[Federal Register Volume 68, Number 223 (Wednesday, November 19, 2003)]
[Notices]
[Pages 65335-65336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28894]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48756; File No. SR-ISE-2003-03]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Order Granting Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto by the International Securities Exchange, Inc., 
Relating to Market Maker Obligations

November 7, 2003.

I. Introduction

    On February 19, 2003, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') 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 to amend ISE Rule 803 to clarify 
the obligations of the ISE's Primary Market Makers (``PMMs'') when 
handling orders from persons who are not brokers or dealers in 
securities (``Public Customers'') when there is a better price 
available on another exchange. On September 15, 2003, the Exchange 
amended the proposed rule change.\3\ The proposed rule change, as 
amended, was published for comment in the Federal Register on October 
1, 2003.\4\ On October 1, 2003, the Exchange amended the proposed rule 
change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Michael J. Simon, Senior Vice President and 
General Counsel, Exchange, to Nancy Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
September 12, 2003 (``Amendment No. 1'').
    \4\ See Securities Exchange Act Release No. 48539 (September 25, 
2003), 68 FR 56660.
    \5\ See letter from Michael J. Simon, Senior Vice President and 
General Counsel, Exchange, to Nancy Sanow, Assistant Director, 
Division, Commission, dated September 30, 2003 (``Amendment No. 
2''). In Amendment No. 2, the Exchange proposed to amend the 
proposed rule change to correct a typographical error in the rule 
text and to renumber the new Supplementary Material. The Commission 
notes that the technical changes to the proposed rule change, as 
amended, contained in Amendment No. 2 were included in the notice 
published for public comment. See note 4, Securities Exchange Act 
Release No. 48539 (September 25, 2003), 68 FR 56660 (October 1, 
2003) (SR-ISE-2003-03).
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    The Commission received no comments on the proposal. This order 
approves the proposed rule change, as amended. In addition, the order 
approves, on an accelerated basis, Amendment No. 2.

II. Discussion

    The Commission finds that the proposed rule change, as amended, 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 believes that the proposed rule change, 
as amended, is consistent with Section 6(b) of the Act,\7\ in general, 
and furthers the objectives of Section 6(b)(5),\8\ in particular, in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of 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\ In approving the proposed rule change, as amended, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposed rule change, as amended, is 
reasonably designed to accomplish these ends because it clarifies the 
obligations of a PMM when addressing a Public Customer order when there 
is a better price displayed by another market. Given the intermarket 
linkage between the ISE and the other options exchanges (``Linkage''), 
this clarity should provide guidance to PMMs in the satisfaction of 
their best execution obligations with respect to Public Customer 
orders.
    The Commission notes that the proposed rule change, as amended, 
would require specifically that, upon receiving a Public Customer 
order, a PMM must, as soon as practical, either execute the order at 
the best available price or send a Principal Acting as Agent Order 
through Linkage to obtain the best price for the order. The proposed 
rule change, as amended, also would require that a PMM must act with 
due diligence in handling Public Customer orders and must accord such 
orders priority over the PMM's principal orders. The Commission 
believes that the proposed rule change, as amended, should protect 
investors and the public interest by providing additional safeguards 
designed to ensure that PMMs handle Public Customer orders 
appropriately. Moreover, the Commission believes that the proposed rule 
change, as amended, should enhance competition and increase liquidity 
in the options markets by affirmatively requiring that PMMs react to an 
incoming order as soon as practical by either executing the order or 
routing it through Linkage.

III. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposed rule change, as amended, is consistent with the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-ISE-2003-03), as amended, be, 
and it hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).


[[Page 65336]]


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    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. 03-28894 Filed 11-18-03; 8:45 am]
BILLING CODE 8010-01-P