plan (‘‘OLPP’’); 4 open up to
3 See Securities Exchange Act Release No. 70682
(October 15, 2012), 78 FR 62809 (October 22, 2013)
(SR–PHLX–2013–101) (notice of filing; approval
citation pending publication by the Commission).
4 The full name of the OLPP (which is applicable
to all option exchanges) is Plan For The Purpose of
Developing and Implementing Procedures Designed
to Facilitate the Listing and Trading of
Standardized Options Submitted Pursuant to
Section 11A(a)(3)(B) of the Securities Exchange Act
of 1934. With regard to the listing of new series on
equity, ETF, or trust issued receipt (‘‘TIRs’’) option
classes, subsection 3.(g)(i) of the OLPP states, in
relevant part, that the exercise price of each option
series listed by an exchange that chooses to list a
series of options (known as the Series Selecting
Exchange) shall be fixed at a price per share which
is reasonably close to the price of the underlying
equity security, ETF, or TIR at or about the time the
Series Selecting Exchange determines to list such
series. Except as provided in subparagraphs (ii)
through (iv) of the OLPP, if the price of the
underlying security is less than or equal to $20, the
Series Selecting Exchange shall not list new option
series with an exercise price more than 100% above
or below the price of the underlying security. If the
price of the underlying security is greater than $20,
the Series Selecting Exchange shall not list new
option series with an exercise price more than 50%
above or below the price of the underlying security.
Subsection 3.(g)(i) of the OLPP indicates that an
option series price has to be reasonably close to the
price of the underlying security and must not
exceed a maximum of 50% or 100%, depending on
the price, from the underlying. The Exchange’s
proposal related to non-index options, while
Continued
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thirty initial STO series for each
expiration date in an STO class; add an
STO strike price interval of $2.50 or
greater where the strike price is above
$150; and in general harmonize the
different parts of the Program (e.g.,
initial listings and additional series).
The STO Program, which was
initiated in 2010,5 is codified in
Supplementary Material .02 to Rule 504
for non-index options including equity,
currency, and exchange traded fund
(‘‘ETF’’) options.6 These rules currently
provide that after an option class has
been approved for listing and trading on
the Exchange, the Exchange may open
for trading on any Thursday or Friday
that is a business day series of options
on no more than thirty option classes
that expire on each of the next five
consecutive Fridays that are business
days.7 In addition to the thirty-option
class limitation, there is also a
limitation that no more than twenty
initial series for each expiration date in
those classes may be opened for trading;
provided, however, that the Exchange
may open up to 10 additional series
when the Exchange deems it necessary
to maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened.8
Furthermore, the strike price of each
STO has to be fixed with approximately
the same number of strike prices being
opened above and below the value of
the underlying security at about the
time that the STOs are initially opened
for trading on the Exchange, and with
strike prices being within thirty percent
(30%) above or below the closing price
of the underlying security from the
preceding day. In terms of the strike
price intervals, the STO Program
currently allows the interval between
strike prices on STOs to be (i) $0.50 or
greater where the strike price is less
than $75, and $1 or greater where the
strike price is between $75 and $150 for
all classes that participate in the STO
conforming to the current structure of the
Exchange’s STO rules, is similar in practical effect
to the noted OLPP subsection.
5 See Securities Exchange Act Release No. 62444
(July 2, 2010), 75 FR 39595 (July 9, 2010) (SR–ISE–
2010–72) (notice of filing and immediate
effectiveness of proposed rule change to
permanently establish the STO Program on the
Exchange).
6 The Exchange does not by this filing propose
any changes to Supplementary Material .01 to Rule
2009 related to the STO Program for index options.
7 The Exchange increased the number of option
issues that could be opened pursuant to the STO
Program in 2012. See Securities Exchange Act
Release No. 66432 (February 21, 2012), 77 FR 11614
(February 27, 2012) (SR–ISE–2012–08).
8 See Supplementary Material .02(c) and (d) to
Rule 504.
