81 FR 60765 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand the Short Term Option Series Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 171 (September 2, 2016)

[Federal Register Volume 81, Number 171 (Friday, September 2, 2016)]
[Notices]
[Pages 60765-60767]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-21132]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78715; File No. SR-ISE-2016-18]


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

August 29, 2016.
    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 August 26, 2016, the International Securities Exchange, LLC 
(``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 expand the Short Term Option Series 
Program to allow Wednesday expirations for SPY options.
    The text of the proposed rule change is available on the Exchange's 
Web site at 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 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 Exchange proposes to amend ISE Rule 100 and 504 at 
Supplementary Material .02 to expand the Short Term Option Series 
Program to permit the listing and trading of options with Wednesday 
expirations. The Exchange also proposes to amend the definition of 
Short Term Options Series in Rule 100(47) to conform the rule text to 
include Thursday, which is currently included in the Short Terms 
Options Series Program at Rule 504 at Supplementary Material .02.
    Currently, under the Short Term Option Series Program, the Exchange 
may open for trading on any Thursday or Friday that is a business day 
series of options on that class that expire on each of the next five 
consecutive Fridays, provided that such Friday is not a Friday in which 
monthly options series or Quarterly Options Series expire (``Short Term 
Option Series''). The Exchange is now proposing to amend its rule to 
permit the listing of options expiring on Wednesdays. Specifically, the 
Exchange is proposing that it may open for trading on any Tuesday or 
Wednesday that is a business day, series of options on the SPDR S&P 500 
ETF Trust (SPY) to expire on any Wednesday of the month that is a 
business day and is not a Wednesday in which Quarterly Options Series 
expire (``Wednesday SPY Expirations'') \3\ The proposed Wednesday SPY 
Expiration series will be similar to the current Short Term Option 
Series, with certain exceptions, as explained in greater detail below. 
The Exchange notes that having Wednesday expirations is not a novel 
proposal. Specifically, BOX recently received approval to list 
Wednesday SPY expirations for SPY options.\4\
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    \3\ See ISE Rule 504 at Supplementary Material .02.
    \4\ See Securities Exchange Act Release No. 78668 (SR-BOX-2016-
28) (pending publication in the Federal Register).
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    In regards to Wednesday SPY Expirations, the Exchange is proposing 
to remove the current restriction preventing the Exchange from listing 
Short Term Option Series that expire in the same week in which monthly 
option series in the same class expire. Specifically, the Exchange will 
be allowed to list Wednesday SPY Expirations in the same week in which 
monthly option series in SPY expire. The current restriction to 
prohibit the expiration of monthly and Short Term Option Series from 
expiring on the same trading day is reasonable to avoid investor 
confusion. This confusion will not apply with Wednesday SPY Expirations 
and standard monthly options because they will not expire on the same 
trading day, as standard monthly options do not expire on Wednesdays. 
Additionally, it would lead to investor confusion if Wednesday SPY 
Expirations were not listed for one week every month because there was 
a monthly SPY expiration on the Friday of that week.
    Under the proposed Wednesday SPY Expirations, the Exchange may list 
up to five consecutive Wednesday SPY Expirations at one time. The 
Exchange may have no more than a total of five Wednesday SPY 
Expirations listed. This is the same listing procedure as Short Term 
Option Series that expire on Fridays. The Exchange is also proposing to 
clarify that the five series limit in the current Short Term Option 
Series Program Rule will not include any Wednesday SPY Expirations.\5\ 
This means, under the proposal, the Exchange would be allowed to list 
five Short Term Option Series expirations for SPY expiring on Friday 
under the current rule and five Wednesday SPY Expirations. The interval 
between strike prices for the proposed Wednesday SPY Expirations will 
be the same as those for the current Short Term Option Series. 
Specifically, the Wednesday SPY Expirations will have $0.50 strike 
intervals.
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    \5\ ISE may open for trading on any Thursday or Friday that is a 
business day series of options on that class that expire on each of 
the next five Fridays that are business days and are not Fridays in 
which monthly options series or Quarterly Options Series expire 
(``Short Term Option Expiration Dates''). See ISE Rule 504 at 
Supplementary Material .02.
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    Currently, for each Short Term Option Expiration Date, the Exchange 
is limited to opening thirty (30) series for each expiration date for 
the specific class. The thirty (30) series restriction does not include 
series that are open by other securities exchanges under their 
respective short term option rules; the Exchange may list these 
additional series that are listed by other exchanges.\6\ The thirty 
(30) series restriction shall apply to Wednesday SPY Expiration series 
as well. In addition, the Exchange will be able to list series that are 
listed by other exchanges, assuming they file similar rules with the 
Commission to list SPY options expiring on Wednesdays.
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    \6\ See ISE Rule 504 at Supplementary Material .02.
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    As is the case with current Short Term Option Series, the Wednesday 
SPY Expiration series will be P.M.-settled. The Exchange does not 
believe

