Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price Intervals for SPY and DIA Options, 53813-53816 [2014-21529]

Download as PDF Federal Register / Vol. 79, No. 175 / Wednesday, September 10, 2014 / Notices With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and OPRA have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. 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 that the proposed rule change will result in additional investment options and opportunities to achieve the investment and trading objectives of market participants seeking efficient trading and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Specifically, the Exchange believes that SPY and DIA option investors and traders will significantly benefit from the availability of finer strike price intervals above a 200 price point. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action tkelley on DSK3SPTVN1PROD with NOTICES 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 14 and Rule 19b–4(f)(6) thereunder.15 options markets have filed similar proposals to modify the strike price (intervals) regime for specific options. See, e.g., Securities Exchange Act Release No. 72482 (June 26, 2014), 79 FR 37825 (July 2, 2014) (SR–CBOE–2014–051) (notice of filing and immediate effectiveness modifying the strike price regime for Mini-S&P 500 Index (XSP) options). 14 15 U.S.C. 78s(b)(3)(A). 15 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 VerDate Mar<15>2010 19:04 Sep 09, 2014 Jkt 232001 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 waiver of this requirement would allow the Exchange to implement the proposed rule change as soon as possible and thereby harmonize its rules regarding SPY and DIA options intervals with the rules of other markets. The Exchange also stated that waiver would allow market participants to more effectively tailor their investing, trading, and hedging decisions in respect of SPY and DIA options by using finer $1 increments. For these reasons, the Commission believes that the proposed rule change presents no novel issues and that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest; and will allow the Exchange to remain competitive with other exchanges. Therefore, the Commission designates the proposed rule change to be operative upon filing.16 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: 53813 Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2014–091. 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 (http://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– NASDAQ–2014–091 and should be submitted on or before October 2, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–21527 Filed 9–9–14; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2014–091 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange of filing of the proposed rule change, or such shorter time as designated by the Commission. 16 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 00130 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72998; File No. SR–ISE– 2014–42] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price Intervals for SPY and DIA Options September 4, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the 17 17 1 15 E:\FR\FM\10SEN1.SGM CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 10SEN1 53814 Federal Register / Vol. 79, No. 175 / Wednesday, September 10, 2014 / Notices ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on September 3, 2014, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to amend its rules to allow $1 or greater strike price intervals for options on certain Exchange-Traded Fund Shares approved for options trading pursuant to Rule 502(h). The text of the proposed rule change is available on the Exchange’s Web site (http://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 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 aspects of such statements. tkelley on DSK3SPTVN1PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend ISE rules to allow $1 or greater strike price intervals for options listed on the SPDR S&P 500 ETF (‘‘SPY’’) and the SPDR Dow Jones Industrial Average ETF (‘‘DIA’’), consistent with recent changes proposed by NASDAQ OMX PHLX (‘‘Phlx’’) and approved by the Commission.4 Options on SPY and DIA have historically traded on the ISE with $1 intervals up to a 2 15 U.S.C. 78a. CFR 240.19b–4. 4 See Securities Exchange Act Release No.[sic] 72664 (July 24, 2014), 79 FR 44231 (July 30, 2014) (SR–Phlx–2014–46) (Notice); 72949 (August 29, 2014) (SR–Phlx–2014–46) (Approval). 3 17 VerDate Mar<15>2010 19:04 Sep 09, 2014 Jkt 232001 strike price of $200 pursuant to Rule 504(h), which permits options on Exchange-Traded Fund Shares to be traded in intervals that were established on other exchanges prior to listing on the ISE.5 Above $200 these options classes trade with significantly wider $5 strike price intervals. As the underlying securities have been steadily approaching, and in the case of SPY has recently surpassed, the $200 mark, and in response to increased investor and member demand to list additional strikes in these heavily traded options classes, the Exchange now proposes to list options on SPY and DIA in dollar intervals regardless of the strike price. Specifically, the Exchange proposes to add Supplementary Material .14 to state that notwithstanding any other provision regarding the interval of strike prices of series of options on ExchangeTraded Fund Shares in Rule 504, the interval of strike prices on SPY and DIA options will be $1 or greater. By having smaller strike intervals in SPY and DIA, investors will have more efficient hedging and trading opportunities. The proposed $1 intervals above a $200 strike price will result in having at-themoney series based on the underlying SPY or DIA moving less than 1%, which falls in line with slower price movements of a broad-based index. Furthermore, the proposed $1 intervals will allow members to continue to employ current option trading and hedging strategies in SPY and DIA. Considering that $1 intervals already exist below the $200 price point, and that SPY and DIA are both trading close to or at the $200 level, continuing to maintain the