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Program; or (ii) $0.50 for option classes
that trade in one dollar increments, i.e.,
in the Related non-STO,9 and are in the
STO Program. This proposal retains
many of the fundamental limitations of
the STO Program while proposing
specific changes as described below.
The Proposal
First, the Exchange proposes to
increase the number of STO classes that
may be opened after an option class has
been approved for listing and trading on
the Exchange. Specifically, the
Exchange proposes in Supplementary
Material .02(a) to Rule 504 that the
Exchange may select up to fifty
currently listed option classes on which
STO series may be opened. The
Exchange also proposes in
Supplementary Material .02(c) to Rule
504 that for each option class eligible for
participation in the STO Program, the
Exchange may open up to thirty initial
STO series for each expiration date in
that class. Currently ISE rules permit the
Exchange to list up to twenty initial
series, and up to ten additional series,
for each option class that participates in
the STO program.10 While the ISE may
currently list thirty STO series total, the
Exchange is proposing to increase the
number of initial series that it may list
in order to remain competitive with
other exchanges. The Exchange will
continue to be limited to a total of thirty
STO series, including both initial and
additional series, and is proposing
amendments to Supplementary Material
.02(d) to Rule 504 to reflect the fact that
the Exchange may only open additional
series if it has opened fewer than thirty
initial series. The Exchange believes
that this proposed moderate increase in
the number of STO classes and initial
STO series is needed and advisable in
light of the demonstrated acceptance
and popularity of the STO Program
among market participants, as discussed
below.
Second, the Exchange proposes
changes to Supplementary Material
.02(c) and (d) to Rule 504 to indicate
that any initial or additional strike
prices listed by the Exchange shall be
reasonably close to the price of the
underlying equity security and within
the following parameters: (i) If the price
of the underlying security is less than or
equal to $20, strike prices shall be not
more than one hundred percent (100%)
above or below the price of the
underlying security; and (ii) if the price
9 Related non-STOs are non-STOs that have
similar options with longer expiration cycles (e.g.,
monthly Apple (AAPL) options would be Related
non-STOs to weekly AAPL options).
10 See Supplementary Material .02(c) and (d) to
Rule 504.
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of the underlying security is greater than
$20, strike prices shall be not more than
fifty percent (50%) above or below the
price of the underlying security.11 This
proposal is in line with the process for
adding new series of options found in
subsection 3.(g)(i) of the OLPP, and
harmonizes the STO Program internally
by adopting consistent parameters for
opening STOs and listing additional
strike prices. The Exchange believes that
this proposal is a reasonable and
desirable enhancement to the STO
Program.
Third, the Exchange proposes
additional changes to Supplementary
Material .02(d) to indicate that if the
Exchange has opened less than thirty
STO series for an STO expiration date,
the Exchange may also open additional
strike prices of STO series that are more
than 50% above or below the current
price of the underlying security if the
price is greater than $20, provided that
demonstrated customer interest exists
for such series,12 as expressed by
institutional, corporate or individual
customers or their brokers. This is done
to further conform the additional strike
price methodology to the proposed
listing parameters described above,
while retaining demonstrated interest
language that may be useful in
unforeseen circumstances. Furthermore,
Rule 504A(b)(i) currently states that if
the price of the underlying security is
greater than $20, the Exchange shall not
list new option series with an exercise
price more than 50% above or below the
price of the underlying security.
Immediately before this language, the
Exchange proposes to also add a carveout that states: ‘‘Except as provided in
Supplementary Material .02(d) to Rule
504 . . .’’
Fourth, the Exchange proposes to
simplify the delisting language in
Supplementary Material .02(d) to Rule
504, by removing the current range
methodology that states, in part, that the
Exchange will delist certain series ‘‘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.’’ 13 In the event that the
11 The price of the underlying security will be
calculated commensurate with Rule 504A(b)(i) as
amended.
12 Market Makers trading for their own account
are not considered when determining customer
interest.