[[Page 60766]]

that any market disruptions will be encountered with the introduction 
of P.M.-settled Wednesday SPY Expirations. The Exchange currently 
trades P.M.-settled Short Term Option Series that expire almost every 
Friday, which provide market participants a tool to hedge special 
events and to reduce the premium cost of buying protection. The 
Exchange seeks to introduce Wednesday SPY Expirations to, among other 
things, expand hedging tools available to market participants and to 
continue the reduction of the premium cost of buying protection. The 
Exchange believes that Wednesday expirations, similar to Friday 
expirations, would allow market participants to purchase an option 
based on their timing as needed and allow them to tailor their 
investment and hedging needs more effectively.
    The Exchange is also amending the definition of Short Term Option 
Series to make clear that it includes Wednesday and Thursday.\7\ With 
this proposal, the Exchange is amending the definition at ISE Rule 
100(a)(47) to expand Short Term Option Series to add Thursday. 
Specifically, the Exchange is amending the definition to expand Short 
Term Option Series to those listed on any Tuesday, Wednesday or 
Thursday and that expire on the Wednesday of the next business week. If 
a Tuesday, Wednesday or Thursday is not a business day, the series may 
be opened (or shall expire) on the first business day immediately prior 
to that Tuesday, Wednesday or Thursday. The Exchange believes that the 
introduction of Wednesday SPY Expirations and conforming the definition 
at Rule 100 to match Rule 504 at Supplementary Material .02 to 
specifically add Thursday, will provide investors with a flexible and 
valuable tool to manage risk exposure, minimize capital outlays, and be 
more responsive to the timing of events affecting the industry and 
would clarify the definition. The proposed amendment to add Thursday to 
ISE Rule 100(a)(47), which is currently included in the Short Terms 
Options Series Program at Rule 504 at Supplementary Material .02, is a 
non-substantive, non-controversial rule change.
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    \7\ The Exchange is taking the opportunity to add Thursday to 
Rule 100 to conform that language to Rule 504 at Supplementary 
Material .02. The Exchange inadvertently did not update Rule 100 
previously to include Thursday.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\8\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in 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 general to 
protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes the Short Term Option Series 
Program has been successful to date and that Wednesday SPY Expirations 
simply expand the ability of investors to hedge risk against market 
movements stemming from economic releases or market events that occur 
throughout the month in the same way that the Short Term Option Series 
Program has expanded the landscape of hedging.
    Similarly, the Exchange believes Wednesday SPY Expirations should 
create greater trading and hedging opportunities and flexibility, and 
provide customers with the ability to more closely tailor their 
investment objectives. The Exchange believes that allowing Wednesday 
SPY Expirations and monthly SPY expirations in the same week will 
benefit investors and minimize investor confusion by providing 
Wednesday SPY Expirations in a continuous and uniform manner.
    Finally, the Exchange represents that it has an adequate 
surveillance program in place to detect manipulative trading in 
Wednesday SPY Expirations in the same way it monitors trading in the 
current Short Term Option Series. The Exchange also represents that it 
has the necessary systems capacity to support the new options series. 
Also, the Exchange notes that BOX Options Exchange LLC (``BOX'') 
recently received approval to list Wednesday expirations for SPY 
options.\10\
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    \10\ See supra, note 4.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that having 
Wednesday expirations is not a novel proposal, BOX has received 
approval to list Wednesday expirations for SPY options.\11\ The 
Exchange does not believe the proposal will impose any burden on intra-
market competition, as all market participants will be treated in the 
same manner. Additionally, the Exchange does not believe the proposal 
will impose any burden on inter-market competition, as nothing prevents 
the other options exchanges from proposing similar rules. The proposed 
amendment to add Thursday to ISE Rule 100(a)(47), which is currently 
included in the Short Terms Options Series Program at Rule 504 at 
Supplementary Material .02, is a non-substantive, non-controversial 
rule change.
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    \11\ See supra, note 4.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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 
\12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intention to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. 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 asked the Commission to waive the 
30-day operative delay so that the proposal may become operative 
immediately upon filing. The Commission notes that it recently approved 
BOX's substantially similar proposal to list and trade Wednesday SPY 
Expirations.\15\ The Exchange has stated that waiver of the operative 
delay will allow the Exchange to list and trade Wednesday SPY 
Expirations as soon as possible, and therefore, promote competition 
among the option exchanges. For these reasons, the Commission believes 
that the proposed rule change presents no novel issues and that waiver 
of the 30-day operative

[[Page 60767]]

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 hereby waives the 30-day operative 
delay and designates the proposal effective 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.
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See supra note 4.
    \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).
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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 [email protected]. Please include 
File Number SR-ISE-2016-18 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-2016-18. 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-ISE-2016-18 and should be 
submitted on or before September 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-21132 Filed 9-1-16; 8:45 am]
 BILLING CODE 8011-01-P