[Federal Register Volume 71, Number 178 (Thursday, September 14, 2006)]
[Notices]
[Pages 54321-54323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-15268]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54415; File No. SR-ISE-2004-17]


 Self-Regulatory Organizations; International Securities 
Exchange, Inc.; Notice of Filing of a Proposed Rule Change and 
Amendment No. 1 Thereto Relating to Market Maker Orders

September 7, 2006.
    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 May 26, 2004, 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 Exchange. The 
Exchange filed Amendment No. 1 to the proposed rule change on August 
14, 2006.\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 replaced the original filing in its 
entirety.
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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 ISE Rule 717(g) to eliminate the 
restriction on Electronic Access Members representing ISE market maker 
orders, provided that such orders are identified as orders for the 
account of an ISE market maker. Under the proposal, an Electronic 
Access Member will not be permitted to enter orders solicited from an 
ISE market maker into the Solicited Order Mechanism and the Price 
Improvement Mechanism. The text of the proposed rule change, as 
amended, is set forth below. Proposed new language is in italics; 
deletions are in [brackets].
* * * * *

Rule 716. Block Trades

    (a) through (e) No change.

[[Page 54322]]

Supplementary Material to Rule 716

    .01 through .04 No change.
    .05 Under paragraph (e) above, Members may enter contra orders that 
are solicited. The Solicited Order Mechanism provides a facility for 
Members that locate liquidity for their customer orders. Members may 
not use the Solicited Order Mechanism to circumvent Exchange Rule 
717(d) limiting principal transactions. This may include, but is not 
limited to, Members entering contra orders that are solicited from (1) 
affiliated broker-dealers, or (2) broker-dealers with which the Member 
has an arrangement that allows the Member to realize similar economic 
benefits from the solicited transaction as it would achieve by 
executing the customer order in whole or in part as principal. 
Additionally, any solicited contra orders entered by Members to trade 
against Agency Orders may not be for the account of an ISE market maker 
that is assigned to the options class.
    .06 through .08 No change.

Rule 717. Limitations on Orders

    (a) through (f) No change.
    (g) Orders for the Account of Another Member. [Absent an exemption 
from an Exchange official designated by the Board,] Electronic Access 
Members shall not cause the entry of orders for the account of an ISE 
market maker that is exempt from the provisions of Regulation T of the 
Board of Governors of the Federal Reserve System pursuant to Section 
7(c)(2) of the Exchange Act unless such orders are identified as orders 
for the account of an ISE market maker in the manner prescribed by the 
Exchange.

Supplemental Material to Rule 717

    .01 through .02 No change.
* * * * *

Rule 723. Price Improvement Mechanism for Crossing Transactions

    (a) through (d) No change.

Supplementary Material to Rule 723

    .01 through .06 No change.
    .07 Any solicited Counter-Side Orders submitted by an Electronic 
Access Member to trade against Agency Orders may not be for the account 
of an ISE market maker assigned to the options class.
* * * * *

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 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
    Currently, under ISE Rules, Electronic Access Members (``EAMs'') 
are not permitted to represent orders for the account of an ISE market 
maker. While it is common practice on other exchanges for brokers to 
represent orders for the account of a market maker, the ISE initially 
included this restriction in its rules due to a system limitation. 
Specifically, allowing ISE market makers to enter orders through 
another member instead of directly might have created an opportunity 
for ISE market makers to avoid certain limitations on market maker 
trading contained in the Exchange's Rules.\4\
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    \4\ See, e.g., ISE Rule 805 (Market Maker Orders).
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    The Exchange has developed the capability for EAMs to mark orders 
to show that they are for the account of an ISE market maker. As such, 
these orders will flow through the Exchange's surveillance system as if 
they were directly entered by the market makers. Therefore, we propose 
to eliminate the prohibition against EAMs entering orders for the 
account of ISE market makers. However, under the proposal, an EAM will 
be prohibited from entering orders solicited from an ISE market maker 
assigned to the options class into the Solicited Order Mechanism and 
the Price Improvement Mechanism, which are designed to expose solicited 
transactions to the market.\5\
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    \5\ This limitation on entering orders solicited from market 
makers assigned to the options class was included in a rule change 
by the CBOE (the ``Automated Improvement Mechanism'' or ``AIM'') 
recently approved by the Commission. See Securities Exchange Act 
Release No. 53222 (Feb. 3, 2006), 71 FR 7089 (Feb. 10, 2006). The 
execution of solicited transactions through AIM is similar to the 
execution of orders through the ISE's Solicited Order Mechanism and 
Price Improvement Mechanism.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \7\ in particular, in that it 
is designed 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 of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. In particular, the rule change will allow EAMs to represent 
ISE market maker orders on the ISE, while prohibiting them from 
entering orders solicited from market makers assigned to the options 
class through mechanisms designed to expose solicited transactions to 
the market.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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

    The Exchange has not solicited comments on this proposed rule 
change. The Exchange 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 self-regulatory organization 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

[[Page 54323]]

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-2004-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2004-17. 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-2004-17 and should be submitted on or before October 
5, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-15268 Filed 9-13-06; 8:45 am]
BILLING CODE 8010-01-P