[Federal Register Volume 68, Number 148 (Friday, August 1, 2003)]
[Notices]
[Pages 45298-45299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19616]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48226; File No. SR-ISE-2003-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange, Inc., To Provide for the Trading of Options on Fixed-Income 
Exchange-Traded Funds

July 25, 2003.
    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 July 22, 2003, the International Securities Exchange, Inc. (``ISE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the ISE. 
ISE filed the proposed rule change pursuant to section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Rule 500(h) to allow the listing 
of options on fixed-income exchange-traded funds. Below is the text of 
the proposed rule change. New text is in italics. Proposed deletions 
are in [brackets].
* * * * *

Rule 500. Criteria for Underlying Securities

* * * * *
    (h) Securities deemed appropriate for options trading shall include 
shares or other securities (``Fund Shares'') that represent interests 
in registered investment companies (or series thereof) organized as 
open-end management investment companies, unit investment trusts or 
similar entities that are principally traded on a national securities 
exchange or through the facilities of a national securities association 
and reported as ``national market'' securities, and that hold 
portfolios of securities comprising or otherwise based on or 
representing investments in broad-based indexes or portfolios of 
securities (or that hold securities in one or more other registered 
investment companies that themselves hold such portfolios of 
securities) (``Funds''); provided that all of the following conditions 
are met:
    (1) any non-U.S. component securities [stocks] of the index or 
portfolio on which the Fund Shares are based that are not subject to 
comprehensive surveillance agreements do not in the aggregate represent 
more than 50% of the weight of the index or portfolio;
    (2) securities [Stocks] for which the primary market is in any one 
country that is not subject to a comprehensive surveillance agreement 
do not represent 20% or more of the weight of the index;
    (3) securities [stocks] for which the primary market is in any two 
countries that are not subject to comprehensive surveillance agreements 
do not represent 33% or more of the weight of the index; and
    (4) the Fund Shares either (i) meet the criteria and guidelines set 
forth in paragraphs (a) and (b) above; or (ii) the Fund Shares are 
available for creation or redemption each business day from or through 
the Fund in cash or in kind at a price related to net asset value, and 
the Fund is obligated to issue Fund Shares in a specified aggregate 
number even if some or all of the securities required to be deposited 
have not been received by the Fund, subject to the condition that the 
person obligated to deposit the securities has undertaken to deliver 
the securities as soon as possible and such undertaking is secured by 
the delivery and maintenance of collateral consisting of cash or cash 
equivalents satisfactory to the Fund, all as described in the Fund's 
prospectus.
* * * * *

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

    In its filing with the Commission, ISE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it 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 such statements.

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

1. Purpose
    The Exchange states that it proposes to amend its rules to allow 
the trading of options on fixed-income exchange-traded funds. This rule 
change is consistent with a change to the rules of the Chicago Board of 
Options Exchange (``CBOE'') previously approved by the Commission.\5\ 
Specifically, under ISE Rule 500(e), the Exchange may list options on 
Fund Shares provided that certain conditions are met with respect to 
the components of the underlying exchange-traded fund. The Exchange 
proposes to amend the conditions contained in Rule 500(h) to refer to 
the component ``securities'' of a fund, rather than the component 
``stocks'' of the fund, so that fixed-income funds will be covered by 
the Rule.
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    \5\ Release No. 34-46435 (August 29, 2002), 67 FR 57046 
(September 6, 2002) (File No. SR-CBOE-2002-47).
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5)\6\ 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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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does 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 Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange 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 ISE provided the SEC with written notice of its intention to 
file the proposed rule change at least five business days before its 
filing. Moreover, the ISE has designated the

[[Page 45299]]

proposed rule change as one that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate. Therefore, the foregoing 
rule change has become effective pursuant to section 19(b)(3)(A) of the 
Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ At any time within 60 days 
of the filing of the proposed rule change, the Commission may summarily 
abrogate the rule change if it appears to the Commission that the 
action is necessary or appropriate in the public interest, for the 
protection of investors, or would otherwise further the purposes of the 
Act.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\9\ the proposal 
does not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The ISE has 
requested that the Commission waive the 30-day operative date so that 
the proposed rule change will become immediately effective upon filing.
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative date is 
consistent with the protection of investors and the public 
interest.\10\ Accelerating the operative date will allow the ISE to 
implement immediately listing standards similar to ones already in 
place at the CBOE, and allow customers greater choices in their order 
routing decisions.\11\ For these reasons, the Commission designates 
that the proposed rule change as effective and operative immediately.
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    \10\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \11\ See n. 5, supra.
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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 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-2003-19 and should 
be submitted by August 22, 2003.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-19616 Filed 7-31-03; 8:45 am]
BILLING CODE 8010-01-P