[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45454-45455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4195]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52168; File No. SR-ISE-2005-32]


Self-Regulatory Organizations; International Securities Exchange 
Inc.; Notice of Filing and Order Granting Accelerated Approval of a 
Proposed Rule Change and Amendment No. 2 Thereto To Extend the Linkage 
Fee Pilot Program

July 29, 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 7, 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. The Exchange 
filed Amendment No. 1 to the proposed rule change on July 26, 2005, and 
withdrew Amendment No. 1 on July 28, 2005. The Exchange filed Amendment 
No. 2 to proposed rule change on July 28, 2005.\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 July 31, 
2006.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 2 makes technical corrections to the proposed 
rule text and clarifies the purpose of the proposed rule change.
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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 until July 31, 2006, the current 
pilot program regarding transaction fees charged for trades executed 
through the intermarket option linkage (``Linkage''). Currently pending 
before the Commission is a filing to make such fees permanent.\4\ The 
text of the proposed fee schedule is available on the Exchange's Web 
site (http://www.iseoptions.com), at the Exchange's principal office, 
and at the Commission's Public Reference Room.
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    \4\ See SR-ISE-2003-30 (``Permanent Fee Filing'').
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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 purpose of the proposed rule change is to extend for one year 
the pilot program establishing Exchange fees for Principal Orders and 
Principal Acting as Agent (``P/A'') Orders sent through Linkage and 
executed on the Exchange. The fees currently are effective for a pilot 
program scheduled to expire on July 31, 2005,\5\ and the proposed rule 
change would extend the fees through July 31, 2006. The three fees the 
Exchange charges for these orders are: The Market Maker and Firm 
Proprietary execution fees for trading on the Exchange, which range 
from $.12 to $.21 depending on average daily trading volume on the 
Exchange; a surcharge of between $.05 and $.15 for trading certain 
licensed products; and a $.03 comparison fee (collectively ``linkage 
fees'').\6\ These are the same fees that all Exchange Members pay for 
non-customer transactions executed on the Exchange.\7\ The Exchange 
does not charge for the execution of Satisfaction Orders sent through 
Linkage and is not proposing to charge for such orders.
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    \5\ See Securities Exchange Act Release No. 50010 (July 13, 
2004); 69 FR 43649 (July 21, 2004) (Order extending the Linkage fee 
pilot program to July 31, 2005).
    \6\ Pursuant to other pilot programs, certain linkage fees may 
not apply during the Linkage pilot program.
    \7\ The Exchange charges these fees only to its Members, 
generally firms who clear Principal and P/A Orders for market makers 
on the other linked exchanges.
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    In the Permanent Fee Filing, the Exchange discusses in detail the 
reasoning why it believes it is appropriate to charge fees for 
Principal and P/A Orders sent through Linkage and executed on the 
Exchange. Basically, market makers on competing exchanges always can 
match a better price on the Exchange; they never are obligated to send 
orders to the Exchange through Linkage. However, if such market makers 
do seek the Exchange's liquidity, whether through conventional orders 
or through the use of Principal Orders or P/A Orders, the Exchange 
believes it is appropriate to charge its Members the same fees levied 
on other non-customer orders. The Exchange appreciates that there has 
been limited experience with Linkage and that the Commission is 
continuing to study Linkage, in general, and the effect of fees on 
Linkage trading. Thus, this filing would extend the status quo with 
Linkage fees for one year while the Commission considers the Permanent 
Fee Filing.
2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is the requirement under section 6(b)(4) \8\ that 
an exchange have an equitable allocation of reasonable dues, fees and 
other charges among its members and other persons using its facilities. 
As discussed in more detail above, the Exchange believes that this 
proposed rule change will equitably allocate fees by having all non-
customer users of Exchange transaction services pay the same fees. If 
the Exchange were not to charge Linkage fees, the Exchange's fee would 
not be equitable in that Exchange Members would be subsidizing the 
trading of their

[[Page 45455]]

competitors, all of whom access the same trading services.
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    \8\ 15 U.S.C. 78f(b)(4).
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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. Moreover, the Exchange believes 
that failing to adopt the proposed rule change would impose a burden on 
competition by requiring the Exchange Members to subsidize the trading 
of their competitors.

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, 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-2005-32 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-2005-32. 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-2005-32 and should be submitted on or before August 
26, 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 the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange,\9\ and, in particular, the requirements of section 6(b) of 
the Act \10\ and the rules and regulations thereunder. The Commission 
finds that the proposed rule change is consistent with section 6(b)(4) 
of the Act,\11\ which requires that the rules of the Exchange provide 
for the equitable allocation of reasonable dues, fees and other charges 
among its members and other persons using its facilities. The 
Commission believes that the extension of the Linkage fee pilot until 
July 31, 2006, will give the Exchange and the Commission further 
opportunity to evaluate whether such fees are appropriate.
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    \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).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Commission finds good cause pursuant to section 19(b)(2) of the 
Act,\12\ for approving the proposed rule change prior to the 30th day 
after publication of notice thereof in the Federal Register. The 
Commission believes that granting accelerated approval of the proposed 
rule change will preserve the Exchange's existing pilot program for 
Linkage fees without interruption as the Exchange and the Commission 
further consider the appropriateness of Linkage fees.
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    \12\ 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,\13\ that the proposed rule change (SR-ISE-2005-32), as amended, is 
hereby approved on an accelerated basis for a pilot period to expire on 
July 31, 2006.
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    \13\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4195 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P