[Federal Register Volume 69, Number 163 (Tuesday, August 24, 2004)]
[Notices]
[Page 52054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-1891]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50208; File No. SR-ISE-2004-19]


Self-Regulatory Organizations; Order Granting Approval to a 
Proposed Rule Change and Amendment No. 1 Thereto by the International 
Securities Exchange, Inc. Relating to the Entry of Electronically 
Generated Orders

August 17, 2004.
    On May 27, 2004, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend ISE Rule 717(f) to allow 
Electronic Access Members (``EAMs'') to enter electronically generated 
and communicated market orders, immediate-or-cancel limit orders, and 
fill-or-kill limit orders. On June 30, 2004, the Exchange filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change and Amendment No. 1 were published for comment in the Federal 
Register on July 8, 2004.\4\ The Commission received no comments on the 
proposal, as amended. This order approves the proposed rule change, as 
amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Michael J. Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division 
of Market Regulation, Commission, dated June 29, 2004 (``Amendment 
No. 1'').
    \4\ See Securities Exchange Act Release No. 49956 (July 1, 
2004), 69 FR 41320.
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    ISE Rule 717(f) limits the ability of EAMs to enter orders that are 
generated and communicated electronically. In its amended proposal, the 
Exchange represented that one purpose of this restriction is to 
prohibit non-market makers from effectively making markets on the 
Exchange using automated systems that place and cancel orders in a 
manner that is similar to quoting.\5\ Further, the Exchange represented 
that, as a general matter, it continues to believe that maintaining the 
prohibition on electronically generated orders is important to prevent 
EAMs from acting like market makers without also being subject to the 
responsibilities of market makers. However, the Exchange represented 
that it believes that market orders, immediate-or-cancel limit orders, 
and fill-or-kill limit orders, which are not eligible to rest on the 
limit order book, do not present the same ``market making'' potential 
as resting limit orders. Accordingly, the Exchange proposed to amend 
ISE Rule 717(f) to permit EAMs to enter electronically generated market 
orders, immediate-or-cancel limit orders, and fill-or-kill limit 
orders.
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    \5\ See id.
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange \6\ 
and, in particular, the requirements of Section 6(b)(5) of the Act,\7\ 
because it is designed to remove impediments to and perfect the 
mechanism of a free and open market and national market system and, in 
general, to protect investors and the public interest. Specifically, 
the Commission finds that the proposed rule change, as amended, is 
consistent with Section 6(b)(5) of the Act \8\ because it should 
benefit investors by allowing EAMs to electronically generate 
additional types of orders for their own account and for the accounts 
of investors whose orders they represent. The Commission believes that 
this should allow for greater speed and efficiency while continuing to 
satisfy the Exchange's desire to prevent EAMs from effectively making 
markets on the Exchange using automated systems that place and cancel 
orders in a manner that is similar to quoting.\9\
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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ In addition, the Commission notes that it recently approved 
a similar proposal by the Philadelphia Stock Exchange, Inc. to lift 
restrictions on electronically generated orders. See Securities 
Exchange Act Release No. 48648 (October 16, 2003) 68 FR 60762 
(October 23, 2003) (approving SR-Phlx-2003-37).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-ISE-2004-19), as 
amended, is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-1891 Filed 8-23-04; 8:45 am]
BILLING CODE 8010-01-P