[Federal Register Volume 66, Number 206 (Wednesday, October 24, 2001)]
[Notices]
[Pages 53819-53820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26755]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44955; File No. SR-ISE-2001-18]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change, and Notice of Filing and Order Granting 
Accelerated Approval of Amendment No. 4 to Proposed Rule Change, by the 
International Securities Exchange LLC, Relating to Priority Principles 
on Complex Orders

October 18, 2001.

I. Introduction

    On May 25, 2001, the International Securities Exchange LLC (``ISE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to establish priority and order 
handling principles for complex orders. Notice of the proposed rule 
change and Amendment Nos. 1, 2 and 3 thereto was published for comment 
in the Federal Register on August 13, 2001.\3\ No comments were 
received.
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    \1\ 15 USC 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 44659 (August 6, 
2001), 66 FR 42575 (August 13, 2001) (``Notice'').
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    On October 16, 2001, the ISE filed Amendment No. 4 to the proposed 
rule change. In Amendment No. 4, the Exchange added text to proposed 
new Rule 722(b)(5) to provide that the right to facilitate or cross up 
to 40% of a customer's complex order without exposing the order for 30 
seconds, as is otherwise required by ISE rules, would be limited to 
those complex orders where at least one leg of the order was for at 
least 50 contracts.\4\
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    \4\ See letter from Jennifer Lamie, Assistant General Counsel, 
ISE, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated October 15, 2001 (``Amendment No. 
4'').
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    This order approves the proposed rule change as amended, 
accelerates approval of Amendment No. 4, and solicits comment from 
interested persons on that amendment.

II. Discussion

    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\ In 
particular, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act,\6\ which requires, among other things, 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market, and to protect investors and the public 
interest.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 USC 78(c)(f).
    \6\ 15 USC 78f(b)(5).
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    The Commission notes that the rules of other options exchanges 
allow similar procedures for the execution of complex orders.\7\ In 
general, such rules serve to reduce the risk of incomplete or 
inadequate executions, while increasing efficiency and competitive 
pricing. At the same time, they protect the priority of orders of 
public customers by permitting the legs of complex orders to trade 
ahead of bids and offers established in the marketplace only under 
restrictions such as those proposed here. Although the ISE's proposal 
would apply to more types of orders than the rules of other options 
exchanges, such as box spread and collar orders, the Commission 
believes that these types of orders are of a similar degree of 
complexity to those approved in the past for special priority rules, 
and it is therefore appropriate to accord them the same treatment.
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    \7\ See Chicago Board Options Exchange Rule 6.45; American Stock 
Exchange Rule 950(d), Commentary .01; Philadelphia Stock Exchange 
Rule 1033; Pacific Exchange Rule 6.75.
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    As originally proposed, the new rule would have allowed a firm to 
execute immediately up to 40% of a complex order, either as principal 
(``facilitation'') or against an order it has solicited (``crossing''), 
as opposed to first exposing the order to the market for 30 seconds, as 
is otherwise required by paragraphs (d) and (e) of ISE Rule 717. In 
Amendment No. 4 to the proposed rule change, the ISE limited this 
allowance to orders where at least one leg of the transaction was for 
at least 50 contracts.\8\
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    \8\ See fn. 4, supra.
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    The Commission finds that Amendment No. 4 is consistent with the 
Act, and finds good cause to approve it prior to the thirtieth day 
after the date of publication of notice of its filing in the Federal 
Register. Amendment No. 4 conforms the proposed rules to existing ISE 
Rules 716 and 717, which permit similar execution procedures for other 
orders, provided that they are for 50 contracts or more. The Commission 
believes that limiting such facilitation or crossing rights to orders 
of this size should help to adequately protect competitive pricing for 
smaller orders. Finally, the Commission notes that a broker who accepts 
a customer's order has a fiduciary duty toward that order.
    Therefore, the Commission finds good cause to approve Amendment No. 
4 to the proposed rule change on an accelerated basis.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 4, including whether Amendment No. 4 
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 USC 
552, will be available for inspection and copying at the Commission's 
Public Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-ISE-2001-18 and should be 
submitted by November 14, 2001.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-ISE-2001-18), as 
amended, be, and it hereby is, approved.
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    \9\ 15 USC 78s(b)(2).


[[Page 53820]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26755 Filed 10-23-01; 8:45 am]
BILLING CODE 8010-01-M