[Federal Register Volume 67, Number 167 (Wednesday, August 28, 2002)]
[Notices]
[Page 55290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21958]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46390; File No. SR-ISE-2002-18]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the International Securities Exchange LLC Relating to the 
Execution of Complex Orders Involving Options and Single Stock Futures

August 21, 2002.

I. Introduction

    On June 27, 2002, the International Securities Exchange, Inc. 
(``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 adopt rules and procedures 
governing the execution of complex orders involving options and single 
stock futures. The proposed rule change was published for comment in 
the Federal Register on July 17, 2002.\3\ The Commission received no 
comments on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 46181 (July 11, 
2002), 67 FR 47010.
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II. Description of the Proposal

    The proposed rule change would permit Exchange members to enter 
option-stock future complex orders. As is the case with stock-option 
complex orders, the option leg of the transaction would have priority 
over non-customer orders at the same price. The Exchange would execute 
the option leg of the trade and the parties then would seek to execute 
the stock futures leg on an appropriate exchange. Because the stock 
futures products may not be fungible between markets, the member would 
be required to specify the market of execution for the stock futures 
leg of the complex order. In addition, as with stock-option complex 
orders, if the parties are unable to execute the stock futures leg of 
the transaction due to a change in market conditions, the Exchange 
would cancel the option leg of the transaction at the request of a 
party to the trade. The proposed rule change would become part of the 
complex order pilot program, which the Commission has approved to 
operate through October 18, 2002.\4\
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    \4\ See Securities Exchange Act Release No. 44955 (October 18, 
2001), 66 FR 53819 (October 24, 2001) (File No. SR-ISE-2001-18).
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III. Discussion

    After careful review, 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.\5\ 
In particular, the Commission believes that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\6\ which requires, among 
other things, that the Exchange's rules be designed 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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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    In general, the Commission believes that rules permitting the 
execution of complex orders serve to reduce the risk of incomplete or 
inadequate executions, while increasing efficiency and competitive 
pricing. At the same time, they protect the priority of orders of 
public customers by permitting the legs of complex orders to trade 
ahead of bids and offers established in a market place only under 
specific restrictions. The rule change authorizes the execution of 
complex orders involving options and single stock futures pursuant to 
procedures that are virtually identical procedures for complex orders 
involving options and stocks. The Commission believes that these types 
of orders are of a similar degree of complexity to those approved in 
the past for special priority rules, and it is therefore appropriate to 
afford them the same treatment.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-ISE-2002-18) is approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
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pursuant to delegated authority.\8\

    \8\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21958 Filed 8-27-02; 8:45 am]
BILLING CODE 8010-01-P