[Federal Register Volume 70, Number 48 (Monday, March 14, 2005)]
[Notices]
[Pages 12518-12521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1051]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51327; File No. SR-ISE-2005-16]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
International Securities Exchange, Inc., Relating to the Nomination of 
Its Class B Directors Pursuant to Its Amended and Restated Constitution

March 7, 2005.
    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 March 2, 2005, the International Securities Exchange, Inc. (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
items I and II below, which items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons, and is approving the 
proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend its Amended and Restated 
Constitution (which also serves as the Exchange's Bylaws) (the 
``Amended Constitution'') to provide for earlier notification to ISE of 
nominations of candidates to serve as Series B-1, Series B-2 and Series 
B-3 Directors (as defined below).
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.

Amended and Restated Constitution of International Securities Exchange, 
Inc.

(Serving also as the Bylaws of the Corporation)

* * * * *
    Section 3.10 Nomination of Directors. (a) (i) Nominees for election 
of the Series B-1 Directors, Series B-2 Directors and Series B-3 
Directors shall be selected by the Nominating Committee as provided in 
Section 5.3(c) or in this Section 3.10.
    (ii) In addition to the nominees for the Series B-1 Directors, 
Series B-2 Directors and Series B-3 Directors named by the Nominating 
Committee, persons eligible to serve as such may be nominated for 
election to the Board by a petition, signed by the holders of not less 
than five percent (5%) of the outstanding shares of stock of such 
series or class, as applicable, entitled to elect such person if there 
are more than eighty (80) shares in the class or series entitled to 
vote, ten percent (10%) of the outstanding shares of stock of such 
series or class, as applicable, entitled to elect such person if there 
are between eighty (80) and forty (40) shares in the class or series 
entitled to vote, and twenty-five percent (25%) of the outstanding 
shares of stock of such series or class, as applicable, entitled to 
elect such person if there are less than forty (40) shares in the class 
or series entitled to vote. Such petition must be filed with the 
Secretary at least [one month] 45 days prior to the annual meeting for 
such year. Petitions submitted must contain, for each nominee, all 
information relating to such nominee that is required to be disclosed 
in solicitations of proxies for the election of directors, or is 
otherwise required, in each case pursuant to Regulation 14A under the 
Exchange Act, including such person's written consent to be named in 
the proxy statement as a nominee and a statement that such nominee 
complies with the relevant requirements set forth in the Amended and 
Restated Certificate of Incorporation and this Constitution.
* * * * *
    Section 5.3 Nominating Committee. (a) The Nominating Committee 
shall not act as a committee of the Board, but rather shall be a 
committee of the Corporation. The Nominating Committee shall be 
composed of one (1) Series B-1 Common Stock representative, one (1) 
Series B-2 Common Stock representative and one (1) Series B-3 Common 
Stock representative. No officer or employee of the Corporation shall 
serve on the Nominating Committee. Not less than [30] 60 days, but not 
more than [45] 75 days, prior to each annual meeting of stockholders, 
the Nominating Committee shall select nominees for each Class B 
directorship to be filled. The Board shall appoint the members of the 
Nominating Committee in accordance with this Section 5.3.
* * * * *

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 III below. The self-regulatory organization 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 its Amended Constitution to provide 
for earlier notification to ISE of nominations of candidates to serve 
as Series B-1 Directors,\3\ Series B-2 Directors \4\ and Series B-3 
Directors \5\ (collectively, the ``Class B Directors''). The Board 
currently consists of 15 members, 8 of whom are elected by the holders 
of the Class A Common Stock, including at least 2 of whom are public 
representatives (the ``Non-Industry Directors''), 6 of whom are elected 
by the holders of the Class B Common Stock (the ``Industry Directors'') 
and the Chief Executive Officer of the Exchange.\6\ Nominees for 
election to the Board to serve as Industry Directors are currently 
selected by the Exchange's Nominating Committee, which is not a 
committee of the Board, and is comprised of representatives of the 
holders of Class B Common Stock,

[[Page 12519]]

