[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43479-43480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3992]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52066; File No. SR-ISE-2005-35]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Order Granting Accelerated Approval of a 
Proposed Rule Change and Amendment No. 1 Thereto To Extend the Pilot 
Program for Preferenced Orders

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 July 14, 2005, 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 and 
II below, which Items have been prepared by the Exchange. On July 19, 
2005, the Exchange filed 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 and is 
approving the proposal, as amended, on an accelerated basis, for a 
pilot period through June 10, 2006.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated July 19, 2005 (``Amendment No. 1''). 
Amendment No. 1 replaced and superseded the original filing in its 
entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the pilot program for preferenced 
orders until June 10, 2006. The text of the proposed rule change is set 
forth below. Italics indicate additions; [brackets] indicate deletions.
* * * * *

Rule 713. Priority of Quotes and Orders

    (a) through (f) no change.

Supplementary Material to Rule 713

    .01 through .02 no change.
    .03 Preferenced Orders. For a pilot period ending [July 22, 2005] 
June 10, 2006, an Electronic Access Member may designate a ``Preferred 
Market Maker'' on orders it enters into the System (``Preferenced 
Orders'').
    (a) through (c) no change.
* * * * *

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 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 pilot period for preferenced orders provided in paragraph .03 
of the Supplementary Material to Exchange Rule 713 expires on July 22, 
2005.\4\ The Exchange initially adopted this rule on a six-week pilot 
basis. The Exchange believes that the short pilot period gave the 
Commission an opportunity to seek public comment on the Exchange's 
proposal to preference orders to Exchange market makers (``Proposal'') 
before determining whether the Proposal should be approved for a longer 
pilot period. The approval order and notice for the Proposal was 
published in the Federal Register.\5\ The comment period for the 
Proposal expired on July 7, 2005, and the Commission did not receive 
any new comments on the Proposal.\6\

[[Page 43480]]

Accordingly, the Exchange believes it is now appropriate for the 
Commission to extend the pilot period so that the Exchange and the 
Commission can evaluate the rule change over a one-year period.
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    \4\ See Securities Exchange Act Release No. 51818 (June 10, 
2005), 70 FR 35146 (June 16, 2005) (notice of filing and order 
approving SR-ISE-2005-18).
    \5\ Id.
    \6\ The Commission received one comment letter on the Proposal 
before the approval order and notice relating to the Proposal was 
published in the Federal Register. See Letter from Matthew B. 
Hinerfeld, Managing Director and Deputy General Counsel, Citadel 
Investment Group, L.L.C., on behalf of Citadel Derivatives Group 
LLC, to Jonathan G. Katz, Secretary, Commission, dated April 6, 
2005.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\7\ in that the proposed rule change is 
designed to promote just and equitable principles of trade, 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 believes that extension of the pilot 
period will allow the Exchange and the Commission to evaluate the rule 
change over a one-year period.
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    \7\ 15 U.S.C. 78f(b)(5).
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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 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 the proposed rule change. The Exchange has not received any 
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, as amended, is consistent with the Act and whether the pilot 
time frame is appropriate. 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-2005-35 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-2005-35. 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 Exchange. 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-2005-35 and should be submitted on or before August 
17, 2005.

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

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6 of the Act 
\8\ and the rules and regulations thereunder applicable to a national 
securities exchange,\9\ and, in particular, the requirements of Section 
6(b)(5) of the Act.\10\ Section 6(b)(5) requires, among other things, 
that the rules of a national securities exchange be designed 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 Commission notes that the current pilot was approved on a six-week 
basis to allow the Commission an opportunity to solicit comments on the 
proposed rule change prior to considering whether to approve such pilot 
program for an extended period. The Commission did not receive any new 
comments regarding the Proposal.\11\ The Commission believes that 
extending the pilot period will provide the Commission with additional 
time to evaluate the impact of the Proposal on the options markets to 
determine whether it would be beneficial to customers and to the 
options markets as a whole before approving any request for permanent 
approval of the pilot program. In addition, the Commission notes that 
it has recently approved proposals similar to ISE's preferenced order 
proposal for one-year pilot periods for other options markets.\12\
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    \8\ 15 U.S.C. 78f.
    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See supra note 6.
    \12\ See Securities Exchange Act Release Nos. 51759 (May 27, 
2005), 70 FR 32860 (June 6, 2005) (order approving SR-Phlx-2004-91); 
and 51779 (June 2, 2005), 70 FR 33564 (June 8, 2005) (order 
approving SR-CBOE-2004-71).
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    The Exchange has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register. The Commission 
believes that granting accelerated approval of the proposed rule change 
would allow the pilot program to continue without disruption while the 
Commission and the Exchange continue to review the pilot program's 
impact on the options market. Accordingly, the Commission finds good 
cause, consistent with Section 19(b)(2) of the Act,\13\ for approving 
the proposed rule change prior to the thirtieth day after publication 
of notice thereof in the Federal Register.
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    \13\ 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,\14\ that the proposed rule change (SR-ISE-2005-35), as amended, 
which extends the pilot program until June 10, 2006, is hereby approved 
on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-3992 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P