[Federal Register Volume 70, Number 181 (Tuesday, September 20, 2005)]
[Notices]
[Pages 55198-55199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18672]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52410; File No. SR-ISE-2005-42]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 
Thereto Relating to the Definition of Firm Customer Quote Size in the 
Linkage Plan

September 14, 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 August 31, 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, II, and III below, which Items have been prepared by the ISE. 
On September 7, 2005, the Exchange submitted 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made technical corrections to 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 amend its rules governing the operation of 
the intermarket option linkage (``Linkage'') to conform with a proposed 
amendment \4\ to the Plan for the Purpose of Creating and Operating an 
Intermarket Linkage (``Linkage Plan'').\5\ The Exchange is proposing: 
(i) to amend the definition of ``Firm Customer Quote Size'' (``FCQS'') 
\6\ to provide automatic executions for Principal Acting as Agent 
Orders (``P/A Orders'') \7\ sent via Linkage up to the full size of the 
receiving exchange's disseminated quotation; and (ii) to eliminate a 
15-second waiting period between the sending of P/A Orders.
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    \4\ See Securities Exchange Act Release No. 52401 (September 9, 
2005) (File No. 4-429).
    \5\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
option market linkage proposed by the American Stock Exchange, LLC, 
Chicago Board Options Exchange, Incorporated, and ISE. See 
Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 
48023 (August 4, 2000). Subsequently, upon separate requests by the 
Philadelphia Stock Exchange, Inc., Pacific Exchange, Inc. and Boston 
Stock Exchange, Inc. the Commission issued orders to permit these 
exchanges to participate in the Linkage Plan. See Securities 
Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70850 
(November 28, 2000), 43574 (November 16, 2000), 65 FR 70851 
(November 28, 2000) and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
    \6\ See Exchange Rule 1900(7).
    \7\ See Section 2(16)(a) of the Linkage Plan and Exchange Rule 
1900(10)(i).
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    The text of the proposed rule change is available on 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, as 
amended, 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 Exchange proposes to amend its rules governing Linkage trading 
in two areas: the definition of FCQS; and limitations on sending 
multiple P/A Orders. As to the definition of FCQS, the participants in 
the Linkage Plan (``Participants'') provide automatic execution to P/A 
Orders up to the FCQS. At the time the Participants adopted the Linkage 
Plan, options quote sizes were not disseminated through the Options 
Price Reporting Authority, and the floor-based exchanges employed 
automatic execution systems that guaranteed automatic fills on orders 
under a certain contract size (which was generally a static number). As 
such, the FCQS was calculated based on the number of contracts the 
sending and receiving exchanges guaranteed they would automatically 
execute. Now that all the Participants disseminate dynamic quotes with 
size, the Participants believe that it is appropriate to calculate the 
FCQS based on the size of the disseminated quotation of the exchange 
receiving the P/A Order. As such, upon implementation of the proposed 
rule change, the ISE will provide incoming P/A Orders with executions 
up to the full size of the ISE's disseminated quotation.
    With respect to multiple P/A Orders, the proposed rule change will 
eliminate a 15-second period members must wait before sending a second 
P/A Order. Specifically, ISE Rule 1901(c)(2)(ii) governs the manner in 
which the Participants will execute P/A Orders larger than the FCQS. 
ISE Rule 1901(c)(2)(ii) provides that an initial P/A Order may be sent 
to a Participant for execution at the FCQS; if the same Participant 
continues to disseminate the same price 15 seconds after the execution 
of the initial P/A Order, the market maker can send a second P/A Order, 
subject to certain restrictions. The Exchange proposes to eliminate the 
15-second wait period because the Participants now employ dynamic 
quotes with size, obviating the need for a manual quote refresh period 
for P/A Orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \8\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \9\ in particular, in that 
it is 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 transaction in securities, to remove impediments to and 
perfect the mechanism for 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 providing greater automatic execution of Linkage Orders.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).

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[[Page 55199]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE does not believe that the proposed rule change, as amended, 
would 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

    Written comments were neither solicited nor received.

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, as amended; or
    B. Institute proceedings to determine whether the proposed rule 
change, as amended, 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, 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-2005-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-ISE-2005-42. 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 publicly available. All submissions should refer to 
File Number SR-ISE-2005-42 and should be submitted on or before October 
11, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-18672 Filed 9-19-05; 8:45 am]
BILLING CODE 8010-01-P