artificial $200 ceiling (above which intervals increase 500% to $5), will have a negative effect on investing, trading and hedging opportunities and volume. The continued demand for highly liquid options such as SPY and DIA, and the investing, trading, and hedging opportunities they represent, far outweighs any potential negative impact of allowing SPY and DIA options to trade in more finely tailored intervals above a $200 price point. With the proposal, for example, investors and traders would be able to roll open positions from a lower strike to a higher strike in conjunction with the price movement of the underlying. Under the current rule, where the next higher available series would be $5 away above a $200 strike price, the ability to roll such positions is effectively negated. Thus, to move a 5 See Securities Exchange Act Release No. 44037 (March 2, 2001), 66 FR 14613 (March 13, 2001) (SR– ISE–01–08). PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 position from a $200 strike to a $205 strike under the current rule, an investor would need for the underlying product to move 2.5%, and would not be able to execute a roll up until such a large movement occurred. With the proposed rule change, however, the investor would be in a significantly safer position of being able to roll his open options position from a $200 to a $201 strike price, which is only a 0.5% move for the underlying. By allowing SPY and DIA options in $1 intervals over a $200 strike price, the proposal will moderately augment the total number of options series available on the Exchange. However, 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 proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. The Exchange also represents that it does not believe this expansion will cause fragmentation of liquidity. The Exchange’s beliefs are supported by the limited nature of the proposal, which applies to two symbols rather than to all Exchange-Traded Fund Shares. Moreover, while under current rules there is ample liquidity, such liquidity is constricted above $200. This proposal enhances liquidity by offering more rational strike price intervals as the stock market appreciates in value. The Exchange believes that the proposed rule change, like the other strike price programs currently offered by the Exchange, will benefit investors by giving them more flexibility to more closely tailor their investment and hedging decisions. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Securities Exchange Act of 1934 (the ‘‘Act’’),6 in general, and with Section 6(b)(5) of the Act,7 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in 6 15 7 15 E:\FR\FM\10SEN1.SGM U.S.C. 78f. U.S.C. 78f(b)(5). 10SEN1 tkelley on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 175 / Wednesday, September 10, 2014 / Notices general, to protect investors and the public interest. In particular, the proposed rule change would add consistency to the SPY and DIA options markets and allow investors to use SPY and DIA options more easily and effectively. Moreover, the proposed rule change would allow investors and traders, whether big or small, to better trade and hedge positions in SPY and DIA options where the strike price is greater than $200, and ensure that SPY and DIA options investors and traders are not at a disadvantage simply because of the strike price. The Exchange also believes the proposed rule change is consistent with Section 6(b)(1) of the Act,8 which provides that the Exchange be organized and have the capacity to be able to carry out the purposes of the Act and the rules and regulations thereunder, and the rules of the Exchange. The rule change proposal allows the Exchange to respond to customer demand to allow SPY and DIA options to trade in $1 intervals above a $200 strike price. The Exchange does not believe that the proposed rule would create additional capacity issues or affect market functionality. As noted above, options on ExchangeTraded Fund Shares generally trade in wider $5 intervals above a $200 strike price, whereas options at or below a $200 strike price trade in $1 intervals. This creates a situation where contracts on the same option class, namely SPY and DIA options, effectively may not be able to execute certain strategies, such as rolling to a higher strike price, simply because of the arbitrary $200 strike price above which options intervals increase by 500%. This proposal remedies the situation by establishing an exception to the current strike price interval regime, for SPY and DIA options only, to allow such options to trade in $1 or greater intervals at all strike prices. The Exchange believes that the proposed rule change, like other strike price programs currently offered by the Exchange, will benefit investors by giving them increased flexibility to more closely tailor their investment and hedging decisions. Moreover, the proposed rule change is consistent with changes proposed by Phlx and approved by the Commission.9 With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and OPRA have the necessary systems capacity to handle any potential additional traffic 8 15 U.S.C. 78f(b)(5). supra note 4. 9 See VerDate Mar<15>2010 19:04 Sep 09, 2014 Jkt 232001 associated with this proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. 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 proposed rule change is a competitive response to a recent Phlx filing approved by the Commission.10 The Exchange believes that the proposed rule change is essential to ensure fair competition between markets, and will result in additional investment options and opportunities to achieve the investment and trading 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 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 11 and Rule 19b–4(f)(6) thereunder.12 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 waiver 10 Id. 11 15 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. The Commission has waived the pre-filing requirement in this case. 12 17 PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 53815 of this requirement will ensure fair competition among options exchanges by allowing the Exchange to establish smaller strike price intervals in these highly traded products at the same time as at least one other options exchange. For these reasons, the Commission believes that the proposed rule change presents no novel issues and that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest; and will allow the Exchange to remain competitive with other exchanges. Therefore, the Commission designates the proposed rule change to be operative upon filing.13 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2014–42 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2014–42. