[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45455-45457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4226]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52174; File No. SR-ISE-2005-33]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of Proposed Rule Change Relating to Amendments 
to the Exchange's Trade-Through and Locked Markets Rules

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 8, 2005, the International Securities Exchange, Inc. (``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 ISE is proposing to amend its rules governing the operation of 
the intermarket option linkage (``Linkage''). Specifically, the ISE is 
proposing to amend the trade-through and locked markets rules to allow 
a member to ``trade and ship'' or ``book and ship'' an order. The text 
of the proposed rule change is available on the ISE's Web site (http://www.iseoptions.com), at 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

[[Page 45456]]

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 ISE 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 ISE proposes to amend its rules governing Linkage trading with 
respect to trade-throughs and locked markets. Specifically, the 
amendment will provide that an ISE member: (i) May trade an order at a 
price that is one minimum quoting increment inferior to the national 
best bid or offer (``NBBO'') if the member contemporaneously transmits 
to the market(s) disseminating the NBBO Linkage Orders \3\ to satisfy 
all interest at the NBBO price (``trade and ship''); and (ii) may enter 
an order on the ISE that would lock another exchange if the member 
contemporaneously sends a Linkage Order to such other exchange to 
satisfy all interest at the lock price (``book and ship'').\4\ Under 
the trade and ship proposal, pursuant to agency obligations, any 
execution the member receives from the NBBO market must be reassigned 
to any customer order underlying the Linkage Order that was transmitted 
to trade against the market disseminating the NBBO. Below are examples 
illustrating the applications of these concepts:
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    \3\ The ISE defines ``Linkage Order'' in ISE Rule 1900(10).
    \4\ At the request of the ISE, the Commission staff has changed 
the wording in item (ii) to be consistent with the rule text. 
Telephone conversation between Michael Simon, General Counsel and 
Secretary, ISE, Kim Allen, Attorney, Division of Market Regulation 
(``Division''), and Kate Robbins, Attorney, Division, on July 20, 
2005.
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     Trade and Ship Example. The ISE is disseminating an offer 
of $2.00 for 100 contracts. Exchange B is disseminating the national 
best offer of $1.95 for 10 contracts. No other market is at $1.95. An 
ISE market maker receives a 100-contract customer buy order to pay 
$2.00. Under this proposal, the ISE market maker could execute 90 
contracts (or 100 contracts) of the customer order at $2.00 provided 
the ISE market maker contemporaneously transmits a 10-contract 
Principal Acting as Agent (``P/A'') Order \5\ to Exchange B to pay 
$1.95. Assuming an execution is obtained from Exchange B, the customer 
would receive the 10-contract fill at $1.95 and 90 contracts at $2.00 
(if the customer order was originally filled in its entirety at $2.00, 
an adjustment would be required to provide the customer with the $1.95 
price for 10 contracts reflecting the P/A Order execution). As 
proposed, this would not be deemed a Trade-Through.
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    \5\ The ISE defines ``Principal Acting as Agent (``P/A'') 
Order'' in ISE Rule 1900(10)(i).
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     Book and Ship Example. The ISE is disseminating a $1.85-
$2.00 market. Exchange B is disseminating a $1.80-$1.95 market. The 
$1.95 offer is for 10 contracts. No other market is at $1.95. An ISE 
market maker receives a customer order to buy 100 contracts at $1.95. 
Under this proposal, the ISE market maker could book 90 contracts of 
the customer buy order at $1.95 provided the ISE market maker 
contemporaneously transmits a 10-contract P/A Order to Exchange B to 
pay $1.95. Assuming an execution is obtained from Exchange B, the 
customer would receive the 10-contract fill and the rest of the 
customer's order will be displayed as a $1.95 bid on the ISE. The 
national best offer would likely be $2.00. As proposed, this would not 
be deemed a ``locked'' market for purposes of the Linkage Plan.
2. Statutory Basis
    The ISE believes that the basis under the Act for this proposed 
rule change is the requirement under section 6(b)(5) \6\ 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 of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. In particular, the proposed 
rule change will help implement the Linkage Plan by facilitating the 
ability of market makers to execute their customer orders.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This 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 ISE has not solicited, and does not intend to solicit, comments 
on this proposed rule change. The ISE 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 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

[[Page 45457]]

the Commission's Public Reference Room. Copies of the 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-
2005-33 and should be submitted on or before August 26, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4226 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P