[Federal Register Volume 70, Number 142 (Tuesday, July 26, 2005)]
[Notices]
[Pages 43203-43204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3969]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52069; File No. SR-ISE-2005-23]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of Proposed Rule Change Establishing a de 
minimus Exception to the 80/20 Test

July 20, 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 May 13, 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, II, and III below, which Items have been prepared by the ISE. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 proposes to amend ISE Rule 1904 to establish a ``de 
minimis'' exception to the ``80/20 Test'' limiting market makers' use 
of Principal Orders \3\ under the rules imposed by the Plan for the 
Purpose of Creating and Operating an Intermarket Option Linkage 
(``Linkage Plan'') \4\ and related rules.
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    \3\ The Exchange defines a Principal Order as an order for the 
principal account of a market maker (or equivalent entity on another 
Participant Exchange) and which is not a Principal Acting as Agent 
Order. See Chapter 19, Rule 1900(10)(ii) of the ISE Rules.
    \4\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by the American Stock 
Exchange, LLC, Chicago Board Options Exchange, Inc. and the ISE. See 
Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 
48023 (August 4, 2000). Subsequently, the Philadelphia Stock 
Exchange, Inc., the Pacific Exchange, Inc. and the Boston Stock 
Exchange, Inc. joined the Linkage Plan. See Securities Exchange Act 
Release Nos. 43573 (November 16, 2000), 65 FR 70851 (November 28, 
2000); 43574 (November 16, 2000), 65 FR 70850 (November 28, 2000); 
and 49198 (February 5, 2004), 69 FR 7029 (February 12, 2004).
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    The text of the proposed rule change is available on the ISE's Web 
site at http://www.iseoptions.com/legal/proposed_rule_changes.asp, 
the ISE's Office of the Secretary, and at the Commission's Public 
Reference Room.

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. The Exchange 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 implement proposed 
Joint Amendment No. 17 to the Linkage Plan. Joint Amendment No. 17, 
together with this proposed rule change, will establish a ``de 
minimis'' exception to the ``80/20 Test'' set forth in Section 
8(b)(iii) of the Linkage Plan and ISE Rule 1904.
    Section 8(b)(iii) of the Linkage Plan permits market makers to 
access away markets on a limited basis for their own principal trading. 
The Linkage Plan enforces this limitation via the ``80/20 Test,'' which 
generally requires at least 80 percent of a market maker's trading 
volume in an option class to be on its own exchange for the market 
maker to be able to use Linkage to send Principal Orders for its own 
account in that class. If a market maker ``fails'' the 80/20 Test in an 
option class during a calendar quarter, it cannot send Principal Orders 
through Linkage in that class during the next calendar quarter.

[[Page 43204]]

    The options exchanges have agreed to adopt a de minimus exception 
to the 80/20 Test. As proposed by the Exchange, the 80/20 Test would 
not apply to any market maker that has total volume of less than 1000 
contracts in an option during a calendar quarter. At this low volume, 
even a small number of Principal Orders could result in the market 
maker being disqualified from Linkage in that class for a calendar 
quarter. The Exchange believes that this proposed exception would 
address such concerns.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general and furthers the objectives 
of Section 6(b)(5) \6\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The Exchange 
further believes that the proposed rule change will conform the ISE's 
rules to the Linkage Plan and provide market makers with greater access 
to the Linkage.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE does not believe that the proposed rule change will impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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 Exchange 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form at http://www.sec.gov/rules/sro.shtml or send an e-mail to [email protected]. 
Please include File No. SR-ISE-2005-23 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 No. SR-ISE-2005-23. 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, 100 F Street, NE., 
Washington, DC 20549. 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-2005-23 and 
should be submitted on or before August 16, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
Jill M. Peterson,
Assistant Secretary.
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    \7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E5-3969 Filed 7-25-05; 8:45 am]
BILLING CODE 8010-01-P