[Federal Register Volume 69, Number 160 (Thursday, August 19, 2004)]
[Notices]
[Pages 51498-51500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50184; File No. SR-ISE-2004-20]


Self Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by International Securities 
Exchange, Inc. To Amend ISE Rule 722 Relating to Ratio Orders

August 12, 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 July 21, 2004, the International Securities Exchange, Inc. (the 
``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
by the ISE. The Exchange has filed the proposal as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A)(iii) of the 
Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange asked the Commission to waive the 30-day 
operative delay. See Rule 19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend Exchange Rule 722 ``Complex Orders'' to 
allow ratio orders equal to or greater than one-to-three (.333) and 
less than or equal to three-to-one (3.00). The text of the proposed 
rule change appears below. Proposed new language is in italics; 
proposed deletions are in [brackets].
    Rule 722. Complex Orders:
    (a) Complex Orders Defined. A complex order is any order for the 
same account as defined below:
    (1)-(5)--No change.
    (6) Ratio Order. A spread, straddle, or combination order may 
consist of legs that have a different number of contracts, so long as 
the number of contracts differs by a permissible ratio. For purposes of 
this paragraph, a permissible ratio [of contracts] is any ratio that is 
equal to or greater than [.5] one-to-three (.333) and less than or 
equal to three-to-one (3.00). For example, a one-to-two (.5) ratio, a 
two-

[[Page 51499]]

to-three (.667) ratio, or a two-to-one (2.0) ratio is permissible, 
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is not 
[(which is equal to .5) and a six-to-ten ratio (which is equal to .6) 
are permitted, but one-to-three ratio (which is equal to .333) is not].
* * * * *

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 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
    Under Exchange Rule 722(a)(6), a spread, straddle, or combination 
order may consist of legs that have a different number of contracts, so 
long as the number of contracts differs by a permissible ratio. 
Currently, a permissible ratio is any ratio that is equal to or greater 
than .5. For example, under the current rule, a one-to-two ratio (which 
is equal to .5) and a six-to-ten ratio (which is equal to .6) are 
permitted, but one-to-four ratio (which is equal to .25) is not.
    The Exchange proposes to amend the definition of a ratio order 
under Exchange Rule 722 to allow ratios down to one-to-three (.333). 
The Exchange also proposes to clarify the language of Exchange Rule 
722(a)(6) to specify that ratios of up to three-to-one (3.0) are also 
permitted. For example, a one-to-two (.5) ratio, a two-to-three (.667) 
ratio, or a two-to-one (2.0) ratio will be permissible, whereas a one-
to-four (.25) ratio or a four-to-one (4.0) ratio will not. The Exchange 
believes that permitting ratio orders to have ratios equal to or 
greater than one-to-three or less than or equal to three-to-one will 
help market participants to tailor their positions more precisely to 
implement their trading and hedging strategies.
    The Exchange notes that it is only proposing to change the 
definition of ratio order in Exchange Rule 722(a)(6) by changing which 
ratios are permissible thereunder. The Exchange intends to apply the 
same, current priority rules set forth in Exchange Rule 722(b) to the 
proposed ratio orders.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements under Section 6(b)(5) of the Act \6\ in that it is 
designed to promote just and equitable principles of trade, 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. The Exchange believes that the proposed rule change is 
consistent with these objectives in that it helps market participants 
to tailor their positions more precisely to implement their trading and 
hedging strategies.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the 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 \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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 Exchange satisfied the five-day 
pre-filing requirement. The Exchange further requests that the 
Commission waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii),\9\ and designate the proposed rule change to become 
operative immediately. The Exchange represents that the proposed rule 
change is based on a Chicago Board Options Exchange (``CBOE'') rule 
change recently approved by the Commission,\10\ and that, as a result, 
the ISE's proposed rule change does not present any novel issues.
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ See Securities Exchange Act Release No. 48858 (December 1, 
2003), 68 FR 68128 (December 5, 2003).
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    The Commission believes that it is consistent with the protection 
of investors and the public interest to designate the proposal 
immediately operative.\11\ The Commission believes that permitting 
ratio orders to have ratios equal to or greater than one-to-three 
(.333) or less than or equal to three-to-one (3.00) may provide market 
participants with greater flexibility and precision in effectuating 
trading and hedging strategies. The Commission also believes that the 
procedures governing ratio orders serve to reduce the risk of 
incomplete or inadequate executions.\12\ In designating the proposal 
immediately operative, the Commission also does not believe that the 
proposed rule change raises any new issues of regulatory concern. The 
Commission notes that the proposed rule change is similar to a CBOE 
proposed rule change recently approved by the Commission that was 
subject to the full notice and comment period.\13\ No comments were 
received on the CBOE proposal. Accordingly, the Commission, consistent 
with the protection of investors and the public interest, has waived 
the 30-day operative date requirement for this proposed rule change, 
and has determined to designate the proposed rule change as operative 
on July 21, 2004, the date it was submitted to the Commission.
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    \11\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \12\ We note that because of concerns that a higher ratio could 
provide market participants with a means to enter a ratio order that 
was designed primarily to give priority over orders on the limit 
order book or in the trading crowd, rather than to effectuate a 
bona-fide trading or hedging strategy, the Commission would need to 
closely examine any proposal to provide a higher ratio for ratio 
orders and would be concerned about whether such a proposal would be 
consistent with investor protection and the public interest under 
the Act.
    \13\ See supra note 10.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such proposed rule change 
if it appears

[[Page 51500]]

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.\14\
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    \14\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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 No. SR-ISE-2004-20 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-2004-20. 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 Room. Copies of the 
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-2004-20 and should be submitted by September 9, 
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. 04-18978 Filed 8-18-04; 8:45 am]
BILLING CODE 8010-01-P