13 Currently, the delisting language states: ‘‘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, the Exchange will delist any 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
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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, the Exchange
will continue to delist any series with
no open interest in both the call and the
put series having a: (i) Strike higher
than the highest price with open interest
in the put and/or call series for a given
expiration week; and (ii) strike lower
than the lowest strike price with open
interest in the put and/or the call series
for a given expiration week.14 New
series added after delisting will not be
constrained by the prior range
methodology. The Exchange believes
that, like its other proposals, the
delisting proposal will add clarity and
certainty to the STO process on the
Exchange.
Fifth, the Exchange proposes to add
$2.50 strike price intervals to the STO
Program. Specifically, the Exchange
proposes in Supplementary Material .12
to Rule 504 to indicate that the interval
between strike prices on STOs may be
$2.50 or greater where the strike price
is above $150. This proposed change
complements the current STO strike
price intervals of $0.50 or greater where
the strike price is less than $75 (or for
STO classes that trade in one dollar
increments in the Related non-STO),
and $1 or greater where the strike price
is between $75 and $150. The proposed
$2.50 strike price interval addresses the
issue that above a $150 strike price STO
strike price intervals must generally be
an exceedingly wide $5 or greater.15
The principal reason for the proposed
expansion is market demand for
additional STO classes and series and a
desire to make the STO Program more
effective. There is continuing strong
customer demand for having the ability
to execute hedging and trading
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. 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 and all
existing series have open interest, the Exchange
may list additional series, in excess of the 30
allowed under this Supplementary Material .02,
that are between 10% and 30% above or below the
price of the underlying security.’’ Supplementary
Material .02(d) to Rule 504. See Securities Exchange
Act Release No. 68318 (November 29, 2012), 77 FR
72426 (December 5, 2012) (SR–ISE–2012–90)
(notice of filing and immediate effectiveness of
proposed rule change to delist series and open up
to five consecutive weekly expirations of STOs).
14 The Exchange notes that the delisting language
in Supplementary Material .02(d) to Rule 504
incorrectly refers to expiration months rather than
weeks. With this filing the Exchange also proposes
to clarify that the exchange will delist series for
given expiration weeks in accordance with the
criteria discussed in this rule.
15 See, e.g., Rule 504(d).
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strategies via STOs, particularly in the
current fast and volatile multi-faceted
trading and investing environment that
extends across numerous markets and
platforms,16 and includes market
moving events such as significant
market volatility, corporate events, or
large market, sector, or individual issue
price swings. The Exchange has been
requested by traders and other market
participants to expand the STO Program
to allow additional STO offerings and
increased efficiency.
In order that the Exchange not exceed
the current thirty option class and
twenty initial option series restriction,
the Exchange has on occasion had to
turn away STO customers (traders and
investors) because it could not list, or
had to delist, STOs or could not open
adequate STO series because of
restrictions in the STO Program. This
has negatively impacted investors and
traders, particularly retail investors,
who have continued to request that the
Exchange add, or not remove, STO
classes, or have requested that the
Exchange expand the STO Program so
that additional STO classes and series
could be opened that would allow the
market participants to execute trading
and hedging strategies. There are, as
discussed, substantial benefits to market
participants having the ability to trade
eligible option classes within the STO
Program. Furthermore, the Exchange
supports the objective of responding to
customer need to enhance successful
programs to make them more efficient
for hedging and trading purposes. The
Exchange notes that the STO Program
has been well-received by market
participants, in particular by retail
investors. The Exchange believes that
weekly expiration options will continue
to grow in importance for all market
participants, including institutional and
retail investors.17 The proposed
revisions to the STO Program will
permit the Exchange to meet customer
demand for weekly expiration options
by providing a reasonable expansion to
the program, and will further allow the
Exchange to harmonize STO Program
rules with the OLPP as well as
internally.
With regard to the impact of this
proposal on system capacity, the
16 These include, without limitation, options,
equities, futures, derivatives, indexes, ETFs,
exchange traded notes, currencies, and over the
counter instruments.
