[Federal Register Volume 69, Number 123 (Monday, June 28, 2004)]
[Notices]
[Pages 36144-36145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14584]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49888; File No. SR-ISE-2004-06]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by International 
Securities Exchange, Inc., Relating to Handling of Principal Acting as 
Agent Orders Under Linkage

June 17, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 4, 2004, the International Securities Exchange, Inc. (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval to the proposed rule change.
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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 amend the requirements regarding how our 
Members handle Principal Acting as Agent Orders (``P/A Orders'') 
pursuant to the intermarket linkage (``Linkage''). 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 implement proposed 
Joint Amendment No. 10 to the Plan for the Purpose of Creating and 
Operating an Intermarket Option Linkage (``Linkage Plan'').\3\ That 
amendment, together with this proposed rule change, will clarify the 
manner in which an ISE Member may send P/A Orders that are larger than 
the Firm Customer Quote Size (``FCQS''). A P/A Order is an order for 
the account of an ISE Primary Market Maker (``PMM'') or a specialist or 
specialist equivalent on another exchange for its own account 
reflecting the terms of an unexecuted customer order for which the PMM 
has responsibility. The FCQS is the minimum size for which an exchange 
must provide an execution in its automatic execution system for a P/A 
Order, if the exchange's auto-ex system is available.
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    \3\ See Securities Exchange Act Release No. 49689 (May 12, 
2004), 69 FR 28953 (May 19, 2004) (File No. 4-429) (Notice of Filing 
of Joint Amendment No. 10 to the Linkage Plan).
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    Currently, Linkage Plan Section 7(a)(ii)(B) and ISE Rule 1901 
(``ISE Rule'') provide a PMM with two ways to handle such orders. 
First, the PMM may send a P/A Order larger than the FCQS for manual 
processing at the receiving exchange. Second, the PMM may send an 
initial P/A Order for up to the FCQS. If the PMM then seeks to send 
another P/A Order, it must send an order for the lesser of the entire 
remaining size of the underlying customer order or 100 contracts.
    This proposed rule change addresses the handling of orders if the 
PMM chooses the second alternative, the sending of multiple P/A Orders. 
As currently drafted, the Linkage Plan and ISE Rule do not recognize 
the possibility that an exchange's disseminated quotation may be for 
less than either the remaining size of the customer order or 100 
contracts. Thus, this proposal specifies that a PMM sending a second P/
A Order may limit such order to the lesser of: (1) The remaining size 
of the customer order; (2) 100 contracts; or (3) the size of the 
receiving exchange's disseminated quotation.
    In addition, there is a practical issue if multiple exchanges are 
displaying the same bid or offer. In that case, the Linkage Plan is 
unclear as to whether a PMM must send the entire order to one exchange 
or can send orders to multiple exchanges, as long as they are for the 
size of the entire order, or 100 contracts, in the aggregate. This 
proposed rule change clarifies the ISE Rule to specify that a PMM may 
send P/A Orders to multiple exchanges, as long as all such orders, in 
the aggregate, are for the lesser of the entire remaining size or 100 
contracts. However, as is the case when only one exchange is at the 
NBBO, a PMM may limit the size of any single additional order to the 
size of the receiving market's disseminated quotation.
2. Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act \4\ that an exchange have 
rules that are 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 transaction in securities, to remove impediments to and 
perfect the mechanism for a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
In particular, the Exchange believes that the proposed rule change will 
enhance the national market system for options by improving the way all 
exchanges handle P/A Orders.
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    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

[[Page 36145]]

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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-ISE-2004-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-ISE-2004-06. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be 
available for inspection and copying at the principal offices of the 
ISE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-ISE-
2004-06 and should be submitted on or before July 19, 2004.

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

    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.\5\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act \6\ 
which requires, among other things, that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market, and 
to protect investors and the public interest. The Commission believes 
that the proposed rule change should clarify the PMM's obligations in 
the handling P/A Orders, which should facilitate the efficient handling 
of P/A Orders through the Linkage.
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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of the 
notice thereof in the Federal Register. As noted above, the proposed 
rule change incorporates changes into the ISE Rules that correspond to 
changes made to the Linkage Plan through Joint Amendment No. 10, which 
was published for comment on May 19, 2004.\7\ The Commission received 
no comments on the substance of that Amendment. The Commission believes 
that no new issues of regulatory concern are being raised by ISE's 
proposed rule change. The Commission believes, therefore, that granting 
accelerated approval of the proposed rule change is appropriate and 
consistent with Sections 6 and 19(b) of the Act.\8\
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    \7\ See note 3, supra.
    \8\ 15 U.S.C. 78f and 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-ISE-2004-06) is approved on 
an accelerated basis.
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    \9\ 15 U.S.C. 78s(b)(2).

    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. 04-14584 Filed 6-25-04; 8:45 am]
BILLING CODE 8010-01-P