[Federal Register Volume 67, Number 241 (Monday, December 16, 2002)]
[Notices]
[Pages 77116-77117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31592]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46976; File No. SR-ISE-2002-26]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by International Securities 
Exchange, Inc., Relating to Payment-for-Order-Flow and Marketing Fees

December 9, 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 November 20, 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 is proposing: (1) To reduce its payment-for-order-flow fee 
from $.65 a contract to $.55 a contract; (2) to lower the cap on each 
payment-for-order-flow fund from $650,000 to $550,000; and (3) to 
extend the waiver of the marketing fee from December 31, 2002 to June 
30, 2003. The text of the proposed rule change is available at the ISE 
and at the Commission.

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. 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

    The ISE operates a payment for order flow program as approved by 
the Commission.\3\ This program is currently

[[Page 77117]]

funded through a $.65 fee paid by ISE market makers for each customer 
contract they execute. The ISE is proposing to reduce its payment-for-
order-flow fee from $.65 a contract to $.55 a contract. The ISE also 
has established a ceiling of $650,000 in each of the 10 payment-for-
order-flow funds it maintains.\4\ The ISE is proposing to lower the cap 
on each payment-for-order-flow fund from $650,000 to $550,000.
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    \3\ See Securities Exchange Act Release No. 43833 (January 10, 
2001), 66 FR 7822 (January 25, 2001).
    \4\ See Securities Exchange Act Release Nos. 45128 (December 4, 
2001), 66 FR 64325 (December 12, 2001) and 45772 (April 17, 2002), 
67 FR 20563 (April 25, 2002). The ISE has divided the options it 
trades into 10 groups, with one Primary Market Maker assigned to 
each group. The ISE maintains a payment-for-order-flow fund for each 
group, consisting of the fees collected from market makers trading 
options in that group. The Primary Market Maker for the group is 
responsible for arranging and making all payments to Electronic 
Access Members for order flow sent to the ISE in options in that 
group.
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    The ISE has also established a $.10 marketing fee, paid by market 
makers on customer contracts, that funds general ISE marketing efforts 
to increase order flow from Electronic Access members.\5\ The ISE has 
waived that fee for the second half of this year.\6\ The ISE is 
proposing to extend the waiver of the marketing fee from December 31, 
2002 to June 30, 2003.
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    \5\ See Securities Exchange Act Release No. 44102 (March 26, 
2001), 66 FR 17590 (April 2, 2001).
    \6\ See Securities Exchange Act Release No. 46189 (July 11, 
2002), 67 FR 47587 (July 19, 2002).
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    The ISE states that it regularly monitors the levels of these fees 
and ceilings to help ensure that the payment-for-order-flow and 
marketing efforts are sufficiently funded and that the fees it imposes 
on its market makers are no higher than necessary. With respect to 
payment-for-order-flow, the ISE states that it historically has 
collected more money than its Primary Market Makers have paid out. The 
ISE believes that it can adequately maintain this program with the 
reduced fee and ceiling. With respect to the marketing fee, the ISE 
currently has sufficient retained funds from the time the fee was in 
effect to pay for anticipated marketing efforts for the beginning part 
of next year. Thus, the ISE is proposing to extend this fee waiver 
through June 2003.
    The basis for this proposed rule change is the requirement of 
section 6(b)(4) under the Act \7\ 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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    \7\ 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 will 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

    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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(2) thereunder \9\ because 
it changes an ISE fee. At any time within 60 days of the filing of such 
proposed rule change, the Commission may summarily abrogate the 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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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 19b-4(f)(2).
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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 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-2002-26 and should be 
submitted by January 6, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-31592 Filed 12-13-02; 8:45 am]
BILLING CODE 8010-01-P