[Federal Register Volume 67, Number 87 (Monday, May 6, 2002)]
[Notices]
[Pages 30406-30408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45816; File No. SR-ISE-2002-11]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the International Securities Exchange LLC Relating to a 
Market Maker Inactivity Fee

April 24, 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 April 16, 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. 
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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[[Page 30407]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The ISE proposes to adopt a $25,000 per month fee on Competitive 
Market Makers (``CMMs'') if their membership is not actively trading. 
Below is the text of the proposed rule change. Additions are 
italicized.
* * * * *

                                              ISE Schedule of Fees
----------------------------------------------------------------------------------------------------------------
        Electronic Market Place           Amount            Billable unit                    Frequency
----------------------------------------------------------------------------------------------------------------
 
*                  *                  *                  *                  *                  *
                                                        *
Inactive PMM Fee......................   $100,000  Membership \3\................  Monthly
Minimum PMM Fee.......................    $50,000  Membership \4\................  Monthly
Inactive CMM Fee......................    $25,000  Membership \5\................  Monthly
 
*                  *                  *                  *                  *                  *
                                                        *
----------------------------------------------------------------------------------------------------------------
\3\ Effective January 1, 2001, if a group has not been open for trading, the PMM appointed to that group will be
  subject to an ``inactive'' fee of $100,000 per month; provided that, for an entity that owns a PMM membership
  and that is not itself a registered broker-dealer, the fee will become effective on May 7, 2001.
\4\ Effective January 1, 2001, PMMs are subject to a minimum fee of $50,000 per options group. To the extent
  that aggregate execution fees in a group do not total at least $50,000 per month, the PMM for that group must
  pay a fee representing the difference between $50,000 and the aggregate actual execution fees.
\5\ Effective July 1, 2002, CMMs are subject to an inactivity fee of $25,000 per CMM membership that is not
  actively trading. In applying this fee: (1) this fee shall not apply to any CMM membership in an options group
  for which the CMM also is leasing a PMM membership; and (2) if a CMM is approved with respect to more than one
  CMM membership that is not actively trading (any such inactive CMM membership in addition to one inactive
  membership referred to as ``additional inactive memberships''), an Exchange official designated by the Board
  may grant the CMM an exemption from this fee for any or all additional inactive memberships if the CMM
  presents a business plan that an Exchange official designated by the Board determines will lead to active
  trading in such additional inactive membership(s) within a reasonable period of time.

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
    The purpose of the proposed rule change is to adopt a fee allowing 
the ISE to recoup a portion of the revenue it loses when a CMM owns or 
leases one or more memberships that are not open for trading. While the 
Exchange currently has a Primary Market Maker (``PMM'') inactivity fee, 
there is no similar fee for CMMs. The Exchange proposes that the fee be 
effective on July 1, 2002, in order to give members a reasonable period 
of time to begin trading in inactive memberships.
    The fee will not apply if a member holds an inactive CMM membership 
in a group of securities in which it also is operating the PMM 
membership pursuant to a lease. In that case, the member cannot operate 
both the PMM and CMM membership, and the member reasonably may want to 
retain control of the CMM membership so that it can operate the 
membership when its PMM lease expires. The proposal also will authorize 
the Exchange staff to grant exemptions if a member holds multiple 
inactive CMM memberships. In that situation, the Exchange can grant 
exemptions for all but one such membership as long as the member 
presents a business plan establishing that trading will begin in the 
inactive memberships over a reasonable time period.
    The Exchange proposes a $25,000 fee based on conservative estimates 
of the revenues lost due to an inactive CMM membership. For the first 
quarter of 2002, an average CMM membership generated just over $25,000 
in transaction-based fees. This does not include other fees that the 
Exchange loses, such as session/API fees. The Exchange will 
periodically reevaluate this fee to maintain the relationship between 
the amount of the fee and the lost revenue being recouped.
2. Statutory Basis
    The basis for this proposed rule change is the requirement under 
section 6(b)(4) of the Act \6\ that an exchange have an equitable 
allocation of reasonable dues, fees, and other charges among its 
members and other persons using its facilities.
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    \6\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 self-regulatory organization 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

[[Page 30408]]

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 also will be 
available for inspection and copying at the principal office of the 
ISE. All submissions should refer to File No. SR-ISE-2002-11 and should 
be submitted by May 28, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-11104 Filed 5-3-02; 8:45 am]
BILLING CODE 8010-01-P