[Federal Register: July 12, 2007 (Volume 72, Number 133)]
[Notices]
[Page 38109-38110]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jy07-92]
[[Page 38109]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56020; File No. SR-ISE-2007-56]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Relating to the Extension of a Pilot Program for Position and
Exercise Limits for Options on the iShares[supreg] Russell 2000[supreg]
Index Fund
July 6, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 29, 2007, the International Securities Exchange, LLC (``ISE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by ISE. The
Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of the
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend an existing pilot program that
increases the position and exercise limits for options on the
iShares[supreg] Russell 2000[supreg] Index Fund (``IWM'') traded on the
Exchange (``IWM Pilot Program''). The text of the proposed rule change
is available at ISE, the Commission's Public Reference Room, and http://www.iseoptions.com
.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, ISE 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. ISE has prepared summaries, set forth in Sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to extend the IWM Pilot
Program for an additional six-month period, through January 18,
2008,\5\ and to make non-substantive changes to simplify the rule text
describing the IWM Pilot Program. The IWM Pilot Program increases the
position and exercise limits for IWM options traded on the Exchange.\6\
The Exchange is not proposing any other changes to the IWM Pilot
Program. The Exchange represents that it has not encountered any
problems or difficulties relating to the IWM Pilot Program since its
inception.
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\5\ January 18, 2008 is the third Friday of the month (or
expiration Friday), which is the day on which January 2008 IWM
options will expire.
\6\ Pursuant to ISE Rule 414, the exercise limit established
under Rule 414 for IWM options shall be equivalent to the position
limit prescribed for IWM options in Supplementary Material .01 to
Rule 412. The increased exercise limits would only be in effect
during the IWM Pilot Period.
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The proposal that established the IWM Pilot Program was designated
by the Commission to be effective and operative upon filing and
provided that it would run from January 22, 2007 through July 22,
2007.\7\ In that filing, the Exchange explained that in June 2005, as a
result of a 2-for-1 stock split, the position limit for IWM options was
temporarily increased from 250,000 contracts (covering 25,000,000
shares) to 500,000 contracts (covering 50,000,000 shares). At the time
of the split, the furthest IWM option expiration date was January 2007.
Therefore, the temporary increase of the IWM position limit would have
reverted to the pre-split level (as provided for in connection with the
Rule 412 Pilot Program) of 250,000 contracts after expiration in
January 2007, or on January 22, 2007.
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\7\ See Securities Exchange Act Release No. 55175 (January 25,
2007), 72 FR 4753 (February 1, 2007) (SR-ISE-2007-07).
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The Exchange described in the proposal that established the IWM
Pilot Program that a position limit of 250,000 contracts would prevent
traders from adequately hedging their options positions, thereby
impairing their ability to provide liquidity. Specifically, the
Exchange stated that options on IWM are 1/10th the size of options on
the Russell 2000[supreg] Index (``RUT''), which has a position limit of
50,000 contracts.\8\ Therefore, traders who trade IWM options to hedge
positions in RUT options are likely to find a position limit of 250,000
contracts in IWM options too restrictive and insufficient to properly
hedge. For example, if a trader held 50,000 RUT options and wanted to
hedge that position with IWM options, the trader would, at a minimum,
need 500,000 IWM options to properly hedge the position. Additionally,
the Exchange notes that index options on 1/10th the RUT have a position
limit of 500,000 contracts, which is consistent with and corresponds to
the increased position limits permitted under the IWM Pilot Program.\9\
Therefore, the Exchange continues to believe that a position limit of
250,000 contracts is too low and may adversely affect market
participants' ability to provide liquidity in this product.
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\8\ See ISE Rule 2004(a).
\9\ Id.
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As the Exchange also described in the proposal that established the
IWM Pilot Program, IWM options have grown to become one of the largest
options contracts in terms of trading volume. For example, through May
29, 2007, year-to-date industry volume in IWM options has averaged over
460,000 contracts per day, for a total of over 61 million contracts.
Further, ISE alone has averaged more than 125,000 IWM option contracts
per day during that time, for a total of almost 13 million contracts.
In contrast, QQQQ options, which have a position limit of 900,000
contracts, have averaged almost 575,000 contracts per day.
The Exchange believes that maintaining the increased position and
exercise limits for IWM options will lead to a more liquid and more
competitive market environment for IWM options that will benefit
customers interested in trading this product. As a result, the Exchange
requests that the Commission extend the pilot for an additional six-
month period, through January 18, 2008.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of Section 6(b)(5) of the Act,\10\ 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.
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\10\ 15 U.S.C. 78f(b)(5).
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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.
[[Page 38110]]
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 no 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 forgoing rule change does not: (1) Significantly affect
the protection of investors or the public interest; (2) impose any
significant burden on competition; and (3) become operative for 30 days
after the date of this filing, or such shorter time as the Commission
may designate, it has become effective pursuant to Section 19(b)(3)(A)
of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\13\
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative delay. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because such waiver
would permit position and exercise limits for options on IWM to
continue at 500,000 option contracts for a six-month pilot period. For
this reason, the Commission designates the proposed rule change to be
operative upon filing with the Commission.\15\
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\13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Exchange has satisfied the five-day pre-filing
notice requirement.
\14\ Id.
\15\ For the purposes only of waiving the 30-day operative
delay, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors or otherwise in
furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-ISE-2007-56 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-2007-56. 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 the filing also will be available for
inspection and copying at the principal office of 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-2007-56 and should be
submitted on or before August 2, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13502 Filed 7-11-07; 8:45 am]
BILLING CODE 8010-01-P