[Federal Register Volume 69, Number 67 (Wednesday, April 7, 2004)]
[Notices]
[Pages 18411-18413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7824]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49509; File No. SR-ISE-2004-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange, Inc. Relating to the Extension and Expansion of the Pilot 
Program for Quotation Spreads

March 31, 2004.
    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 March 30, 2004, 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 and II below, which Items have been prepared by the ISE. The 
proposed rule change has been filed by the ISE under Rule 19b-4(f)(6) 
of the Act.\3\ 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\ 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

    On March 19, 2003, the Commission approved an ISE proposal to 
establish a pilot program permitting the allowable quotation spread for 
options on up to 50 equity securities to be $5, regardless of the price 
of the bid (``Pilot Program'').\4\ The ISE proposes to extend the Pilot 
Program until June 29, 2004, and to expand the Pilot Program to include 
all equity options trading on the ISE. Pursuant to Rule 19b-4(f)(6) 
under the Act, the ISE requests that the Commission waive the 30-day 
pre-operative requirement contained in Rule 19b-4(f)(6)(iii).\5\
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    \4\ See Securities Exchange Act Release No. 47532, 68 FR 14728 
(March 26, 2003) (order approving File No. SR-ISE-2001-15) (``Pilot 
Program Approval Order'').
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change appears below. Additions are 
italicized; deletions are bracketed.

Rule 803. Obligations of Market Makers

* * * * *

Supplementary Material to Rule 803

    .01 Pursuant to paragraph (b)(4) of Rule 803, during a [six-month] 
pilot period expiring on [March 31] June 29, 2004, [the Exchange may 
designate options on up to fifty (50) underlying securities that] all 
options classes may be quoted with a difference not to exceed $5 
between the bid and offer regardless of the price of the bid.
* * * * *
    (a) Inapplicable.
    (b) Inapplicable.

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 IV below. The ISE has prepared

[[Page 18412]]

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 ISE's rules contain maximum quotation spread requirements that 
vary from $.25 to $1.00, depending on the price of the option. On March 
19, 2003, the Commission approved a proposal to amend Supplementary 
Material .01 to ISE Rule 803, ``Obligations of Market Makers,'' to 
establish a six-month Pilot Program in which the allowable quotation 
spread for options on up to 50 underlying equity securities would be 
$5, regardless of the price of the bid.\6\ The Pilot Program has been 
extended twice.\7\ As required by the Pilot Program Approval Order, the 
ISE has submitted to the Commission a report detailing the ISE's 
experience with the Pilot Program.
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    \6\ See Pilot Program Approval Order, supra note 4.
    \7\ See Securities Exchange Act Release Nos. 48514 (September 
22, 2003), 68 FR 55685 (September 26, 2003) (notice of filing and 
immediate effectiveness of File No. SR-ISE-2003-21) (extending the 
Pilot Program through January 31, 2004); and 49149 (January 29, 
2004), 69 FR 05627 (notice of filing and immediate effectiveness of 
File No. SR-ISE-2004-02) (extending the Pilot Program through March 
31, 2004).
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    The ISE believes that the Pilot Program has been successful, and 
the ISE has filed a proposal with the Commission to make the Pilot 
Program permanent and to apply it to all ISE listed equity options.\8\ 
The purpose of the current proposal is to expand the Pilot Program to 
cover all equity options trading on the ISE and to extend the Pilot 
Program until June 29, 2004, while the Commission considers the ISE's 
proposal to make the Pilot Program permanent. During the extension, the 
ISE will provide the Commission with an updated Pilot Program report 
that covers all of the equity options classes in the expanded Pilot 
Program. The ISE will provide the updated report to the Commission by 
June 15, 2004.
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    \8\ See File No. SR-ISE-2003-22.
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2. Statutory Basis
    According to the ISE, the statutory basis for the proposal is the 
requirement under section 6(b)(5) of the Act \9\ that a national 
securities exchange have rules that are 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.
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    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE 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.

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 the proposed rule change. The ISE has not received any unsolicited 
written comments from members or other interested persons.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The ISE has filed the proposed rule change pursuant to section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ Because the foregoing proposed rule change: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder. As required under Rule 19b-
4(f)(6)(iii), the ISE provided the Commission with written notice of 
its intent to file the proposed rule change at least five business days 
prior to filing the proposal with the Commission or such shorter period 
as designated by the Commission.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The ISE has requested that the 
Commission waive the 30-day operative delay to prevent a lapse in the 
operation of the Pilot Program.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will permit the Pilot Program to continue without 
interruption through June 29, 2004, and will expand the Pilot Program 
to include all equity options trading on the ISE, thereby helping the 
ISE to assess the effects of the $5 spreads permitted under the Pilot 
Program.\12\ For these reasons, the Commission designates the proposal 
to be operative upon filing with the Commission.
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether it 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-
2004-10. The file number should be included on the subject line if e-
mail is used. To help the Commission process and review 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 at 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-2004-10 and should be submitted by April 28, 2004.


[[Page 18413]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-7824 Filed 4-6-04; 8:45 am]
BILLING CODE 8010-01-P