17 The current STO Program, which is similar
across all options markets that have weeklies
programs, is in its current formulation one of the
more challenging industry-wide listings program to
administer. Recognizing the importance of the
Program, the Exchange is seeking to improve the
Program for non-index STOs by making it more
uniform and logical.
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76365
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
any potential additional traffic
associated with this current amendment
to the STO Program. The Exchange
believes that its members will not have
a capacity issue as a result of this
proposal. The Exchange represents that
it will monitor the trading volume
associated with the additional STO
classes and series listed as a result of
this proposal and the effect (if any) of
these additional STO classes and series
on market fragmentation and on the
capacity of the Exchange’s automated
systems.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 18 in general, and furthers the
objectives of Section 6(b)(5) of the Act 19
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
Expanding the classes and additional
series that can be opened in the STO
Program, simplifying the delisting
process, and allowing $2.50 strike price
intervals will result in a continuing
benefit to investors by giving them more
flexibility to closely tailor their
investment and hedging decisions in
greater number of securities. In
addition, correcting the delisting
language, which currently refers to
‘‘expiration months’’ instead of weeks
will clarify the Exchange’s rules and
reduce investor confusion.
The STO Program has been wellreceived by market participants, and in
particular by retail investors, and has
seen increasing trading volume. The
Exchange believes that the current
proposed revisions to the STO Program
will permit the Exchange to meet
customer demand for weekly expiration
options by providing a reasonable
expansion to the program, and will
further allow the Exchange to
harmonize STO Program rules with the
OLPP as well as internally to the benefit
of investors, market participants, and
the marketplace.
With regard to the impact of this
proposal on system capacity, the
Exchange believes that it and OPRA
have the necessary systems capacity to
handle any potential additional traffic
associated with this current amendment
18 15
19 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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to the STO Program. The Exchange
believes that its members will not have
a capacity issue as a result of this
proposal. As explained above, this
proposal will afford significant benefits
to market participants, and the market
in general, in terms of significantly
greater flexibility and increases in
efficient trading and hedging options. It
will also allow the Exchange to compete
on equal footing with STO Programs
adopted by other options exchanges,
and in particular PHLX, which has
recently been granted approval to adopt
substantially similar rules to those
proposed here.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes the
proposal is pro-competitive. The
proposed rule change is a competitive
response to a recently approved filing
by the PHLX,20 which the Exchange
believes is necessary to permit fair
competition among the options
exchanges with respect to STO
Programs. The Exchange believes that
the proposed rule change will result in
additional investment options and
opportunities to achieve the investment
objectives of market participants seeking
efficient trading and hedging vehicles,
to the benefit of investors, market
participants, and the marketplace in
general.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
IV. Solicitation of Comments
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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
20 See
supra note 3.
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of the Act 21 and Rule 19b–4(f)(6)
thereunder.22
The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange stated that it would
be at a competitive disadvantage if it
were not allowed to adopt the proposed
rule changes contemporaneously with
those recently approved for PHLX. The
Exchange also stated that the proposal
will promote fair competition among
exchanges by allowing the Exchange to
offer a more efficient STO Program that
is harmonized internally and externally
with the OLPP, and to meet customer
demand for a greater number of STO
classes and strike price intervals, in the
same manner as other exchanges. For
these reasons, the Commission believes
that the proposed rule change presents
no novel issues, and waiver will allow
the Exchange to remain competitive
with other exchanges. Therefore, the
Commission designates the proposed
rule change to be operative upon
filing.23
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. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2013–69 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–2013–69. 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–
2013–69 and should be submitted on or
before January 7, 2014.
21 15
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Kevin M. O’Neill,
Deputy Secretary.
22 17
[FR Doc. 2013–29890 Filed 12–16–13; 8:45 am]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the 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.
23 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00098
Fmt 4703
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BILLING CODE 8011–01–P
24 17
E:\FR\FM\17DEN1.SGM
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76363-76366]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29890]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71034; File No. SR-ISE-2013-69]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to the Short Term Option Series Program
December 11, 2013.
