[Federal Register Volume 69, Number 249 (Wednesday, December 29, 2004)]
[Notices]
[Pages 78075-78076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3864]



[[Page 78075]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50900; File No. SR-ISE-2004-36]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 Thereto Relating to Fee Changes

December 21, 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 November 30, 2004, the International Securities Exchange, Inc. 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
by the ISE. On December 15, 2004, the ISE filed an amendment to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated December 15, 2004 (''Amendment No. 
1''). In Amendment No. 1, ISE updated the attached Schedule of Fees 
to reflect the applicable text in effect as of the date of filing of 
the proposed rule change, included clarifying language explaining 
the Exchange's purpose in extending the QQQ cap and fee waiver, 
removed the reference to a proposed change to the Schedule of Fees 
concerning the Exchange's proposed Price Improvement Mechanism 
(``PIM'') that was pending Commission approval at the time of 
filing, and made other conforming changes to the text of the 
proposed rule change. The Exchange plans to resubmit the proposed 
change relating to the ISE Schedule of Fees dealing with the PIM in 
a separate, subsequent rule filing to the Commission.
    Amendment No. 1 to the proposed rule change replaced the 
original proposed rule change in its entirety.
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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 its Schedule of Fees to: (i) Extend, 
for one year, until November 30, 2005, a program that caps and waives 
execution and comparison fees for transactions in options on the Nasdaq 
100 Tracking Stock (``QQQ'') when a member transacts a certain number 
of QQQ option contracts; (ii) increase, from 700,000 to 1,000,000, the 
Exchange's average daily volume (``A.D.V.'') breakpoint which is used 
for determining the execution fee for market maker and firm proprietary 
transactions; and (iii) delete references to expired fee waivers.

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. 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 Exchange proposes to amend the ISE Schedule of Fees to (i) 
extend, for one year, until November 30, 2005, a program that caps and 
waives execution and comparison fees for transactions in QQQ options 
when a member transacts a certain number of QQQ option contracts, (ii) 
increase, from 700,000 to 1,000,000, the Exchange's A.D.V. breakpoint 
which is used for determining the execution fee for market maker and 
firm proprietary transactions, and (iii) delete references to expired 
fee waivers.
    Specifically, the Exchange proposes to extend, until November 30, 
2005, its program that caps and waives execution and comparison fees 
for transactions in QQQ options when a member transacts a certain 
number of QQQ option contracts on the Exchange. Under that program, 
when a member's A.D.V. in QQQ options reaches 8,000 contracts, the 
member's execution fee for the next 2,000 QQQ option contracts is 
reduced by $.10 per contract. Further, when a member's monthly A.D.V. 
in QQQ options reaches 10,000 contracts, the Exchange waives the entire 
execution fee and the comparison fee for each QQQ option contract 
traded thereafter. The Exchange instituted this program in November 
2003 for a six month period, expiring in May 2004.\4\ The Exchange 
extended this program in May 2004 for an additional six month period, 
expiring in November 2004.\5\ The Exchange now proposes extending this 
program for a one year period, expiring on November 30, 2005. The 
Exchange seeks to extend this program for competitive reasons. This 
program was initiated and extended in an attempt to increase the 
Exchange's market share in the QQQ option product.
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    \4\ See Securities Exchange Act Release No. 49147 (Jan. 29, 
2004), 69 FR 5629 (Feb. 5, 2004) (File No. SR-ISE-2003-32).
    \5\ See Securities Exchange Act Release No. 49853 (June 14, 
2004), 69 FR 35087 (June 23, 2004) (File No. SR-ISE-2004-15).
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    The Exchange also proposes to increase, from 700,000 to 1,000,000, 
the Exchange's A.D.V breakpoint which is used for determining the 
execution fee for market maker and firm proprietary transactions. The 
breakpoints were established when the Exchange commenced trading in May 
2000, and have not been revised since that time. As a result of the 
increase in the overall industry A.D.V. and Exchange A.D.V., the 
Exchange is proposing to revise the breakpoint so that it is more 
reflective of the current overall industry A.D.V., as well as current 
Exchange A.D.V. Accordingly, the Exchange is proposing to revise the 
calculation so that a $.14 per contract charge is applied when Exchange 
A.D.V. is from 500,001 to 1,000,000 contracts, and a $.12 per contract 
charge is applied when Exchange A.D.V. is over 1,000,000 contracts.\6\
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    \6\ The Commission notes that the effect of the increased 
breakpoint contained in the proposed rule change will be to increase 
by $0.02 the per contract charge when Exchange A.D.V. is from 
700,001 to 1,000,000 contracts.
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    Furthermore, the Exchange proposes to delete the following 
references to expired fee waivers for certain transactions in S&P 
MidCap 400 Index options: the market maker and firm proprietary 
execution fee waiver that expired on November 25, 2004; and the non-
Public Customer Order surcharge execution fee waiver that expired on 
November 25, 2004.
2. Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement under Section 6(b)(4) of the Act \7\ that an 
exchange have an equitable allocation of reasonable dues, fees and 
other charges among its members and other persons using its facilities. 
In particular, the Exchange believes that the proposed rule change 
would enable the Exchange to continue offering competitively priced 
products.
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    \7\ 15 U.S.C. 78f(b)(4).
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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.

[[Page 78076]]

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

    The foregoing rule change, as amended, has become effective 
pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and Rule 19b-4(f)(2) 
\9\ thereunder, in that it establishes or changes a due, fee, or other 
charge imposed by the Exchange. Accordingly, the proposal will take 
effect upon filing the amended proposal with the Commission. At any 
time within 60 days after the filing of Amendment No. 1 to the 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.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 19b-4(f)(2).
    \10\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the abrogation period to have begun on 
December 15, 2004, the date on which the Commission received 
Amendment No. 1.
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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-2004-36 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-2004-36. 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 Commissions 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 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-2004-36 and should be submitted by January 19, 2005.

    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. E4-3864 Filed 12-28-04; 8:45 am]
BILLING CODE 8010-01-P