Series B-1, par value $.01 per share (the ``Series B-1 Stock''), Class 
B Common Stock, Series B-2, par value $.01 per share (the ``Series B-2 
Stock'') and Class B Common Stock, Series B-3, par value $.01 per share 
(the ``Series B-3 Stock'' and together with the Series B-1 Stock and 
Series B-2 Stock, the ``Class B Common Stock'') and are elected by the 
relevant series of holders of Class B Common Stock.\7\ The Amended 
Constitution currently requires the Nominating Committee to select its 
nominees for Class B Directors not less than 30, but not more than 45, 
days prior to each annual meeting of stockholders.\8\ After the 
Nominating Committee selects its slate of Class B Director nominees, 
Class B stockholders may also directly nominate Industry Director 
candidates for election to the Board by petition.\9\ Petitions properly 
submitted by the Class B stockholders with respect to the nomination of 
persons eligible to serve as Series B-1, Series B-2 or Series B-3 
Directors, as the case may be, must be filed with the Secretary of the 
Exchange at least one month prior to each annual meeting of 
stockholders.\10\ The Non-Industry Directors are selected by the 
Corporate Governance Committee, which is a committee of the Board, 
prior to the annual meeting of stockholders and the Non-Industry 
Directors and the Chief Executive Officer are elected by the holders of 
shares of Class A Common Stock.\11\ Under the Exchange's ``advance 
notice'' bylaw provision, Class A stockholders may also nominate Non-
Industry Directors by petition, though they must do so prior to knowing 
the Corporate Governance Committee's slate of nominees.\12\
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    \3\ Pursuant to section 3.2(b) of the Amended Constitution, the 
``Series B-1 Directors'' are two directors who are officers, 
directors or partners of Primary Market Makers and are elected by 
the holders of Class B Common Stock, Series B-1, par value $.01 per 
share. Primary Market Makers (``PMMs'') are market makers with 
significant responsibilities, including overseeing the opening of 
trading in their assigned options classes, providing continuous 
quotations in all of their assigned options classes, and handling 
customer orders that are not automatically executed. See Chapter 8 
of the ISE Rules for a discussion of the role of PMMs.
    \4\ Pursuant to section 3.2(b) of the Amended Constitution, the 
``Series B-2 Directors'' are two directors who are officers, 
directors or partners of Competitive Market Makers and are elected 
by the holders of Class B Common Stock, Series B-2, par value $.01 
per share. Competitive Market Makers (``CMMs'') are market makers 
that add depth and liquidity to the market and are required to 
provide continuous quotations in at least 60% of the options classes 
in their assigned group. See Chapter 8 of the ISE Rules for a 
discussion of the role of CMMs.
    \5\ Pursuant to section 3.2(b) of the Amended Constitution, the 
``Series B-3 Directors'' are two directors who are officers, 
directors or partners of Electronic Access Members and are elected 
by the holders of Class B Common Stock, Series B-3, par value $.01 
per share. Electronic Access Members (``EAMs'') are broker-dealers 
that represent agency and proprietary orders on ISE, and cannot 
enter quotations or otherwise engage in market making activities on 
ISE. See Chapter 8 of the ISE Rules for a discussion of the role of 
EAMs.
    \6\ Amended Constitution, section 3.2 (b).
    \7\ Amended Constitution, section 5.3(a).
    \8\ Amended Constitution, section 5.3(a).
    \9\ Amended Constitution, section 3.10(a)(ii).
    \10\ Amended Constitution, section 3.10(a)(ii). Section 
3.10(a)(ii) also requires that any petitions submitted must be 
signed by the holders of not less than 5% of the outstanding shares 
of stock of such series or class, as applicable, entitled to elect 
such nominee if there are more than 80 shares in the class or series 
entitled to vote, 10% of the outstanding shares of stock of such 
series or class, as applicable, entitled to elect such nominee if 
there are between 80 and 40 shares in the class or series entitled 
to vote, and 25% of the outstanding shares of stock of such series 
or class, as applicable, entitled to elect such nominee if there are 
less than 40 shares in the class or series entitled to vote. The 
Exchange represents that there are currently 10 shares of Series B-1 
Stock, 143 shares of Series B-2 Stock and 123 shares of Series B-3 
Stock outstanding.
    \11\ Amended Constitution, sections 2.7 and 3.2(b).
    \12\ Amended Constitution, sections 2.7 and 3.10(b)(ii). In 
general, petitions by Class A stockholders must be submitted not 
less than 60 days nor more than 90 days prior to the first 
anniversary of the preceding year's annual meeting. The Exchange 
believes that the receipt of Class A stockholders' petitions in the 
current timeframe will provide adequate time for the inclusion of 
those nominees in the proxy statement.
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    In July 2004, the Exchange filed a registration statement on Form 
S-1 in connection with its contemplated initial public offering of 
shares of its Class A common stock, par value $.01 per share.\13\ Upon 
becoming a public company with shares listed and traded on a national 
securities exchange, the Exchange will be required to meet certain 
reporting and disclosure obligations under the Act, including with 
respect to the solicitation of proxies in connection with its annual 
meeting of stockholders for the election of directors and other proper 
matters. Specifically, the Exchange will be required to file its proxy 