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 December 6, 2013, the International Securities Exchange, LLC
(the ``Exchange'' or the ``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 Supplementary Material .02 to Rule
504 to expand the Short Term Options Program with respect to non-index
options. The text of the proposed rule change is available on the
Exchange's Internet Web site at https://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 Exchange is proposing to amend Supplementary Material .02 to
Rule 504 consistent with a recently approved filing by NASDAQ OMX PHLX,
LLC (``PHLX'').\3\ In particular, the Exchange proposes to expand the
Short Term Options (``STO'') Program for non-index options so that the
Exchange may: change the current thirty option class limitation to
fifty option classes on which STOs may be opened; match the parameters
for opening initial and additional STO strikes to what is permissible
per the Options Listing Procedures Plan (``OLPP''); \4\ open up to
[[Page 76364]]
thirty initial STO series for each expiration date in an STO class; add
an STO strike price interval of $2.50 or greater where the strike price
is above $150; and in general harmonize the different parts of the
Program (e.g., initial listings and additional series).
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\3\ See Securities Exchange Act Release No. 70682 (October 15,
2012), 78 FR 62809 (October 22, 2013) (SR-PHLX-2013-101) (notice of
filing; approval citation pending publication by the Commission).
\4\ The full name of the OLPP (which is applicable to all option
exchanges) is Plan For The Purpose of Developing and Implementing
Procedures Designed to Facilitate the Listing and Trading of
Standardized Options Submitted Pursuant to Section 11A(a)(3)(B) of
the Securities Exchange Act of 1934. With regard to the listing of
new series on equity, ETF, or trust issued receipt (``TIRs'') option
classes, subsection 3.(g)(i) of the OLPP states, in relevant part,
that the exercise price of each option series listed by an exchange
that chooses to list a series of options (known as the Series
Selecting Exchange) shall be fixed at a price per share which is
reasonably close to the price of the underlying equity security,
ETF, or TIR at or about the time the Series Selecting Exchange
determines to list such series. Except as provided in subparagraphs
(ii) through (iv) of the OLPP, if the price of the underlying
security is less than or equal to $20, the Series Selecting Exchange
shall not list new option series with an exercise price more than
100% above or below the price of the underlying security. If the
price of the underlying security is greater than $20, the Series
Selecting Exchange shall not list new option series with an exercise
price more than 50% above or below the price of the underlying
security.
Subsection 3.(g)(i) of the OLPP indicates that an option series
price has to be reasonably close to the price of the underlying
security and must not exceed a maximum of 50% or 100%, depending on
the price, from the underlying. The Exchange's proposal related to
non-index options, while conforming to the current structure of the
Exchange's STO rules, is similar in practical effect to the noted
OLPP subsection.
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The STO Program, which was initiated in 2010,\5\ is codified in
Supplementary Material .02 to Rule 504 for non-index options including
equity, currency, and exchange traded fund (``ETF'') options.\6\ These
rules currently provide that after an option class has been approved
for listing and trading on the Exchange, the Exchange may open for
trading on any Thursday or Friday that is a business day series of
options on no more than thirty option classes that expire on each of
the next five consecutive Fridays that are business days.\7\ In
addition to the thirty-option class limitation, there is also a
limitation that no more than twenty initial series for each expiration
date in those classes may be opened for trading; provided, however,
that the Exchange may open up to 10 additional series when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying security moves
substantially from the exercise price or prices of the series already
opened.\8\
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\5\ See Securities Exchange Act Release No. 62444 (July 2,
2010), 75 FR 39595 (July 9, 2010) (SR-ISE-2010-72) (notice of filing
and immediate effectiveness of proposed rule change to permanently
establish the STO Program on the Exchange).
\6\ The Exchange does not by this filing propose any changes to
Supplementary Material .01 to Rule 2009 related to the STO Program
for index options.
\7\ The Exchange increased the number of option issues that
could be opened pursuant to the STO Program in 2012. See Securities
Exchange Act Release No. 66432 (February 21, 2012), 77 FR 11614
(February 27, 2012) (SR-ISE-2012-08).
