[Federal Register Volume 67, Number 74 (Wednesday, April 17, 2002)]
[Notices]
[Pages 18964-18965]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9310]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45726; File No. SR-ISE-2002-07]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the International Securities Exchange LLC Relating to 
Mandatory System Testing

April 10, 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 13, 2002, 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 ISE. 
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 a rule requiring members to 
participate in specified systems tests. Below is the text of the 
proposed rule change. Proposed new language is in italics.
* * * * *
    Rule 419. Mandatory Systems Testing
    (a) Each member that the Exchange designates as required to 
participate in a system test must conduct or participate in the testing 
of its computer systems to ascertain the compatibility of such systems 
with the Exchange's systems in the manner and frequency prescribed by 
the Exchange. The Exchange will designate members as required to 
participate in a system test based on: the category of membership 
(Primary Market Maker, Competitive Market Maker and Electronic Access 
Member); the computer system(s) the member uses; and the manner in 
which the member connects to the Exchange. The Exchange will give 
Members reasonable notice of any mandatory systems test, which notice 
will specify the nature of the test and Members' obligations in 
participating in the test.
    (b) Every member required by the Exchange to conduct or participate 
in testing of computer systems shall provide to the Exchange such 
reports relating to the testing as the Exchange may prescribe. Members 
shall maintain adequate documentation of tests required by this Rule 
and results of such testing for examination by the Exchange.
    (c) A member or member organization that is subject to this Rule 
and that fails to conduct or participate in the tests, fails to file 
the required reports, or fails to maintain the required documentation, 
may be subject to disciplinary action pursuant to the Exchange's rules.
* * * * *
Rule 1614. Imposition of Fines for Minor Rule Violations
* * * * *
    (d) Violations Subject to Fines. The following is a list of rule 
violations subject to, and the applicable sanctions that may be imposed 
by the Exchange pursuant to, this Rule:
* * * * *
    (8) Mandatory Systems Testing (Rule 419). Failure to conduct or 
participate in the testing of computer systems, or failure to provide 
required reports or maintain required documentation, shall be subject 
to the fines listed below.

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    Violations within one calendar year               Sanction
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First Violation...........................  $250.
Second Violation..........................  $500.
Third Violation...........................  $1000.
Fourth Violation..........................  $2000.
Fifth Violation or more...................  Formal Disciplinary Action.
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[[Page 18965]]

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 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
    According to the ISE, the purpose of the proposed rule change is to 
give the Exchange flexibility to require members to participate in 
mandated system tests. The ISE believes that it is critical that its 
members work closely with the Exchange in testing new software 
releases, especially as the Exchange implements new versions of its 
software. The ISE represents that, while its members generally have 
been responsive to its testing schedule, at times the Exchange has had 
difficulty getting the proper level of attention of a member, resulting 
in some members failing to be prepared to test according to the ISE's 
time schedule. The proposed rule change would give the Exchange the 
ability to designate certain tests as mandatory for specified classes 
of members. Failure to engage in a test would subject a member to 
disciplinary action, including possible fines pursuant to changes 
proposed to the ISE's minor rule violation program.
2. Statutory Basis
    The ISE believes that the proposed rule change is consistent with 
section 6(b) of the Act,\3\ in general, and furthers the objectives of 
section 6(b)(5) \4\ in particular, which requires that an exchange have 
rules that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism for a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. The ISE also represents that the proposal is designed 
to further the purposes of section 6(b)(6) \5\ requiring the rules of 
an exchange to provide that its members and persons associated with its 
members be appropriately disciplined for violation of the provisions of 
the Act, the rules or regulation thereunder, or the rules of the 
Exchange.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78f(b)(6).
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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

    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 the 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 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 
ISE. All submissions should refer to File No. SR-ISE-2002-07 and should 
be submitted by May 8, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-9310 Filed 4-16-02; 8:45 am]
BILLING CODE 8010-01-P