statement within 120 days after the end of its fiscal year, or the end 
of April.\14\ However, like many public companies, the Exchange has set 
its annual meeting of stockholders to occur in mid-May, and to ensure 
proper time to solicit proxies before the annual stockholders' meeting, 
the Exchange believes it should mail its proxy statement by mid-
April.\15\ Under the current timeframe for the nomination of candidates 
to serve as Class B Directors provided for in the Amended Constitution, 
it would not be practicable--given drafting, printing and mailing 
considerations--to accommodate the inclusion of the Class B Director 
nominees in ISE's proxy statement and also ensure adequate time between 
the mailing of its proxy statement and the annual meeting of 
stockholders for the proper solicitation of stockholder proxies.
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    \13\ See ISE's Form S-1 (File No. 333-117145). At the time of 
the filing of this Form 19b-4, ISE's Form S-1 had not yet been 
declared effective by the Securities and Exchange Commission. See 
also Securities Exchange Act Release No. 51029 (January 12, 2005), 
70 FR 3233 (January 21, 2005) (approving certain amendments to the 
Certificate of Incorporation, Constitution and Rules of ISE in 
connection with ISE's proposed initial public offering).
    \14\ See General Instruction G(3) to Form 10-K under the Act.
    \15\ While there are no legal requirements regarding the amount 
of time the Exchange must provide with respect to the solicitation 
of proxies prior to its annual stockholders' meeting, the Exchange 
notes that, upon becoming a public company, its stockholder base 
will be much larger than it is currently and it is not uncommon for 
publicly held shares to be held in ``street name'' (i.e., in the 
name of a broker on behalf of the beneficial owner of the shares). 
The Exchange will mail the proxy statement to the record holders of 
shares. These record holders, many of whom will be ``street name'' 
holders, may in turn need time to mail the proxy statements to the 
ultimate beneficial owners of the shares, after which the beneficial 
owners will need time to return their proxies. To ensure adequate 
time for this process, the Exchange believes that it needs at least 
four weeks between the mailing of the proxy statement and the date 
of the annual meeting. The Exchange further believes that this four-
week period is in line with the current practice among public 
companies.
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    Accordingly, the Exchange proposes to require that the Nominating 
Committee select its nominees for Class B Directors not less than 60, 
but not more than 75, days prior to each annual meeting of stockholders 
and that petitions properly submitted by holders of shares of Class B 
Common Stock with respect to the nomination of persons eligible to 
serve as such be filed with the Secretary of the Exchange at least 45 
days prior to each annual meeting.\16\ To facilitate the inclusion in 
the proxy statement of Industry Director nominees submitted by 
petition, the Exchange also proposes to require that the petitions 
submitted by Class B stockholders contain, for each nominee, all 
information relating to such nominee that is required to be disclosed 
in solicitations of proxies for the election of directors, or is 
otherwise required, in each case pursuant to Regulation 14A under the 
Exchange Act, including such person's written consent to be named in 
the proxy statement as a nominee and a statement that such nominee 
complies with the relevant requirements set forth in the Amended and 
Restated Certificate of Incorporation and Amended Constitution.\17\
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    \16\ The Exchange anticipates that the Board of Directors of ISE 
will establish May 11, 2005 as the date of the 2005 annual meeting 
of stockholders of ISE. If so, the Nominating Committee may choose 
its slate of Industry Directors as soon as February 25, 2005 and no 
later than March 12, 2005 (because March 12 is not a business day, 
the Exchange would accept nominations by the Nominating Committee on 
the next following business day, or March 14, 2005) and petitions 
may be submitted by Class B stockholders no later than March 27, 
2005 (because March 27 is not a business day, the Exchange would 
accept petitions from Class B stockholders submitted on the next 
following business day, or March 28). The Exchange represents that 
it will inform its Class B stockholders of this proposed change in 
the Nominating Committee and petition process as soon as possible 
but not later than March 4, 2005, including the changes with respect 
to the information that must be provided with respect to any nominee 
nominated by any Class B stockholder, and will note that the 
proposed changes are subject to Commission approval.
    \17\ For example, Regulation 14A under the Exchange Act 
requires, among other things, with respect to each nominee, the 
disclosure of items required by Item 401 (Management and Certain 
Security Holders--Directors, Executive Officers, Promoters and 
Control Persons), Item 404(a)-(c) (Management and Certain Security 
Holders--Certain Relationships and Related Transactions) and Item 
405 (Management and Certain Security Holders--Compliance with 
Section 16(a) of the Exchange Act) of Regulation S-K under the Act. 
See also Item 7 of Schedule 14A. 17 CFR 240.14a-101.
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    The Exchange believes that the proposed rule change would allow 
adequate time between the mailing of ISE's proxy statement and the 
solicitation of proxies of the stockholders of ISE, including the

