[Federal Register: October 16, 2007 (Volume 72, Number 199)]
[Notices]
[Page 58702-58704]
[DOCID:fr16oc07-123]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56647; File No. SR-ISE-2007-80]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change and Amendment No. 1 Thereto Relating to Options
Listing Criteria for Underlying Securities

October 11, 2007.
    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 September 4, 2007, 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, II, and III below, which items have been
substantially prepared by the Exchange. On October 5, 2007, the
Exchange filed Amendment No. 1 to the proposed rule change. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, 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 ISE proposes to amend ISE Rule 502(b)(5) and add subparagraph
(6) to ISE Rule 502(b) for the purpose of permitting the Exchange to
list and trade individual equity options that are otherwise ineligible
for listing and trading if such option is listed and traded on another
national securities exchange. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
http://www.ise.com/webform/homeDefault.aspx.

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 III below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

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

1. Purpose
    The purpose of this proposed rule change is to revise the
Exchange's options listing standards so that, as long as the options
maintenance listing standards set forth in ISE Rule 503 are met and the
option is listed and traded on another national securities exchange,
the ISE would be able to list and trade the option. ISE Rule 502 sets
forth the requirements that an underlying equity security must meet
before the Exchange may initially list options on that security. The
ISE notes that these requirements are uniform among the options
exchanges.
    ISE Rule 502(b)(5) relates to the minimum market price that an
underlying security must trade at for an option to be listed on it and
applies to the listing of individual equity options on both ``covered''
and ``uncovered'' underlying securities.\3\ In the case of an
underlying security that is a ``covered security,'' as defined under
section 18(b)(1)(A) of the 1933 Act, the closing market price of the
underlying security must be at least $3 per share for the five (5)
previous consecutive business days prior to the date on which the ISE
submits an option class certification to The Options Clearing
Corporation. In connection with underlying securities deemed to be
``uncovered,'' Exchange rules require that such underlying security be
at least $7.50 for the majority of business days during the three (3)
calendar months preceding the date of selection for such listing. In
addition, an

alternative listing procedure permits the listing of such options so
long as: (1) The underlying security meets the guidelines for continued
approval contained in ISE Rule 503; (2) options on such underlying
security are traded on at least one other registered national
securities exchange; and (3) the average daily trading volume
(``ADTV'') for such options over the last three calendar months
preceding the date of selection has been at least 5,000 contracts.
Subparagraphs (1) through (4) of ISE Rule 502(b) further sets forth
minimum requirements for an underlying security, such as shares
outstanding, number of holders, and trading volume.
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    \3\ Section 18(b)(1)(A) of the Securities Act of 1933 (``1933
Act'') provides that, ``[a] security is a covered security if such
security is listed, or authorized for listing, on the New York Stock
Exchange or the American Stock Exchange, or listed, or authorized
for listing, on the National Market System of the Nasdaq Stock
Market (or any successor to such entities).'' See 15 U.S.C.
77r(b)(1)(A).
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    When the ISE first commenced operations, if an option failed to
meet the original listing requirements, the ISE could not list that
option, even if the option met the continued listing requirements of
one or more other exchanges and traded on those exchanges. In order to
somewhat remedy this situation, in 2001, the Exchange proposed, and the
Commission approved, amendments to the ISE's original listing criteria,
which permitted the ISE to list options that (i) met the ISE's
continued listing criteria, (ii) were traded on at least one other
exchange, and (iii) had ADTV across all exchanges of at least 5,000
contracts.\4\ The Exchange notes that the 2001 Filing, while permitting
the ISE to list some of the more actively traded options, does not
permit the listing of less active options that are currently trading at
other options exchanges. The options exchange (or exchanges) that may
be fortunate enough to list an option that at first met the original
listing criteria, but subsequently fails to do so, is provided a
trading monopoly inconsistent with the multiple trading of options,
fostering competition, and the maintenance of a national market system.
Under this proposed rule change, an option may be multiply listed and
traded as long as one other options exchange is trading the particular
option and such underlying security of the option meets the Exchange's
continued listing requirements.
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    \4\ See Securities Exchange Act Release No. 45220 (December 31,
2001), 67 FR 760 (January 7, 2002) (order approving a proposed rule
change revising the original listing criteria for underlying
securities in ISE Rule 502) (the ``2001 Filing'').
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    The ISE notes that the requirements for listing additional series
of an existing listed option (i.e., continued listing guidelines) are
less stringent, largely because in total the Exchange's guidelines
assure that options will be listed and traded on securities of
companies that are financially sound and subject to adequate minimum
standards.
    The ISE believes that, although the continued listing requirements
are uniform among the options exchanges, the application of both the
original and continued listing standards in the current market
environment have had an anti-competitive effect. Specifically, the
Exchange notes that on several occasions it has been unable to list and
trade options classes that trade elsewhere because the underlying
security of such option did not at that time meet original listing
standards. However, the other options exchange(s) may continue to trade
such options (and list additional series) based on the lower
maintenance listing standards, while the ISE may not list any options
on such underlying security. The Exchange believes this clearly is
anti-competitive and inconsistent with the aims and goals of a national
market system in options.
    To address this situation, the Exchange proposes to add new ISE
Rule 502(b)(6) and amend the current listing requirement adopted by the
2001 Filing. Specifically, proposed ISE Rule 502(b)(6) provides that,
notwithstanding that a particular underlying security may not meet the
requirements set forth in ISE Rule 502(b)(1), (2), (4), and (5), the
Exchange nonetheless could list and trade an option on such underlying
security if (i) the underlying security meets continued listing
requirements under ISE Rule 503 and (ii) options on such underlying
security are listed and traded on at least one other registered
national securities exchange. ISE Rule 502(b)(5)(iii), which references
an alternative original listing requirement, would be deleted. In
connection with the proposed changes, the Exchange represents that the
procedures currently employed to determine whether a particular
underlying security meets the initial listing criteria will similarly
be applied to the continued listing criteria.
    The Exchange believes that this proposal is narrowly tailored to
address the circumstances where an options class is currently
ineligible for listing on the ISE, while at the same time such option
is trading on another options exchange(s). The Exchange notes that when
an underlying security meets the maintenance listing requirements, and
at least one other exchange lists and trades options on the underlying
security, the option is available to the investing public. Therefore,
the ISE notes that the current proposal will not introduce any
inappropriate additional listed options classes. The Exchange submits
that the adoption of the proposal is essential for competitive purposes
and to promote a free and open market for the benefit of investors.
2. Statutory Basis
    The basis under the Act for this proposed rule change is found in
section 6(b)(5), in that the proposed change will serve to remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in general, to protect investors and the
public interest.

