[Federal Register Volume 67, Number 139 (Friday, July 19, 2002)]
[Notices]
[Page 47586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18221]



[[Page 47586]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46197; File No. SR-ISE-2002-13]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by International Securities Exchange, Inc., Relating to Limit 
Orders for the Account of Options Market Makers From Other Exchanges

July 12, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 16, 2002, the International Securities Exchange, Inc. 
(``ISE'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I, II, and III below, which 
the ISE has prepared. 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 ISE proposes to amend its rules to provide that limit orders 
entered for the account of options market makers from other exchanges 
must be designated as immediate-or-cancel (``IOC'') orders.

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 had 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 those statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    ISE rules permit Electronic Access Members (``EAMs'') to enter 
limit orders for the account of an options market maker on another 
exchange. Limit orders that are IOC orders trade immediately, with any 
unexecuted size being cancelled. In contrast, any unexecuted size 
associated with a limit order not designated as IOC is placed on the 
ISE's limit order book to be displayed in the same manner as customer 
orders, ISE member proprietary orders, and ISE market maker quotes. 
Once on the ISE's limit order book, orders for the accounts of such 
non-ISE options market makers are given equal allocation rights as 
other proprietary broker-dealer orders and ISE market maker quotes and 
orders. The purpose of this proposed rule change is to provide that 
limit orders entered for the account of options market makers from 
other exchanges must be designated as IOC orders.
    As a general matter, the ISE affords market makers on other 
exchanges greater access to the ISE market than the other exchanges 
provide for ISE market makers. For example, most other exchanges do not 
permit ISE market makers to place orders on their limit order books.\3\ 
Moreover, no other options exchange allows ISE market makers to be on 
the ``wheel,'' and thus to participate in transactions effected in 
their automated execution systems. This is in marked contrast to the 
ISE, where market makers from other exchanges directly compete for 
order flow with ISE market makers. The ISE believes that this puts ISE 
market makers at a competitive disadvantage. According to the ISE, 
moreover, when ISE market makers trade against customer orders, they 
are subject to payment-for-order-flow and marketing fees that do not 
apply to their competitors. The ISE's proposed rule filing is designed 
to address these concerns.\4\
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    \3\ See, e.g., Chicago Board Options Exchange Rules 6.2A(a)(ii), 
6.45 and 8.85.
    \4\ The ISE believes that this proposal is fully consistent with 
the provisions of the intermarket linkage, now in development. 
Specifically, that linkage would permit only market makers to send 
IOC orders to another exchange. See Plan for the Purpose of Creating 
and Operating an Intermarket Option Linkage, Section 2(16), which 
defines a ``Linkage Order'' solely as an IOC order.
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    The basis for this proposed rule change is the requirement under 
section 6(b)(5) under the Exchange Act \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 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 Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The ISE has not solicited, and does not intend to solicit, comments 
on this proposed rule change. The ISE 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 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 
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 the filing will also be 
available for inspection and copying at the principal office of the 
ISE. All submissions should refer to SR-ISE-2002-13 and should be 
submitted by August 9, 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. 02-18221 Filed 7-18-02; 8:45 am]
BILLING CODE 8010-01-P