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent 13 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). E:\FR\FM\10SEN1.SGM 10SEN1 53816 Federal Register / Vol. 79, No. 175 / Wednesday, September 10, 2014 / Notices 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– 2014–42 and should be submitted on or before October 1, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–21529 Filed 9–9–14; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice 8864] Bureau of Political-Military Affairs, Directorate of Defense Trade Controls: Notifications to the Congress of Proposed Commercial Export Licenses Department of State. Notice. AGENCY: ACTION: Notice is hereby given that the Department of State has forwarded the attached Notifications of Proposed Export Licenses to the Congress on the dates indicated on the attachments pursuant to sections 36(c) and 36(d), and in compliance with section 36(f), of the Arms Export Control Act. DATES: Effective Date: As shown on each of the 38 letters. FOR FURTHER INFORMATION CONTACT: Ms. Lisa V. Aguirre, Directorate of Defense Trade Controls, Department of State, telephone (202) 663–2830; email DDTCResponseTeam@state.gov. ATTN: Congressional Notification of Licenses. SUPPLEMENTARY INFORMATION: Section 36(f) of the Arms Export Control Act (22 tkelley on DSK3SPTVN1PROD with NOTICES SUMMARY: 14 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 19:04 Sep 09, 2014 Jkt 232001 U.S.C. 2778) mandates that notifications to the Congress pursuant to sections 36(c) and 36(d) must be published in the Federal Register when they are transmitted to Congress or as soon thereafter as practicable. Following are such notifications to the Congress: February 21, 2014 Honorable John A. Boehner, Speaker of the House of Representatives. Dear Mr. Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed amendment to a manufacturing license for export of defense articles, including technical data, and defense services in the amount of $100,000,000 or more. The transaction contained in the attached certification authorizes the export of defense articles, including technical data, and defense services to support the manufacture, assembly, inspection, and delivery of TF33, J52, J57, and F100 engine parts and components for end use by Israel. The United States government is prepared to license the export of these items having taken into account political, military, economic, human rights, and arms control considerations. More detailed information is contained in the formal certification which, though unclassified, contains business information submitted to the Department of State by the applicant, publication of which could cause competitive harm to the United States firm concerned. Sincerely, Julia Frifield, Assistant Secretary, Legislative Affairs. Enclosure: Transmittal No. DDTC 13– 171. February 24, 2014 Honorable John A. Boehner, Speaker of the House of Representatives. Dear Mr. Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed license for the export of firearm parts and components controlled under Category I of the United States Munitions List in the amount of $1,000,000 or more. The transaction contained in the attached certification involves the export of 7.62mm M60E4 machine guns with primary and spare barrels and accessories for use by the Turkish National Police as part of their NATO modernization program. The United States government is prepared to license the export of these items having taken into account PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 political, military, economic, human rights, and arms control considerations. More detailed information is contained in the formal certification which, though unclassified, contains business information submitted to the Department of State by the applicant, publication of which could cause competitive harm to the United States firm concerned. Sincerely, Julia Frifield, Assistant Secretary, Legislative Affairs. Enclosure: Transmittal No. DDTC 14– 003. February 28, 2014 Honorable John A. Boehner, Speaker of the House of Representatives. Dear Mr. Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed license for the export of defense articles, to include technical data, and defense services in the amount of $50,000,000 or more. The transaction contained in the attached certification involves the transfer of defense articles, to include technical data, and defense services to support the integration of the Turkmenistan National Satellite System of Communications with the Falcon 9 launch vehicle. The United States government is prepared to license the export of these items having taken into account political, military, economic, human rights, and arms control considerations. More detailed information is contained in the formal certification which, though unclassified, contains business information submitted to the Department of State by the applicant, publication of which could cause competitive harm to the United States firm concerned. Sincerely, Julia Frifield, Assistant Secretary, Legislative Affairs. Enclosure: Transmittal No. DDTC 13– 178. March 7, 2014 Honorable John A. Boehner, Speaker of the House of Representatives. Dear Mr. Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed license for the export of defense articles, including technical data, and defense services in the amount of $50,000,000 or more. The transaction contained in the attached certification involves the export of defense articles, including technical data, and defense services to Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, E:\FR\FM\10SEN1.SGM 10SEN1