\8\ See Supplementary Material .02(c) and (d) to Rule 504.
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Furthermore, the strike price of each STO has to be fixed with
approximately the same number of strike prices being opened above and
below the value of the underlying security at about the time that the
STOs are initially opened for trading on the Exchange, and with strike
prices being within thirty percent (30%) above or below the closing
price of the underlying security from the preceding day. In terms of
the strike price intervals, the STO Program currently allows the
interval between strike prices on STOs to be (i) $0.50 or greater where
the strike price is less than $75, and $1 or greater where the strike
price is between $75 and $150 for all classes that participate in the
STO Program; or (ii) $0.50 for option classes that trade in one dollar
increments, i.e., in the Related non-STO,\9\ and are in the STO
Program. This proposal retains many of the fundamental limitations of
the STO Program while proposing specific changes as described below.
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\9\ Related non-STOs are non-STOs that have similar options with
longer expiration cycles (e.g., monthly Apple (AAPL) options would
be Related non-STOs to weekly AAPL options).
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The Proposal
First, the Exchange proposes to increase the number of STO classes
that may be opened after an option class has been approved for listing
and trading on the Exchange. Specifically, the Exchange proposes in
Supplementary Material .02(a) to Rule 504 that the Exchange may select
up to fifty currently listed option classes on which STO series may be
opened. The Exchange also proposes in Supplementary Material .02(c) to
Rule 504 that for each option class eligible for participation in the
STO Program, the Exchange may open up to thirty initial STO series for
each expiration date in that class. Currently ISE rules permit the
Exchange to list up to twenty initial series, and up to ten additional
series, for each option class that participates in the STO program.\10\
While the ISE may currently list thirty STO series total, the Exchange
is proposing to increase the number of initial series that it may list
in order to remain competitive with other exchanges. The Exchange will
continue to be limited to a total of thirty STO series, including both
initial and additional series, and is proposing amendments to
Supplementary Material .02(d) to Rule 504 to reflect the fact that the
Exchange may only open additional series if it has opened fewer than
thirty initial series. The Exchange believes that this proposed
moderate increase in the number of STO classes and initial STO series
is needed and advisable in light of the demonstrated acceptance and
popularity of the STO Program among market participants, as discussed
below.
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\10\ See Supplementary Material .02(c) and (d) to Rule 504.
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Second, the Exchange proposes changes to Supplementary Material
.02(c) and (d) to Rule 504 to indicate that any initial or additional
strike prices listed by the Exchange shall be reasonably close to the
price of the underlying equity security and within the following
parameters: (i) If the price of the underlying security is less than or
equal to $20, strike prices shall be not more than one hundred percent
(100%) above or below the price of the underlying security; and (ii) if
the price of the underlying security is greater than $20, strike prices
shall be not more than fifty percent (50%) above or below the price of
the underlying security.\11\ This proposal is in line with the process
for adding new series of options found in subsection 3.(g)(i) of the
OLPP, and harmonizes the STO Program internally by adopting consistent
parameters for opening STOs and listing additional strike prices. The
Exchange believes that this proposal is a reasonable and desirable
enhancement to the STO Program.
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\11\ The price of the underlying security will be calculated
commensurate with Rule 504A(b)(i) as amended.
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Third, the Exchange proposes additional changes to Supplementary
Material .02(d) to indicate that if the Exchange has opened less than
thirty STO series for an STO expiration date, the Exchange may also
open additional strike prices of STO series that are more than 50%
above or below the current price of the underlying security if the
price is greater than $20, provided that demonstrated customer interest
exists for such series,\12\ as expressed by institutional, corporate or
individual customers or their brokers. This is done to further conform
the additional strike price methodology to the proposed listing
parameters described above, while retaining demonstrated interest
language that may be useful in unforeseen circumstances. Furthermore,
Rule 504A(b)(i) currently states that if the price of the underlying
security is greater than $20, the Exchange shall not list new option
series with an exercise price more than 50% above or below the price of
the underlying security. Immediately before this language, the Exchange
proposes to also add a carve-out that states: ``Except as provided in
Supplementary Material .02(d) to Rule 504 . . .''