[[Page 12520]]

holders of Class B Common Stock, with respect to the election of 
directors and other such matters to be voted on at the annual meeting 
of stockholders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with and furthers the objective of section 6(b)(1) of the Act \18\ that 
an exchange be so organized so as to have the capacity to be able to 
carry out the purposes of the Act and to comply, and (subject to any 
rule or order of the Commission pursuant to section 17(d) \19\ or 
19(g)(2) of the Act \20\) to enforce compliance by its members and 
persons associated with its members, with the provisions of the Act, 
the rules and regulations thereunder and the rules of the exchange. The 
Exchange also believes that the proposed rule change furthers the 
objective of section 6(b)(3) of the Act \21\ that an exchange have 
rules that, among other things, assure fair representation of its 
members in the selection of its directors and administration of its 
affairs.
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    \18\ 15 U.S.C. 78f(b)(1).
    \19\ 15 U.S.C. 78q(d).
    \20\ 15 U.S.C. 78s(g)(2).
    \21\ 15 U.S.C. 78f(b)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition.

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. 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-2005-16 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-2005-16. 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 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-2005-16 and should be submitted by April 4, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission has considered the ISE's proposed rule change, and 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\22\ In particular, the Commission finds 
that the proposal is consistent with section 6(b)(3) of the Act,\23\ 
which requires that the rules of a national securities exchange assure 
the fair representation of its members in the selection of its 
directors and administration of its affairs and provide that one or 
more directors shall be representative of issuers and investors and not 
be associated with a member of the exchange, broker, or dealer.\24\ The 
Commission believes that the proposal should enable the Exchange to 
include the relevant information regarding Class B Director nominees in 
its proxy statement, which should enable the Exchange to fulfill its 
obligation to assure the fair representation of its members in the 
selection of Class B directors.
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    \22\ In approving this proposal, the Commission has considered 
the impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(3).
    \24\ 15 U.S.C. 78s(b)(3).
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    Pursuant to section 19(b)(2) of the Act,\25\ the Commission may not 
approve any proposed rule change prior to the thirtieth day after the 
date of publication of the notice of filing thereof, unless the 
Commission finds good cause for so finding. The Commission hereby finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after publishing notice thereof in the Federal Register. 
The Commission notes that the Exchange has filed with the Commission a 
registration statement on Form S-1 in connection with its contemplated 
initial public offering of its Class A common stock. When it becomes a 
public company, the Exchange will be required to comply with reporting 
and disclosure obligations under the Act. The Commission believes that 
the proposed rule change is necessary to enable the Exchange to include 
in the proxy statement for its 2005 annual meeting of stockholders, 
which is currently scheduled for mid-May, information regarding its 
Class B Director nominees that is required to be disclosed in 
solicitations of proxies for the election of directors, or is otherwise 
required, in each case pursuant to Regulation 14A under the Act. By 
revising the timeframe for the nomination of candidates to serve as 
Class B Directors, the Exchange would be able to include the Class B 
Director nominees in its proxy statement and also should have adequate 
time between the mailing of its proxy statement and the scheduled 
annual meeting of shareholders for the proper solicitation of 
shareholder proxies.\26\
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ The Commission notes that the Exchange has represented that 
it would inform its Class B stockholders by March 4, 2005, of the 
proposed changes in the nomination process as they relate to 
nominees for Class B Directors and indicate that the proposed 
changes are subject to Commission approval.
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    The Commission believes that the proposed rule change would 
facilitate the orderly inclusion of nominees of Class B Directors in 
the Exchange's proxy statement in a timely fashion, and thereby enable 
the Exchange to fulfill its obligation to assure the fair 
representation of its members on the ISE's Board. In the Commission's 
view,

[[Page 12521]]

accelerating the effectiveness of this proposed rule change is 
necessary and appropriate in order to enable the Exchange to include 
the Class B Director nominees in the Exchange's proxy statement this 
year. Therefore, the Commission finds good cause exists to accelerate 
approval of the proposal pursuant to section 19(b)(2) of the Act.\27\
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    \27\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-ISE-2005-16) is hereby 
approved on an accelerated basis.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1051 Filed 3-11-05; 8:45 am]
BILLING CODE 8010-01-P