[Federal Register Volume 68, Number 127 (Wednesday, July 2, 2003)]
[Notices]
[Pages 39604-39605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16711]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48097; File No. SR-ISE-2003-10]


Self Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 2 to the Proposed Rule Change by the International 
Securities Exchange, Inc., Relating to Its Obvious Error Rule

June 26, 2003.

I. Introduction

    On February 28, 2003, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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 ISE Rule 720 relating to 
obvious error transactions. On May 1, 2003, the ISE submitted Amendment 
No. 1 to the proposed rule change.\3\ The proposed rule change, as 
amended, was published for comment in the Federal Register on May 15, 
2003.\4\ The Commission did not receive any comments on the proposed 
rule change. On June 10, 2003, the ISE filed Amendment No. 2 to the 
proposed rule change.\5\ This order approves the proposed rule change, 
as amended, and notices and grants accelerated approval to Amendment 
No. 2.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division 
of Market Regulation (``Division''), Commission, dated April 30, 
2003 (``Amendment No. 1''). In Amendment No. 1, the ISE replaced the 
proposed rule text in its entirety.
    \4\ See Securities Exchange Act Release No. 47817 (May 8, 2003), 
68 FR 26336 (May 15, 2003) (``Notice'').
    \5\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division, 
Commission, dated June 9, 2003 (``Amendment No. 2''). In Amendment 
No. 2, the ISE amended proposed Supplementary Material .07 to ISE 
Rule 720 to clarify the definition of ``erroneous buy transaction.''
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change and 
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.\6\ In particular, the Commission finds 
that the proposed rule change is consistent with section 6(b)(5) \7\ of 
the Act, which requires that the rules of an exchange be 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.\8\
---------------------------------------------------------------------------

    \6\ For a description of the proposed rule change, see Notice, 
supra, n.4.
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 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).
---------------------------------------------------------------------------

    The Commission considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an ``obvious error'' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the minds regarding the terms of the 
transaction. In addition, in the Commission's view, the determination 
of whether such an ``obvious error'' has occurred should be based on 
specific and objective criteria and subject to specific and objective 
procedures. The Commission believes that the Exchange's proposed 
revisions to ISE Rule 720 establish specific and objective criteria for 
determining when a trade is an ``obvious error.'' The Commission also 
believes that the proposed amendments establish specific and objective 
procedures governing the adjustment or nullification of such trade.
    The Commission finds good cause for approving Amendment No. 2 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. Amendment No. 2 
does not make any substantive changes to the proposed rule text. It 
simply clarifies that an ``erroneous buy transaction'' is one in which 
the price paid by the person purchasing the option is erroneously high. 
Therefore, the Commission believes that granting accelerated approval 
of Amendment No. 2 is appropriate and consistent with section 
6(b)(5)\9\ and section 19(b)\10\ of the Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the Amendment No. 2, including whether Amendment 
No. 2 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 Amendment No. 2 that are filed with the 
Commission, and all written communications relating to Amendment No. 2 
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 at 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 File No. SR-ISE-2003-10 and should be 
submitted by July 23, 2003.

IV. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal, as amended, is consistent with the Act and the rules and 
regulations thereunder. It is therefore ordered, pursuant to section 
19(b)(2) of the Act,\11\ that the proposed rule change (SR-ISE-2002-
10), as amended, be, and hereby is, approved,

[[Page 39605]]

and that Amendment No. 2 to the proposed rule change be, and hereby is, 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16711 Filed 7-1-03; 8:45 am]
BILLING CODE 8010-01-P