[Federal Register Volume 67, Number 107 (Tuesday, June 4, 2002)]
[Notices]
[Pages 38533-38534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13871]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45985; File No. SR-ISE-2002-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange LLC Amending Exchange Rule 722 To Adopt Procedures for 
Executing the Stock Legs Portion of Stock-Option Orders

May 24, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on May 21, 2002, the International Securities Exchange LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``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 proposes to adopt procedures for the trading of Stock-
Option orders.
    The text of the proposed rule change appears below. New text is in 
italics.

Rule 722. Complex Orders

* * * * *

Supplementary Material to Rule 722

    .01 No Change.
    .02 A bid or offer made as part of a stock-option order, as defined 
in (a)(5) above, is made and accepted subject to the following 
conditions: (1) the stock-option order must disclose all legs of the 
order and must identify the price at which the non-option leg(s) of the 
order is to be filled; and (2) concurrent with the execution of the 
options leg of the order, the initiating member and each member that 
agrees to be a contra-party on the non-option leg(s) of the order must 
take steps immediately to transmit the non-option leg(s) to a non-
Exchange market(s) for execution. Failure to observe these requirements 
will be considered conduct inconsistent with just and equitable 
principles of trade and a violation of Rule 400.
    A trade representing the execution of the options leg of a stock-
option order

[[Page 38534]]

may be cancelled at the request of any member that is a party to that 
trade only if market conditions in any of the non-Exchange market(s) 
prevent the execution of the non-option leg(s) at the price(s) agreed 
upon.

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 Exchange 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
    ISE Rule 722 provides for the execution of complex orders on the 
Exchange, including Stock-Option Orders. However, the Rule does not 
currently provide procedures for executing the stock leg(s) of these 
types of orders. The Exchange states that the purpose of the proposed 
rule change is to establish such procedures.
    According to the Exchange, the proposal would require that a member 
entering a Stock-Option Order to disclose all the legs of the order and 
the price at which the non-option leg(s) are to be filled. Following 
execution of the options leg, the parties would be required to 
immediately transmit the stock leg(s) to stock market(s) for execution. 
If the parties cannot execute the stock leg(s) at the agreed-upon 
price(s), the Exchange would cancel the option leg at the request of 
any party to the trade.
    According to the Exchange, the proposed rule change is based on 
Chicago Board Options Exchange Rule (``CBOE'') 6.48(b). The Exchange 
believes that the only difference between these rules is that the CBOE 
rule requires the member initiating a stock-option order to announce 
the specific market or markets on which the stock trade will be 
effected. The Exchange does not believe requiring the disclosure of the 
specific market(s) of execution provides meaningful information to the 
trading crowd. Rather, the Exchange would allow the members effecting 
the trade to choose the market(s) of their choice for the stock 
transactions.
(2) Statutory Basis
    The Exchange's basis for the proposed rule change is the 
requirement under Section 6(b)(5) of the Act \3\ that an exchange have 
rules that are designed to promote just and equitable principles of 
trade, to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transaction in securities, 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.
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    \3\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance 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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \4\ and subparagraph (f)(6) of Rule 19b-4 \5\ 
thereunder because the Exchange has designated the proposed rule change 
as one that does not: (i) Significantly affect the protection of 
investors or the public interest; (ii) impose any significant burden on 
competition; (iii) become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate; and 
the Exchange has given the Commission written notice of its intention 
to file the proposed rule change at least five business days prior to 
filing. 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 Act.
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    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6)(iii) of the Act,\6\ the proposal does not 
become operative for 30 days after the date of its filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative date in order 
for it to implement the proposed rule change as quickly as possible. 
The Commission, consistent with the protection of investors and the 
public interest, has determined to waive the 30-day operative 
period.\7\
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    \6\ 17 CFR 240.19b-4(f)(6)(iii).
    \7\ For purposes only of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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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 Section. 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-2002-14 and 
should be submitted by June 25, 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-13871 Filed 6-3-02; 8:45 am]
BILLING CODE 8010-01-P