[Federal Register Volume 69, Number 3 (Tuesday, January 6, 2004)]
[Notices]
[Pages 714-716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-216]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49009; File No. SR-ISE-2003-39]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
International Securities Exchange, Inc., Relating to the Extension of a 
Linkage Fee Pilot Program

December 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 December 18, 2003, the International Securities Exchange, Inc. 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in

[[Page 715]]

Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 extend until July 31, 2004 the current 
pilot program regarding transaction fees charged for trades executed 
through the intermarket options linkage (``Linkage''). Currently 
pending before the Commission is a filing to make such fees 
permanent.\3\
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    \3\ See File No. SR-ISE-2003-30 (the ``Permanent Fee Filing'').
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    The proposed fee schedule 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 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 III 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 extend for six 
months the pilot program establishing ISE fees for Principal (``P'') 
Orders and Principal Acting as Agent (``P/A'') Orders executed through 
Linkage. The fees currently are effective for a pilot program scheduled 
to expire on January 30, 2004,\4\ and this filing would extend the fees 
through July 31, 2004. The three fees the ISE charges for P and P/A 
orders are: The basic execution fees for trading on the ISE, which 
range from $.12 to $.21 per contract/side depending on average daily 
trading volume on the Exchange; a $.10 surcharge per contract/side for 
trading certain licensed products; and a $.03 comparison fee per 
contract/side (collectively ``Linkage fees''). These are the same fees 
that all ISE Members pay for non-customer transactions executed on the 
Exchange.\5\ The ISE does not charge for the execution of Satisfaction 
Orders sent through Linkage and is not proposing to charge for such 
orders.
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    \4\ See Securities Exchange Act Release No. 47719 (April 23, 
2003), 68 FR 22764 (April 29, 2003) (SR-ISE-2003-11).
    \5\ The ISE charges these fees only to its Members, generally 
firms who clear P and P/A Orders for market makers on the other 
linked exchanges.
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    In the Permanent Fee Filing, the ISE discusses in detail the 
reasoning why it believes it is appropriate to charge fees for P and P/
A Orders executed through Linkage. In sum, market makers on competing 
exchanges can match a better price on the ISE; they never are obligated 
to send orders to the ISE through Linkage. However, if such market 
makers do seek the ISE's liquidity, whether through conventional orders 
or through the use of P Orders or P/A Orders, the Exchange believes it 
is appropriate to charge our Members the same fees levied on other non-
customer orders. The ISE appreciates that there has been limited 
experience with Linkage and that the Commission is continuing to study 
Linkage in general and the effect of fees on trades executed through 
Linkage. Thus, this filing would extend the status quo for ISE's 
Linkage fees for six months while the Commission considers the 
Permanent Fee Filing.
2. Statutory Basis
    The ISE believes that the basis for this proposed rule change is 
the requirement under Section 6(b)(4) under the Act \6\ that an 
exchange provide for the equitable allocation of reasonable dues, fees 
and other charges among its members and other persons using its 
facilities. As discussed in more detail above, the ISE believes that 
this proposed rule change will equitably allocate fees by having all 
non-customer users of ISE transaction services pay the same fees. If 
the ISE were not to charge Linkage fees, the Exchange's fees would not 
be equitable, in that ISE Members would be subsidizing the trading of 
their competitors, all of whom access the same trading services.
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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 does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Moreover, the ISE believes that 
failing to adopt the proposed rule change would impose a burden on 
competition by requiring ISE Members to subsidize the trading of their 
competitors.

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. 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-ISE-2003-39. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, 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 Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should be submitted by January 27, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission 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,\7\ and, in particular, with the requirements of section 6(b) 
of the Act \8\ and the rules

[[Page 716]]

and regulations thereunder. The Commission finds that the proposed rule 
change is consistent with section 6(b)(4) of the Act,\9\ which requires 
that the rules of the Exchange provide for the equitable allocation or 
reasonable dues, fees, and other charges among its members other 
persons using its facilities. The Commission believes that the 
extension of the Linkage fee pilot until July 31, 2004 will give the 
Exchange and the Commission further opportunity to evaluate whether 
such fees are appropriate.
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    \7\ In approving this rule, the Commission notes that it has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Commission finds good cause, pursuant to section 19(b)(2) of 
the Act,\10\ for approving the proposed rule change prior to the 
thirtieth day after the date of publication of the notice of the filing 
thereof in the Federal Register. The Commission believes that granting 
accelerated approval will preserve the Exchange's existing pilot 
program for Linkage fees without interruption as the ISE and the 
Commission further consider the appropriateness of Linkage fees.
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    \10\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-ISE-2003-39) is hereby 
approved on an accelerated basis for a pilot period to expire on July 
31, 2004.
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    \11\ Id.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-216 Filed 1-5-04; 8:45 am]
BILLING CODE 8010-01-P