[Federal Register Volume 66, Number 39 (Tuesday, February 27, 2001)]
[Notices]
[Pages 12576-12577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-4756]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43983; File No. SR-ISE-01-02]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the International Securities Exchange LLC, Relating to 
Anticipatory Hedging Activity

February 20, 2001.
    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 January 12, 2001, the International Securities Exchange LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III 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 is proposing to adopt Supplementary Material .02 to 
Rule 400 (Just and Equitable Principals of Trade). Supplementary 
Material .02 states that it may be considered conduct inconsistent with 
just and equitable principles of trade for any member or person 
associated with a member, who has knowledge of all material terms and 
conditions of (1) an order and a solicited

[[Page 12577]]

order, (2) an order being facilitated, or (3) orders being crossed, the 
execution of which are imminent, to enter, based on such knowledge, an 
order to buy or sell an option of the same class as any option that is 
the subject of the order, or an order to buy or sell the security 
underlying such class, or an order to buy or sell any related 
instrument.
    This prohibition of the proposed rule change would continue until 
either (1) all of the terms of the order of which the member or 
associated person has knowledge are disclosed to the trading crowd, or 
(2) the trade can no longer reasonably be considered imminent in view 
of the passage of time since the order was received. The rule specifies 
that the terms of an order are ``disclosed'' to the trading crowd on 
the Exchange when the order is entered into the System or into the 
Facilitation Mechanism.

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 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. 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 is proposing to adopt Supplementary Material .02 to 
Rule 400 (Just and Equitable Principles of Trade) to prohibit the use 
of non-public information received during the facilitation and 
solicitation processes. ISE Rule 717(d)-(e), in conjunction with ISE 
Rule 716(d), required that orders be displayed to the trading crowd 
before being crossed with facilitation orders or orders that have been 
solicited. The purpose of this requirement is to provide the trading 
crowd with an opportunity to participate in the transaction with the 
facilitating member or the solicited party.
    The Exchange seeks to codify its policy prohibiting either a member 
or a person associated with a member from using non-public information 
for the member's benefit by trading in the underlying stock or in 
related instruments prior to exposing the order to the trading crowd. 
This policy prevents members and associated persons from using 
undisclosed information about imminent options transactions to trade 
the relevant option or any closely related instrument in advance of the 
trading crowd. Such action would undermine the ability of crowd 
participants to participate in the execution of the order at equally 
favorable terms as the member representing the order.
2. Statutory Basis
    The basis for this proposed rule change is the requirement under 
section 6(b)(5) of the Act \3\ that an exchange have rules that are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest.
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    \3\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 Act

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the ISE consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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. Copies of the filing will also be 
available for inspection and copying at the principal offices of the 
Exchange. All submissions should refer to File No. SR-ISE-01-02 and 
should be submitted by March 20, 2001.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-4756 Filed 2-26-01; 8:45 am]
BILLING CODE 8010-01-M