Agencies

[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Notices]
[Pages 53813-53816]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72998; File No. SR-ISE-2014-42]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price 
Intervals for SPY and DIA Options

September 4, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the

[[Page 53814]]

``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, 
on September 3, 2014, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') 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 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend its rules to allow $1 or greater strike 
price intervals for options on certain Exchange-Traded Fund Shares 
approved for options trading pursuant to Rule 502(h). The text of the 
proposed rule change is available on the Exchange's Web site (http://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 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 aspects of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to amend ISE rules to 
allow $1 or greater strike price intervals for options listed on the 
SPDR S&P 500 ETF (``SPY'') and the SPDR Dow Jones Industrial Average 
ETF (``DIA''), consistent with recent changes proposed by NASDAQ OMX 
PHLX (``Phlx'') and approved by the Commission.\4\ Options on SPY and 
DIA have historically traded on the ISE with $1 intervals up to a 
strike price of $200 pursuant to Rule 504(h), which permits options on 
Exchange-Traded Fund Shares to be traded in intervals that were 
established on other exchanges prior to listing on the ISE.\5\ Above 
$200 these options classes trade with significantly wider $5 strike 
price intervals. As the underlying securities have been steadily 
approaching, and in the case of SPY has recently surpassed, the $200 
mark, and in response to increased investor and member demand to list 
additional strikes in these heavily traded options classes, the 
Exchange now proposes to list options on SPY and DIA in dollar 
intervals regardless of the strike price.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No.[sic] 72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (SR-Phlx-2014-46) (Notice); 72949 
(August 29, 2014) (SR-Phlx-2014-46) (Approval).
    \5\ See Securities Exchange Act Release No. 44037 (March 2, 
2001), 66 FR 14613 (March 13, 2001) (SR-ISE-01-08).
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to add Supplementary Material 
.14 to state that notwithstanding any other provision regarding the 
interval of strike prices of series of options on Exchange-Traded Fund 
Shares in Rule 504, the interval of strike prices on SPY and DIA 
options will be $1 or greater. By having smaller strike intervals in 
SPY and DIA, investors will have more efficient hedging and trading 
opportunities. The proposed $1 intervals above a $200 strike price will 
result in having at-the-money series based on the underlying SPY or DIA 
moving less than 1%, which falls in line with slower price movements of 
a broad-based index. Furthermore, the proposed $1 intervals will allow 
members to continue to employ current option trading and hedging 
strategies in SPY and DIA. Considering that $1 intervals already exist 
below the $200 price point, and that SPY and DIA are both trading close 
to or at the $200 level, continuing to maintain the artificial $200 
ceiling (above which intervals increase 500% to $5), will have a 
negative effect on investing, trading and hedging opportunities and 
volume. The continued demand for highly liquid options such as SPY and 
DIA, and the investing, trading, and hedging opportunities they 
represent, far outweighs any potential negative impact of allowing SPY 
and DIA options to trade in more finely tailored intervals above a $200 
price point.
    With the proposal, for example, investors and traders would be able 
to roll open positions from a lower strike to a higher strike in 
conjunction with the price movement of the underlying. Under the 
current rule, where the next higher available series would be $5 away 
above a $200 strike price, the ability to roll such positions is 
effectively negated. Thus, to move a position from a $200 strike to a 
$205 strike under the current rule, an investor would need for the 
underlying product to move 2.5%, and would not be able to execute a 
roll up until such a large movement occurred. With the proposed rule 
change, however, the investor would be in a significantly safer 
position of being able to roll his open options position from a $200 to 
a $201 strike price, which is only a 0.5% move for the underlying.
    By allowing SPY and DIA options in $1 intervals over a $200 strike 
price, the proposal will moderately augment the total number of options 
series available on the Exchange. However, 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 proposed rule change. 
The Exchange believes that its members will not have a capacity issue 
as a result of this proposal. The Exchange also represents that it does 
not believe this expansion will cause fragmentation of liquidity. The 
Exchange's beliefs are supported by the limited nature of the proposal, 
which applies to two symbols rather than to all Exchange-Traded Fund 
Shares. Moreover, while under current rules there is ample liquidity, 
such liquidity is constricted above $200. This proposal enhances 
liquidity by offering more rational strike price intervals as the stock 
market appreciates in value.
    The Exchange believes that the proposed rule change, like the other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them more flexibility to more closely tailor their 
investment and hedging decisions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Securities Exchange Act of 1934 
(the ``Act''),\6\ in general, and with Section 6(b)(5) of the Act,\7\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in

