[Federal Register Volume 70, Number 132 (Tuesday, July 12, 2005)]
[Notices]
[Pages 40089-40090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3667]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51968; File No. SR-ISE-2004-33]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 
Thereto Relating to the Facilitation of Complex Orders

July 1, 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 November 16, 2004, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the ISE. 
On December 14, 2004, the ISE submitted Amendment No. 1 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\ Amendment No. 1 revises the text of the proposal to refer to 
``complex orders'' rather than ``Complex Orders.'' The use of the 
lower case letters in the term ``complex orders'' is consistent with 
the ISE's existing rules.
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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 ISE Rule 716, ``Block and Solicited 
Trades,'' to allow Electronic Access Members (``EAMs'') to use the 
ISE's Facilitation Mechanism to facilitate block-sized complex orders 
at a net price. The text of the proposed rule change is set forth 
below. Proposed new language is in italics.
Rule 716. Block and Solicited Trades
* * * * *
Supplementary Material to Rule 716
* * * * *
    .04 Complex Orders. Electronic Access Members may use the 
Facilitation Mechanism according to paragraph (d) of this Rule 716 to 
facilitate block-size complex orders (as defined in Rule 722) at a net 
price. Members may enter Indications for complex orders at net prices, 
and bids and offers for complex orders will participate in the 
execution of an order being facilitated as provided in paragraph (d) of 
this Rule 716. With respect to bids and offers for the individual legs 
of a complex order entered into the Facilitation Mechanism, the 
priority rules for complex orders contained in Rule 722(b)(2) will 
continue to be applicable. If an improved net price for the complex 
order being facilitated can be achieved from bids and offers for the 
individual legs of the complex order in the Exchange's auction market, 
the order being facilitated will receive an execution at the better net 
price.

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

[[Page 40090]]

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 Exchange 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 extend the ISE's 
Facilitation Mechanism to the execution of complex orders. ISE Rule 
722(a) defines a ``complex order'' as a multi-legged order that meets 
one of nine specified criteria. ISE Rule 716(d) describes the 
Facilitation Mechanism as a process by which EAMs can seek to provide 
liquidity to their block-sized Public Customer orders.
    The Facilitation Mechanism permits an EAM to enter an order of at 
least 50 contracts if the entering EAM is willing to trade against 
(facilitate) that order. The ISE then sends a broadcast message to its 
``crowd,'' giving them an opportunity to participate in the trade.\4\ 
After a 10-second exposure period, the ISE executes the trade pursuant 
to the parameters specified in ISE Rule 716(d)(4). The Facilitation 
Mechanism would handle complex orders in the same manner. An EAM would 
be able to enter a complex order into the mechanism at a net price. 
Each leg of the order would need to be for at least 50 contracts. The 
order will be broadcast to the ISE crowd for 10 seconds and then 
executed pursuant to the parameters in ISE Rule 716(d)(4).
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    \4\ ISE Rule 722(b) defines ``crowd'' as all market makers in 
the options class and other ISE members who have proprietary orders 
at the inside bid or offer in that series. The ISE has extended this 
definition to include all ISE members. See Securities Exchange Act 
Release No. 51666 (May 9, 2005), 70 FR 25631 (May 13, 2005) (File 
No. SR-ISE-2003-07).
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    With respect to bids and offers for the individual legs of a 
complex order entered into the Facilitation Mechanism, the priority 
rules for complex orders contained in ISE Rule 722(b)(2) will continue 
to be applicable. If an improved net price for the complex order being 
facilitated can be achieved from bids and offers for the individual 
legs of the complex order in the Exchange's auction market, the order 
being facilitated will receive an execution at the better net price.
2. Statutory Basis
    According to the ISE, the basis under the Act for this proposed 
rule change is the requirement under Section 6(b)(5) of the Act \5\ 
that an exchange have rules that are designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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. In particular, the Exchange 
believes the proposed rule change will encourage ISE members to provide 
greater liquidity to their customers with respect to complex orders, 
while also providing opportunities for all members to interact with 
this order flow.
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    \5\ 15 U.S.C. 78(f)(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 imposes 
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, 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the ISE consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 Number SR-ISE-2005-33 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-ISE-2005-33. 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 offices 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-2005-33 and should be submitted on or before August 
2, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3667 Filed 7-11-05; 8:45 am]
BILLING CODE 8010-01-P