[Federal Register Volume 71, Number 19 (Monday, January 30, 2006)]
[Notices]
[Pages 4949-4951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-1087]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53164; File No. SR-ISE-2005-50]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of a Proposed Rule Change, and Amendment No. 1 
Thereto, To Amend ISE Rule 803 To Provide for a Back-Up Primary Market 
Maker

January 20, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 14, 2005, the International Securities Exchange, Inc. 
(``Exchange'' or ``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. 
On January 12, 2006, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1, which replaced the original filing in its 
entirety, made technical and clarifying changes 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 is proposing to amend ISE Rule 803 to provide for a 
Back-Up Primary Market Maker and to correct an inconsistency in the 
Exchange's Rules. The text of the proposed rule change, as amended, is 
available on the ISE's Web site (http://www.iseoptions.com), at the 
principal office of the ISE, 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 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 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 Exchange proposes to enhance the ISE System to allow 
Competitive Market Makers that are also Primary Market Maker members on 
the Exchange to voluntarily act as Back-Up Primary Market Makers when 
the appointed Primary Market Maker experiences technical difficulties 
that interrupt its participation in the market. According to the 
Exchange, the ISE System will automatically switch a Competitive Market 
Maker quoting in the options series to act as a Back-Up Primary Market 
Maker when the appointed Primary Market Maker stops quoting. The ISE 
believes that this will reduce

[[Page 4950]]

the number of non-firm quotes or ``fast market'' states disseminated by 
the ISE and allow for virtually seamless trading even when a Primary 
Market Maker experiences difficulties that cause it to remove its 
quotes from the market.
    Under the proposal, only Competitive Market Maker members that are 
also Primary Market Makers on the Exchange will be eligible to be 
designated as a Back-Up Primary Market Maker because these members 
already have systems built to assume all of the responsibilities of a 
Primary Market Maker on the Exchange, such as handling customer orders 
when the away market has a better price.\4\ The ISE System will 
automatically switch back to the appointed Primary Market Maker when it 
re-establishes its quotes in the series, but the Back-Up Primary Market 
Maker will continue to be responsible for any outstanding unexecuted 
orders it is handling. A Back-Up Primary Market Maker assumes all of 
the responsibilities and privileges of a Primary Market Maker under the 
ISE Rules with respect to any series in which the appointed Primary 
Market Maker fails to have a quote in the ISE System.\5\
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    \4\ If there is more than one eligible member quoting in the 
series, the ISE System will automatically switch to the member with 
the largest offer in the series.
    \5\ A Competitive Market Maker does not become subject to the 
requirement in ISE Rule 804(e)(1) to enter continuous quotations in 
all of the series of all of the options classes to which it is 
appointed, as opposed to only 60% of the options classes under ISE 
Rule 804(e)(2), by acting as a Back-Up Primary Market Maker.
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    The Exchange also proposes to correct an inconsistency in its 
rules. In April 2004, the Exchange received approval of a rule change 
that allowed it to disseminate a quotation for less than ten 
contracts.\6\ Because the options intermarket linkage plan and the 
Exchange's rules continued to require the Exchange to guarantee that 
the Firm Customer Quote Size (``FCQS'') and Firm Principal Quote Size 
(``FPQS'') would be at least 10 contracts, ISE Rule 803(c)(1) was 
amended to provide that the Primary Market Maker had the obligation to 
buy or sell the number of contracts necessary to provide an execution 
of at least 10 contracts to incoming linkage orders when the Exchange's 
disseminated market quotation was for less than 10 contracts.
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    \6\ See Exchange Act Release No. 49602 (April 22, 2004), 69 FR 
23841 (April 30, 2004) (the ``Real Size Filing'').
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    In August 2004, the intermarket linkage plan was amended to provide 
that the 10 contract minimum FCQS and FPQS does not apply when the 
Exchange is disseminating a quotation of fewer than 10 contracts.\7\ In 
October 2004, the Exchange, and all of the other options exchanges, 
received approval for changes to their linkage rules to implement this 
change to the intermarket linkage plan.\8\ Accordingly, the Primary 
Market Maker no longer is required to guarantee a minimum of 10 
contracts to an incoming linkage order when the Exchange's disseminated 
market quotation is for less than 10 contracts. However, the Exchange 
neglected to remove the language in ISE Rule 803(c)(1) at the time the 
changes to the linkage rules were approved, thereby creating an 
apparent inconsistency in the ISE Rules. The Exchange now proposes to 
delete the language in ISE Rule 803(c)(1) as a purely non-substantive 
clean-up to the ISE Rules.
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    \7\ See Exchange Act Release No. 50211 (Aug. 18, 2004), 69 FR 
52050 (Aug. 24, 2004).
    \8\ See Exchange Act Release Nos. 50562 (Oct. 19, 2004), 69 FR 
62925 (Oct. 28, 2004) and 50587 (Oct. 25, 2004), 69 FR 63417 (Nov. 
1, 2004).
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\9\ in general, and furthers 
the objectives of section 6(b)(5) of the Act \10\ in particular because 
it is 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 in that it enhances the Exchange's 
ability to disseminate firm quotes and removes an inconsistency from 
its rules.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE does not believe that the proposed rule change, as amended, 
will 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 on the proposed rule change 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 Exchange 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 at http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-ISE-2005-50 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-ISE-2005-50. 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 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

[[Page 4951]]

Number SR-ISE-2005-50 and should be submitted by February 21, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-1087 Filed 1-27-06; 8:45 am]
BILLING CODE 8010-01-P