[Federal Register Volume 68, Number 241 (Tuesday, December 16, 2003)]
[Notices]
[Pages 70058-70059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48892; File No. SR-ISE-2003-34]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the International Securities 
Exchange, Inc. Relating to Firm Quotations

December 8, 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 November 20, 2003, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The ISE submitted Amendment No. 1 to the proposed rule change 
on December 3, 2003.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \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, Commission, dated December 2, 2003. In 
Amendment No. 1, ISE corrects an error in the second sentence of the 
rule text of the original filing. Specifically, Amendment No. 1 
deletes the reference to ``Order Execution Size''--a term no longer 
used in the rule--and substitutes the term ``a bid or offer.''
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to amend its rules governing firm quotations. 
The text of the proposed rule change is available at the Office of the 
Secretary, ISE 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 received on the proposed rule change. 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 such 
statements.

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

1. Purpose
    The purpose of this proposed rule change is to require ISE market 
makers to be firm for the stated size of their quotations in all 
instances. Earlier this year, the Exchange moved to ``one size'' for 
market maker quotations.\4\ As now in effect, a market maker's 
disseminated quotation is firm at its stated size for all incoming 
orders. However, there currently is one exception to the ``one size'' 
rule: when quotes of two ISE market makers interact, a market maker can 
limit its exposure to one contract, regardless of the size of its 
disseminated quotation. This proposed rule change will remove that 
exception.
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    \4\ See Securities Exchange Act Release No. 47220 (January 21, 
2003), 68 FR 4260 (January 28, 2003).
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    The ISE originally proposed the limited exception to the one-size 
rule to help limit market makers' risk during the transition to one 
size. Because quotations often change across multiple series in an 
options class, a market maker could be at risk when multiple quotes 
``hit'' the quotes of other market makers and multiple trades occur. At 
the time the ISE moved to one size, the Commission granted the ISE an 
exemption from the firm quote rule \5\ to permit market makers to limit 
their exposure in this limited situation.\6\ ISE market makers have now 
operated under the one-size rule for almost a year, and have grown 
increasingly comfortable with the rule. As a general matter, both the 
ISE and its market makers believe that all market maker quotations 
should be firm for the full size in all situations. Thus, the ISE 
proposes to eliminate the current exception.
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    \5\ 17 CFR 240.11Ac1-1.
    \6\ See letter from Robert L.D. Colby, Deputy Director, Division 
of Market Regulation, to Michael J. Simon, Senior Vice President and 
General Counsel, ISE, dated January 21, 2003.
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2. Statutory Basis
    The ISE states that the basis under the Act for this proposed rule 
change is the requirement under Section 6(b)(5) of the Act,\7\ that the 
rules of an exchange be designed 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. The ISE 
states that, in particular, the proposed rule change will further the 
development of the national market system by having ISE market makers 
be

[[Page 70059]]

fully compliant with Commission Rule 11Ac1-1 under the Act.\8\
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 17 CFR 240.11Ac1-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE does not believe that the proposed rule change will 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 ISE has not solicited, and does not intend to solicit, comments 
on this proposed rule change. The ISE 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) by order approve such proposed rule change; or
    (b) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-ISE-2003-34. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review comments more efficiently, your comments should be 
sent in hardcopy or by e-mail but not by both methods.
    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 Section, 450 Fifth Street, NW., 
Washington, DC 20549. 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-2003-34 and should be 
submitted by January 6, 2004.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30986 Filed 12-15-03; 8:45 am]
BILLING CODE 8010-01-P