[Federal Register Volume 69, Number 127 (Friday, July 2, 2004)]
[Notices]
[Pages 40427-40429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15084]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49918; File No. SR-ISE-2004-23]


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

June 25, 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 June 24, 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 Pilot Program was extended 
several times, most recently until June 29, 2004, and expanded to 
include all options trading on the ISE.\5\ The ISE proposes to extend 
the Pilot Program until July 29, 2004. To prevent a lapse in the 
operation of the Pilot Program, the ISE has asked the Commission to 
waive the 30-day operative delay contained in

[[Page 40428]]

Rule 19b-4(f)(6)(iii).\6\ The text of the proposed rule change appears 
below. Additions are italicized; deletions are bracketed.
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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\ 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); 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); and 49509 (March 31, 2004), 69 FR 18411 (April 7, 2004) 
(notice of filing and immediate effectiveness of File No. ISE-2004-
10) (extending the Pilot Program through June 29, 2004, and 
expanding the Pilot Program to include all options trading on the 
ISE).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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Rule 803. Obligations of Market Makers

* * * * *

Supplementary Material To Rule 803

    .01 Pursuant to paragraph (b)(4) of Rule 803, during a pilot period 
expiring on [June] July 29, 2004, 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.
* * * * *
    (b) Inapplicable.
    (c) 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 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 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.\7\ The Pilot Program has been extended several times.\8\
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    \7\ See Pilot Program Approval Order, supra note 4.
    \8\ See note 5, supra.
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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.\9\ In this regard, and as required by the Pilot 
Program Approval Order, the ISE submitted to the Commission a report 
detailing the ISE's experience with the Pilot Program, which provided 
data regarding the 50 equity options initially included in the Pilot 
Program.
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    \9\ See Securities Exchange Act Release No. 49754 (May 21, 
2004), 69 FR 30352 (May 27, 2004) (notice of filing of File No. SR-
ISE-2003-22) (``May 2004 Notice'').
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    The purpose of the current proposal is to extend the Pilot Program 
until July 29, 2004, while the Commission considers the ISE's proposal 
to make the Pilot Program permanent. During the extension and pursuant 
to the May 2004 Notice,\10\ the ISE will provide the Commission with an 
updated Pilot Program report that covers all of the options classes in 
the expanded Pilot Program. The ISE will provide the updated report to 
the Commission by June 29, 2004.
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    \10\ See note 9, supra.
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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 \11\ 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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    \11\ 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 parties.

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 \12\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 July 29, 2004.\14\ For this reason, the Commission 
designates the proposal to be operative upon filing with the 
Commission.
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    \14\ 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 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-2004-23 on the subject line.

[[Page 40429]]

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-2004-23. 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 office 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-
2004-23 and should be submitted on or before July 23, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-15084 Filed 7-1-04; 8:45 am]
BILLING CODE 8010-01-P