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\12\ Market Makers trading for their own account are not
considered when determining customer interest.
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Fourth, the Exchange proposes to simplify the delisting language in
Supplementary Material .02(d) to Rule 504, by removing the current
range methodology that states, in part, that the Exchange will delist
certain series ``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.'' \13\ In the event that the
[[Page 76365]]
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,
the Exchange will continue to delist any series with no open interest
in both the call and the put series having a: (i) Strike higher than
the highest price with open interest in the put and/or call series for
a given expiration week; and (ii) strike lower than the lowest strike
price with open interest in the put and/or the call series for a given
expiration week.\14\ New series added after delisting will not be
constrained by the prior range methodology. The Exchange believes that,
like its other proposals, the delisting proposal will add clarity and
certainty to the STO process on the Exchange.
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\13\ Currently, the delisting language states: ``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, the Exchange will delist any 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. 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 and all existing series have open interest, the
Exchange may list additional series, in excess of the 30 allowed
under this Supplementary Material .02, that are between 10% and 30%
above or below the price of the underlying security.'' Supplementary
Material .02(d) to Rule 504. See Securities Exchange Act Release No.
68318 (November 29, 2012), 77 FR 72426 (December 5, 2012) (SR-ISE-
2012-90) (notice of filing and immediate effectiveness of proposed
rule change to delist series and open up to five consecutive weekly
expirations of STOs).
\14\ The Exchange notes that the delisting language in
Supplementary Material .02(d) to Rule 504 incorrectly refers to
expiration months rather than weeks. With this filing the Exchange
also proposes to clarify that the exchange will delist series for
given expiration weeks in accordance with the criteria discussed in
this rule.
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Fifth, the Exchange proposes to add $2.50 strike price intervals to
the STO Program. Specifically, the Exchange proposes in Supplementary
Material .12 to Rule 504 to indicate that the interval between strike
prices on STOs may be $2.50 or greater where the strike price is above
$150. This proposed change complements the current STO strike price
intervals of $0.50 or greater where the strike price is less than $75
(or for STO classes that trade in one dollar increments in the Related
non-STO), and $1 or greater where the strike price is between $75 and
$150. The proposed $2.50 strike price interval addresses the issue that
above a $150 strike price STO strike price intervals must generally be
an exceedingly wide $5 or greater.\15\
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\15\ See, e.g., Rule 504(d).
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The principal reason for the proposed expansion is market demand
for additional STO classes and series and a desire to make the STO
Program more effective. There is continuing strong customer demand for
having the ability to execute hedging and trading strategies via STOs,
particularly in the current fast and volatile multi-faceted trading and
investing environment that extends across numerous markets and
platforms,\16\ and includes market moving events such as significant
market volatility, corporate events, or large market, sector, or
individual issue price swings. The Exchange has been requested by
traders and other market participants to expand the STO Program to
allow additional STO offerings and increased efficiency.
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\16\ These include, without limitation, options, equities,
futures, derivatives, indexes, ETFs, exchange traded notes,
currencies, and over the counter instruments.
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In order that the Exchange not exceed the current thirty option
class and twenty initial option series restriction, the Exchange has on
occasion had to turn away STO customers (traders and investors) because
it could not list, or had to delist, STOs or could not open adequate
STO series because of restrictions in the STO Program. This has
negatively impacted investors and traders, particularly retail
investors, who have continued to request that the Exchange add, or not
remove, STO classes, or have requested that the Exchange expand the STO
Program so that additional STO classes and series could be opened that
would allow the market participants to execute trading and hedging
strategies. There are, as discussed, substantial benefits to market
participants having the ability to trade eligible option classes within
the STO Program. Furthermore, the Exchange supports the objective of
responding to customer need to enhance successful programs to make them
more efficient for hedging and trading purposes. The Exchange notes
that the STO Program has been well-received by market participants, in
particular by retail investors. The Exchange believes that weekly
expiration options will continue to grow in importance for all market
participants, including institutional and retail investors.\17\ The
proposed revisions to the STO Program will permit the Exchange to meet
customer demand for weekly expiration options by providing a reasonable
expansion to the program, and will further allow the Exchange to
harmonize STO Program rules with the OLPP as well as internally.
