[Federal Register Volume 67, Number 127 (Tuesday, July 2, 2002)]
[Notices]
[Pages 44487-44488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16542]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46110; File No. SR-ISE-2001-34]


Self Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change by the International Securities Exchange LLC 
Amending Its Obvious Error Rule

June 25, 2002.
    On November 19, 2001, the International Securities Exchange LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), 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 amend the definition of the 
term ``obvious error'' contained in ISE Rule 720 for options with a 
theoretical price of less than $3.00.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on May 1, 2002.\3\ The Commission received no comments on the 
proposal.
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    \3\ See Securities Exchange Act Release No. 45811 (April 24, 
2002), 67 FR 21788 (May 1, 2002).
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    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 \4\ and, in 
particular, the requirements of Section 6 of the Act \5\ and the rules 
and regulations thereunder. The Commission finds specifically that the 
proposed rule change is consistent with Section 6(b)(5) of the Act \6\ 
in that it is 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.
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    \4\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
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    ISE Rule 720 gives the Exchange authority to bust or adjust trades 
that result from an ``obvious error.'' The Rule currently defines an 
obvious error based upon the market conditions and the difference 
between the execution price and the ``theoretical price'' of the 
options series. To be an obvious error, the difference in execution and 
theoretical price must be the greater of

[[Page 44488]]

$0.50 or two times the allowable spread in regular market conditions 
(three times the allowable spread in ``fast market'' conditions).
    As the ISE has noted, ISE Rule 720 does not directly consider the 
price at which the particular options series is trading in determining 
whether there has been an obvious error (although the allowable spread 
does increase as an option's price increases). The ISE represents that 
in administering the Rule, it has found that (1) the price of an option 
is a significant factor in determining when there is an obvious error; 
and (2) a pricing error in an options series trading at less than $3.00 
can often be significant even if it does not meet the current $0.50 
minimum requirement. The Commission believes that it is reasonable for 
the ISE, based upon its experience in administering the Rule, to amend 
the Rule to state that the standard for determining the existence of an 
obvious error for options series trading at less than $3.00 be whether 
the difference between the execution price and the theoretical price is 
at least $0.25.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-ISE-2001-34) be, and 
it hereby is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    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. 02-16542 Filed 7-1-02; 8:45 am]
BILLING CODE 8010-01-P