[Federal Register Volume 67, Number 40 (Thursday, February 28, 2002)]
[Notices]
[Pages 9340-9341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4723]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45464; File No. SR-ISE-2002-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange LLC To Amend Its Rules Relating to Ratio Orders

February 21, 2002.
    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 February 12, 2002, the International Securities Exchange LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items, I, II, and III below, which Items have been 
prepared by the ISE. ISE filed the proposed rule change 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 is proposing to amend Rule 722 to permit a spread, 
straddle, or combination order that consists of legs that have a 
different number of contracts as long as the number of contracts differ 
by a ratio of 0.5 or greater. Below is the text of the proposed rule 
change. New text is in italics. Proposed deletions are in [brackets].
* * * * *

International Securities Exchange LLC

Rules
* * * * *

Rule 722. Complex Orders

    (a) Complex Orders Defined. A complex order is any order for the 
same account as defined below.
* * * * *
    (6) Ratio Order. A spread, straddle or combination order may 
consist of legs that have a different number of contracts, so long as 
the number of contracts differs by a permissible ratio. For purposes of 
this paragraph, a permissible ratio of contracts is any [of the 
following: one-to-one, one-to-two and two-to-three.] ratio that is 
equal to or greater than .5. For example, a one-to-two ratio (which is 
equal to .5) and a six-to-ten ratio (which is equal to .6) are 
permitted, but a one-to-three ratio (which is equal to .33) is not.
* * * * *

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. The 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
    ISE Rule 722(a)(6) provides that the legs of a spread, straddle, or 
combination order can consist of different number of contracts, so long 
as the number of contracts differs by a permissible ratio. The 
permissible ratios are defined as one-to-one (100%), two-to-three (67%) 
and one-to-two (50%). Thus, the lowest percentage ratio currently 
permitted by Rule 722(a)(6) is 50%.
    The Exchange proposes to redefine the permissible ratios as any 
ratio whose percentage is equal to or greater than 0.5 (i.e., 50%.). 
This proposed change would permit ratios between 100% and 50% other 
than the current two-to-three ratio, but would not change the minimum 
percentage currently permitted under the rule. For example, a one-to-
two ratio (which is equal to 0.5) and a six-to-ten ratio (which is 
equal to 0.6) will be permitted, but a one-to-three ratio (which is 
equal to 0.33) will not.
    Currently, there is only one ratio between 100% and 50% allowed 
under the Rule--two- to three (67%). However, ISE members have 
indicated that their trading and hedging models often produce inexact 
ratios, and that the rule is unnecessarily restrictive in an electronic 
trading environment. As the ISE trading system has the capability to 
accept all ratios, the Exchange believes it is arbitrary to restrict 
which ratios may be entered between 100% and 50%. Moreover, ISE 
believes that there is no regulatory reason why a two-to-

[[Page 9341]]

three ratio should be permitted, while a six-to-ten should not. ISE 
also believes that limiting complex orders to such ``traditional'' 
ratios simply does not reflect the advancement of trading and hedging 
strategies that are common in the market today, the migration to 
decimal trading, or the advancement in exchange trading systems that 
allow such orders to be executed with ease.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \5\ 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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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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 Action

    The Exchange has designated the foregoing rule change as effecting 
a change that: (1) Does not significantly affect the protection of 
investors or the public interest; (2) does not impose any significant 
burden on competition; and (3) by its terms does not become operative 
for 30 day from the date of filing. In addition, the Exchange provided 
the Commission with written notice of its intent to file the proposed 
rule change at least five days prior to the filing date. Accordingly, 
the proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \6\ and Rule 19b-4(f)(6) thereunder.\7\ 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 Exchange Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
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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. 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 such filing will also be 
available for inspection and copying at the principal office of the 
ISE. All submissions should refer to File No. ISE-2002-03 and should be 
submitted by March 21, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-4723 Filed 2-27-02; 8:45 am]
BILLING CODE 8010-01-M