---------------------------------------------------------------------------
\17\ The current STO Program, which is similar across all
options markets that have weeklies programs, is in its current
formulation one of the more challenging industry-wide listings
program to administer. Recognizing the importance of the Program,
the Exchange is seeking to improve the Program for non-index STOs by
making it more uniform and logical.
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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 (``OPRA'') have the necessary systems
capacity to handle any potential additional traffic associated with
this current amendment to the STO Program. The Exchange believes that
its members will not have a capacity issue as a result of this
proposal. The Exchange represents that it will monitor the trading
volume associated with the additional STO classes and series listed as
a result of this proposal and the effect (if any) of these additional
STO classes and series on market fragmentation and on the capacity of
the Exchange's automated systems.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \18\ in general, and furthers the objectives of Section
6(b)(5) of the Act \19\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. Expanding the classes and additional series that can be
opened in the STO Program, simplifying the delisting process, and
allowing $2.50 strike price intervals will result in a continuing
benefit to investors by giving them more flexibility to closely tailor
their investment and hedging decisions in greater number of securities.
In addition, correcting the delisting language, which currently refers
to ``expiration months'' instead of weeks will clarify the Exchange's
rules and reduce investor confusion.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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The STO Program has been well-received by market participants, and
in particular by retail investors, and has seen increasing trading
volume. The Exchange believes that the current proposed revisions to
the STO Program will permit the Exchange to meet customer demand for
weekly expiration options by providing a reasonable expansion to the
program, and will further allow the Exchange to harmonize STO Program
rules with the OLPP as well as internally to the benefit of investors,
market participants, and the marketplace.
With regard to the impact of this proposal on system capacity, the
Exchange believes that it and OPRA have the necessary systems capacity
to handle any potential additional traffic associated with this current
amendment
[[Page 76366]]
to the STO Program. The Exchange believes that its members will not
have a capacity issue as a result of this proposal. As explained above,
this proposal will afford significant benefits to market participants,
and the market in general, in terms of significantly greater
flexibility and increases in efficient trading and hedging options. It
will also allow the Exchange to compete on equal footing with STO
Programs adopted by other options exchanges, and in particular PHLX,
which has recently been granted approval to adopt substantially similar
rules to those proposed here.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
Exchange believes the proposal is pro-competitive. The proposed rule
change is a competitive response to a recently approved filing by the
PHLX,\20\ which the Exchange believes is necessary to permit fair
competition among the options exchanges with respect to STO Programs.
The Exchange believes that the proposed rule change will result in
additional investment options and opportunities to achieve the
investment objectives of market participants seeking efficient trading
and hedging vehicles, to the benefit of investors, market participants,
and the marketplace in general.
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\20\ See supra note 3.
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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 proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6)
thereunder.\22\
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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 asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange stated that it would be at a competitive
disadvantage if it were not allowed to adopt the proposed rule changes
contemporaneously with those recently approved for PHLX. The Exchange
also stated that the proposal will promote fair competition among
exchanges by allowing the Exchange to offer a more efficient STO
Program that is harmonized internally and externally with the OLPP, and
to meet customer demand for a greater number of STO classes and strike
price intervals, in the same manner as other exchanges. For these
reasons, the Commission believes that the proposed rule change presents
no novel issues, and waiver will allow the Exchange to remain
competitive with other exchanges. Therefore, the Commission designates
the proposed rule change to be operative upon filing.\23\
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\23\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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. 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-2013-69 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-2013-69. 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-2013-69 and should be
submitted on or before January 7, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29890 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P