[[Page 53815]]

general, to protect investors and the public interest.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change would add consistency to 
the SPY and DIA options markets and allow investors to use SPY and DIA 
options more easily and effectively. Moreover, the proposed rule change 
would allow investors and traders, whether big or small, to better 
trade and hedge positions in SPY and DIA options where the strike price 
is greater than $200, and ensure that SPY and DIA options investors and 
traders are not at a disadvantage simply because of the strike price.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act,\8\ which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and the rules and regulations thereunder, and the rules of the 
Exchange. The rule change proposal allows the Exchange to respond to 
customer demand to allow SPY and DIA options to trade in $1 intervals 
above a $200 strike price. The Exchange does not believe that the 
proposed rule would create additional capacity issues or affect market 
functionality.
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    \8\ 15 U.S.C. 78f(b)(5).
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    As noted above, options on Exchange-Traded Fund Shares generally 
trade in wider $5 intervals above a $200 strike price, whereas options 
at or below a $200 strike price trade in $1 intervals. This creates a 
situation where contracts on the same option class, namely SPY and DIA 
options, effectively may not be able to execute certain strategies, 
such as rolling to a higher strike price, simply because of the 
arbitrary $200 strike price above which options intervals increase by 
500%. This proposal remedies the situation by establishing an exception 
to the current strike price interval regime, for SPY and DIA options 
only, to allow such options to trade in $1 or greater intervals at all 
strike prices.
    The Exchange believes that the proposed rule change, like other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them increased flexibility to more closely tailor 
their investment and hedging decisions. Moreover, the proposed rule 
change is consistent with changes proposed by Phlx and approved by the 
Commission.\9\
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    \9\ See supra note 4.
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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 OPRA have 
the necessary systems capacity to handle any potential additional 
traffic associated with this proposed rule change. The Exchange 
believes that its members will not have a capacity issue as a result of 
this proposal.

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 
proposed rule change is a competitive response to a recent Phlx filing 
approved by the Commission.\10\ The Exchange believes that the proposed 
rule change is essential to ensure fair competition between markets, 
and will result in additional investment options and opportunities to 
achieve the investment and trading 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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    \10\ Id.
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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 \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). 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 
Commission has waived the pre-filing requirement in this case.
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    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 waiver of this requirement will ensure 
fair competition among options exchanges by allowing the Exchange to 
establish smaller strike price intervals in these highly traded 
products at the same time as at least one other options exchange. For 
these reasons, the Commission believes that the proposed rule change 
presents no novel issues and that waiver of the 30-day operative delay 
is consistent with the protection of investors and the public interest; 
and will allow the Exchange to remain competitive with other exchanges. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\13\
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    \13\ 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).
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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. 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2014-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2014-42. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent

[[Page 53816]]

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-2014-42 and should be submitted on or before October 
1, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21529 Filed 9-9-14; 8:45 am]
BILLING CODE 8011-01-P