[Federal Register Volume 68, Number 18 (Tuesday, January 28, 2003)]
[Notices]
[Pages 4260-4261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1882]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47220; File No. SR-ISE-2002-24]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Order Approving Proposed Rule Change Relating to Quotation Size 
and Notice of Filing and Order Granting Accelerated Approval of an 
Amendment to the Proposal

January 21, 2003.
    On October 11, 2002, the International Securities Exchange, Inc. 
(``ISE'') 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 that would require ISE quotations to be firm for 
their published sizes for all orders entered by ISE members, regardless 
of whether such orders are for the accounts of customers or broker-
dealers. The proposal would allow ISE to eliminate its current 
distinction between the sizes of quotations for all orders, except for 
trades involving the interaction of ISE market maker quotations. On 
November 1, 2002, the Exchange's rule proposal was published for 
comment in the Federal Register.\3\ No comments letters were received 
on the proposal. On November 21, 2002, the ISE submitted a letter to 
withdraw proposed paragraph (c) of ISE rule 805, which would have 
limited market makers from sending more than one order every fifteen 
seconds in an option on the same underlying security.\4\ This order 
approves the proposed rule change, as amended by the ISE letter, 
publishes notice of the ISE letter, and grants accelerated approval to 
ISE's withdrawal of proposed ISE rule 805(c).
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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. 46723 (October 25, 
2002), 67 FR 66693.
    \4\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division 
of Market Regulation (``Division''), Commission, dated November 20, 
2002 (``ISE letter'').
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    The proposal would require that all ISE quotations be firm for all 
incoming orders for their full disseminated size, except for matching 
quotations of ISE market makers. Specifically, each ISE Primary Market 
Maker and Competitive Market Maker would enter a quotation with a 
single size, available in full for all incoming orders, whether from 
customers, broker-dealers, ISE market makers or market makers on other 
exchanges, except for ISE market maker quotations. In the case of ISE 
market maker quotations, the ISE proposes to establish by rule that ISE 
market makers must be firm for at least one contract for quotations of 
other ISE market makers. To implement this proposal, the ISE would 
require a limited exemption from rule 11Ac1-1 (the ``Quote rule'') \5\ 
to permit the Exchange to establish by rule a quotation size for which 
a responsible broker or dealer is obligated to trade with matching ISE 
market maker quotations, provided that such responsible broker or 
dealer is firm to all other customer and broker-dealer orders for the 
amount of its quotation size communicated to the ISE.\6\
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    \5\ 17 CFR 240.11Ac1-1
    \6\ In connection with this proposal, the ISE submitted a 
separate letter requesting an exemption from certain requirements of 
the Quote rule. See letter from Michael Simon, Senior Vice President 
and General Counsel, ISE, to Annette Nazareth, Director, Division, 
Commission, dated October 10, 2002. Concurrent with approval of this 
proposal, the Commission granted ISE's request for a limited 
exemption from the Quote rule. Specifically, the Commission 
determined to grant responsible brokers or dealers on the ISE an 
exemption from their obligations under rule 11Ac1-1(c)(1) to 
communicate to the ISE their quotation sizes applicable to the 
quotations of ISE market makers, provided that: (1) Such responsible 
brokers or dealers promptly communicate to the ISE the quotation 
sizes for which they are obligated to execute at their published 
quotation any order, other than a quotation by an ISE market maker; 
(ii) such responsible brokers or dealers comply with their 
obligations under paragraph (c)(2) of rule 11Ac1-1 by trading with 
quotations by other ISE market makers, in an amount up to the size 
established by the ISE; and (iii) the ISE and its responsible broker 
or dealers do not rely on paragraphs (d)1) and (2) of the Quote 
rule. See letter from Robert Colby, Deputy Director, Division, 
Commission, to Michael Simon, Senior Vice President and General 
Counsel, ISE, dated January 21, 2003.
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    Finally, the ISE proposes two technical changes to update its 
rules. First, the Exchange proposes to delete language from ISE rule 
804 regarding the ``enhanced size pilot'' that expired on October 31, 
2002. Second, the Exchange proposes to delete language from ISE rule 
805 regarding limited exemptive authority that expired a year after the 
Exchange commenced trading.
    Interested persons are invited to submit written data, views and 
arguments concerning the ISE Letter, including whether it is consistent 
with the Act. Persons making written submissions should file six copies

[[Page 4261]]

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 such filing will also be available for 
inspection and copying at the principal office of the ISE. All 
submissions should refer to the ISE letter of File No. SR-ISE-2002-24 
and should be submitted by February 18, 2003.
    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 \7\ 
and, in particular, the requirements of section 6 of the Act.\8\ 
Specifically, the Commission finds that the proposal to require ISE 
market makers to be firm for up to their disseminated amount to all 
orders, other than matching ISE market maker quotations, is consistent 
with section 6(b)(5) of the Act,\9\ in that by ensuring that a larger 
number of orders may be executed at a better price, the proposed rule 
change has been designed to remove impediments to and to perfect the 
mechanism of a free and open market and a national market system, while 
also protecting investors and the public interest.
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    \7\ The Commission has considered the proposed rules' impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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    The original rule proposal, including the proposal to add ISE rule 
805(c), which the ISE subsequently withdrew by letter, was noticed for 
public comment on November 1, 2002. No comments were received on any 
aspect of the proposal. Because the ISE letter merely withdraws one 
provision of the proposal, which was previously published for comment, 
and because by withdrawing the one provision to add ISE rule 805(c), no 
other aspect of the proposal is affected, the Commission believes that 
approving this change to the proposal on an accelerated basis is 
appropriate. Accordingly, pursuant to section 19(b)(2) of the Act,\10\ 
the Commission finds good cause to approve the change to the proposal 
set forth in the ISE Letter prior to the thirtieth day after notice of 
the ISE letter is published in the Federal Register.
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    \10\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-ISE-2002-24) is 
hereby approved, as amended by the ISE letter, which is hereby approved 
on an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1882 Filed 1-27-03; 8:45 am]
BILLING CODE 8010-01-P