[Federal Register Volume 70, Number 31 (Wednesday, February 16, 2005)]
[Notices]
[Pages 7985-7986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-641]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51176; File No. SR-ISE-2005-03]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 Relating to the Calculation of Securities 
Indexes Underlying Options

February 9, 2005.
    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 January 5, 2005, the International Securities Exchange, Inc. 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' rule change 
pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. On February 4, 2005, the Exchange filed Amendment No. 1 
to the proposal.\5\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ In Amendment No. 1, the Exchange modified the purpose 
section of the proposed rule change to reflect that the proposal is 
intended to clarify ISE rules pertaining to the source of pricing 
information for securities that comprise any particular securities 
index on which options are traded on the Exchange. Additionally, the 
Exchange withdrew its request for the waiver of the 30-day operative 
period, as the Exchange does not currently trade options on any 
indexes that may be subject to this rule.
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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 its rules to clarify the determination of 
the source of securities price information used to calculate values of 
certain securities indexes underlying options traded on the Exchange. 
The text of the rule change is below. Proposed new language is 
italicized.\6\
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    \6\ The proposed rule language is based on a Chicago Board 
Options Exchange, Inc. (``CBOE'') rule change recently approved by 
the Commission. See Securities Exchange Act Release No. 50269 
(August 26, 2004), 69 FR 53755 (September 2, 2004).
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Rule 2009. Terms of Index Options Contracts
    (a)-(e) no change.

[[Page 7986]]

    (f) Index Level at Expiration. With respect to any securities index 
on which options are traded on the Exchange, the source of the prices 
of component securities used to calculate the current index level at 
expiration is determined by the reporting authority for that index.

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
    The purpose of this proposed rule change is to clarify ISE rules 
related to index options as they pertain to the source of pricing 
information for securities that comprise any particular securities 
index on which options are traded on the Exchange. The purpose of the 
rule change is to clarify that the ``reporting authority'' (or index 
calculator) for any securities index on which options are traded on the 
ISE may determine to use the reported sale prices for one or more 
underlying securities from a market that may not necessarily be the 
primary market for that security in calculating the appropriate index 
value.\7\ This clarification is necessary because ISE's rules may be 
read to mean that the primary market for each security that comprises 
an index will always be the source of reported sale prices to calculate 
the index. While the Exchange does not currently trade options on any 
indexes that are calculated by using prices from sources other than the 
primary market, the Exchange seeks to adopt this rule in the event it 
does list such options in the future.
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    \7\ On May 12, 2004, Dow Jones & Company (``Dow Jones'') 
published a plan to implement a pilot program in which Dow Jones 
proposed to use the opening and closing prices of Nasdaq-listed 
stocks reported from the American Stock Exchange to calculate 
certain Dow Jones Averages. Dow Jones has since terminated the pilot 
program.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder and, in particular, 
the requirements of Section 6(b) of the Act.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(5) \9\ requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, 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.

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 not solicited 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

    Because the foregoing rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate, it 
has become effective \10\ pursuant to Section 19(b)(3)(A) of the Act 
\11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ The Exchange provided the Commission with notice of its 
intent to file the proposed rule change at least five days prior to 
the filing date.
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-03 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-2005-03. 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-2005-03 and should be submitted on or before March 
9, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-641 Filed 2-15-05; 8:45 am]
BILLING CODE 8010-01-P