[Federal Register Volume 68, Number 193 (Monday, October 6, 2003)]
[Notices]
[Pages 57720-57721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25261]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48568; File No. SR-ISE-2003-23]


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

September 30, 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 September 24, 2003, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I, II, and 
III below, which the Exchange 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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[[Page 57721]]

I. Self Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to lower the cap on each payment-for-
order-flow fund from $550,000 to $450,000. The text of the proposed 
rule change is available at the Exchange 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 Exchange 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 Exchange 
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

1. Purpose
    The Exchange operates a payment for order flow program as approved 
by the Commission.\3\ This program is currently funded through a $.55 
fee paid by ISE market makers for each customer contract they execute. 
The Exchange also has established a ceiling of $550,000 in each of the 
ten payment-for-order-flow funds it maintains.\4\ The Exchanges states 
that it seeks to ensure that the ten payment-for-order-flow funds are 
sufficiently high, but no higher than necessary. The Exchange states 
that it continues to collect more money for the funds than its Primary 
Market Makers have paid out. Therefore, the Exchange proposes to reduce 
the ceiling on each payment-for-order-flow fund from $550,000 to 
$450,000, because it believes that it can adequately maintain this 
program with the reduced ceiling.\5\
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    \3\ See Securities Exchange Act Release No. 43833 (January 10, 
2001), 66 FR 7822 (January 25, 2001) (approving File No. SR-ISE-00-
10).
    \4\ See Securities Exchange Act Release Nos. 45128 (December 4, 
2001), 66 FR 64325 (December 12, 2001) (File No. SR-ISE-2001-31), 
45772 (April 17, 2002), 67 FR 20563 (April 25, 2002) (File No. SR-
ISE-2002-09), 45857 (May 1, 2002), 67 FR 30988 (May 8, 2002) (File 
No. SR--ISE-2002-12), and 46976 (December 9, 2002), 67 FR 77116 
(December 16, 2002) (File No. SR-ISE-2002-26). Under ISE Rule 
802(b), the Exchange has divided the options it trades into ten 
groups, with one Primary Market Maker assigned to each group. The 
Exchange 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 Exchange in options in that group.
    \5\ The Commission notes that the payment for order flow fee 
would be suspended for a group of options when the fund balance for 
the group reaches $450,000, but would be reinstated when any such 
fund balance falls below $450,000. See Securities Exchange Act 
Release No. 45857 (May 1, 2002), 67 FR 30988 (May 8, 2002) (File No. 
SR-ISE-2002-12).
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2. Statutory Basis
    The basis for this proposed rule change is the requirement of 
section 6(b)(4) under the Act \6\ 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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    \6\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 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 foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(2) thereunder \8\ 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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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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 
Exchange. All submissions should refer to File No. SR-ISE-2003-23 and 
should be submitted by October 27, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-25261 Filed 10-3-03; 8:45 am]
BILLING CODE 8010-01-P