[Federal Register Volume 70, Number 158 (Wednesday, August 17, 2005)]
[Notices]
[Page 48454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4462]



[[Page 48454]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52237; File No. SR-ISE-2005-28]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Order Granting Approval of a Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Fee Changes for Transactions in Options on 
the Standard & Poor's Depository Receipts[supreg] on a Retroactive 
Basis

August 10, 2005.
    On May 20, 2005, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to retroactively establish, as of 
January 10, 2005, a $.10 per contract surcharge fee for certain 
transactions in options based on the Standard & Poor's Depository 
Receipts[supreg], or SPDRs[supreg] (``SPDRs'').\3\ On June 15, 2005, 
the Exchange filed Amendment No. 1 to the proposed rule change.\4\ The 
proposed rule change and Amendment No. 1 were published for comment in 
the Federal Register on July 11, 2005.\5\ No comments were received 
regarding the proposal, as amended. This order approves the proposed 
rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange filed with the Commission an identical fee 
change on May 20, 2005 (SR-ISE-2005-06), which was immediately 
effective as of that date under Section 19(b)(3)(A) of the Act and 
Rule 19b-4(f)(2) thereunder. See Securities Exchange Act Release No. 
51901 (June 22, 2005), 70 FR 37455 (June 29, 2005). Because the 
Exchange sought to apply the same surcharge fee on a retroactive 
basis as of January 10, 2005, the Exchange submitted this proposal 
to the Commission under Section 19(b)(2) of the Act.
    \4\ In Amendment No. 1, the Exchange made non-substantive 
changes to clarify the purpose for the fee change.
    \5\ See Securities Exchange Act Release No. 51948 (June 30, 
2005), 70 FR 39832.
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    The Exchange's Schedule of Fees currently has in place a surcharge 
fee item that calls for a $.10 per contract fee for transactions in 
certain licensed products. The Exchange has entered into a license 
agreement with Standard and Poor's, a unit of McGraw-Hill Companies, 
Inc., authorizing the Exchange to list SPDR options. The Exchange 
proposes to adopt this fee for transactions in SPDR options in order to 
defray the licensing costs. The Exchange believes that charging the 
participants that trade these instruments is the most equitable means 
of recovering the costs of the license. However, because competitive 
pressures in the industry have resulted in the waiver of transaction 
fees for Public Customers,\6\ the Exchange proposes to exclude Public 
Customer Orders\7\ from this surcharge fee. Accordingly, this surcharge 
fee will only be charged to Exchange members with respect to non-Public 
Customer Orders (e.g., Market Maker and Firm Proprietary orders) and 
shall apply to Linkage Orders under a pilot program that is set to 
expire on July 31, 2006.\8\
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    \6\ Public Customer is defined in ISE Rule 100(a)(32) as a 
person that is not a broker or dealer in securities.
    \7\ Public Customer Order is defined in ISE Rule 100(a)(33) as 
an order for the account of a Public Customer.
    \8\ See ISE Rule 1900(10) (defining Linkage Orders). The 
surcharge fee will apply to the following Linkage Orders: Principal 
Acting as Agent Orders and Principal Orders. The expiration date for 
this pilot program was recently extended from July 31, 2005 to July 
31, 2006. See Exchange Act Release No. 34-52168 (July 29, 2005) 
(File No. SR-ISE-2005-32).
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    Additionally, the Commission notes that the Exchange has 
represented that, if it is concluded by the courts after all avenues of 
appeal that no license from Standard and Poor's was required by the 
Exchange to list SPDR options, then upon any refund by Standard and 
Poor's to the ISE, the Exchange shall submit a rule filing to the 
Commission providing for a reimbursement of the fees paid by members to 
the Exchange as a result of this surcharge.
    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. Specifically, the Commission finds 
that the proposal to retroactively establish a $.10 per contract 
surcharge fee for certain transactions in options on SPDRs that 
occurred on the ISE between January 10, 2005 and May 19, 2005,\11\ is 
consistent with Section 6(b)(4) of the Act,\12\ which requires the 
equitable allocation of reasonable dues, fees, and other charges among 
Exchange members and other persons using Exchange facilities. The 
Commission believes that, because the options on SPDRs have been listed 
and traded on the Exchange since January 10, 2005, the retroactive 
extension of the surcharge fee to all applicable transactions occurring 
between January 10, 2005 and May 19, 2005 is equitable in order to 
defray ISE's licensing costs.
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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\ See supra note 3.
    \12\ 15 U.S.C. 78f(b)(4).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (File No. SR-ISE-2005-28), as 
amended, is approved.
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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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4462 Filed 8-16-05; 8:45 am]
BILLING CODE 8010-01-P