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

    The proposed rule change does not impose any burden on competition.

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.

II. 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 E-mail to<EMAIL_ADDRESS>Please include

File No. SR-ISE-2007-80 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2007-80. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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 inspection and copying in the Commission's Public
Reference Room, 100 F Street, NE., Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of such
filing also will be available for inspection and copying at the
principal office of the ISE. 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-2007-80 and should be submitted on or before
November 7, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange,\5 \ and, in particular, with the requirements of section 6(b)
of the Act \6\ and the rules and regulations thereunder. The Commission
finds that the Exchange's proposal is consistent with section 6(b)(5)
of the Act,\7\ which requires that the rules of an exchange be designed
to prevent fraudulent and manipulative acts and practices, 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.
The proposal addresses circumstances where an equity option class is
ineligible for initial listing on the Exchange, even though it meets
the Exchange's continued listing requirements and is trading on another
options exchange. Therefore, the proposed rule change should help
promote competition among the exchanges that list and trade options.
The Commission notes, and the Exchange represents, that the procedures
currently employed to determine whether a particular underlying
security meets the initial equity option listing criteria will
similarly be applied by the Exchange when determining whether an
underlying security meets the its continued listing criteria.
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    \5\ In approving this rule, the Commission notes that it has
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    The Commission finds good cause, pursuant to Section 19(b)(2)(B) of
the Act,\8\ for approving the proposed rule change prior to the 30th
day after the date of publication of the notice of the filing thereof
in the Federal Register. The Commission notes that the proposed rule
change is substantially identical to the proposed rule change submitted
by the American Stock Exchange LLC,\9\ which was previously approved by
the Commission after notice and comment, and therefore does not raise
any new regulatory issues.
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    \8\ 15 U.S.C. 78s(b)(2)(B).
    \9\ See Securities Exchange Act Release No. 56598 (October 2,
2007) (SR-Amex-2007-48).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act
\10\ that the proposed rule change (SR-ISE-2007-80), as modified by
Amendment No. 1, is hereby approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-20461 Filed 10-15-07; 8:45 am]

BILLING CODE 8011-01-P