[Federal Register Volume 73, Number 22 (Friday, February 1, 2008)]
[Notices]
[Pages 6225-6226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1834]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57207; File No. SR-ISE-2007-95]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of a Proposed Rule Change, as Modified by 
Amendment Nos. 2 and 3, Relating to Reserve Orders

January 25, 2008.
    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 October 12, 2007, the International Securities Exchange, LLC 
(``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 substantially 
prepared by the Exchange. The ISE filed Amendment Nos. 1 and 2 to the 
proposal on January 17, 2008.\3\ On January 25, 2008, the ISE filed 
Amendment No. 3 to the proposed rule change.\4\ 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. 2 replaces the original filing and Amendment 
No. 1 in their entirety.
    \4\ Amendment No. 3 clarifies portions of the purpose section of 
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 add a new order type called Reserve 
Orders. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.ise.com.

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
    The Exchange proposes to implement a new order type called Reserve 
Orders. A Reserve Order is a single-sided limit order that resides in 
the Exchange's regular limit order book and has both a displayed 
portion and a non-displayed or reserve portion. The displayed portion 
would behave exactly like a regular order and would trade in accordance 
with the Exchange's standard allocation rules, i.e., time priority for 
customers and pro-rata for non-customers.\5\ The following examples 
illustrate how Reserve Orders will trade on the Exchange:
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    \5\ See ISE Rule 713 and Supplementary Material .01 thereto.

    Example 1:
The Exchange's order book shows the following at the Best Bid:
10 contracts (100 contracts in reserve)--Customer 1
12 contracts--Customer 2
25 contracts--Competitive Market Maker
20 contracts (500 contracts in reserve)--Broker/Dealer

    An order comes in to sell 50 contracts at market. This order would 
be executed with the displayed customer orders trading in time priority 
followed by non-customers pro-rata, as follows:

10 contracts trade with Customer 1
12 contracts trade with Customer 2
16 contracts trade with Competitive Market Maker (``CMM''): This 
allocation is calculated as follows: (25/45) x 28, where the numerator 
(25) is the number of contracts that a CMM is willing to trade, and the 
denominator (45) is the number of contracts that are available for 
execution. The resulting number (0.5555) is then multiplied by the 
number of contracts that have not been executed (28).
The remaining 11 contracts trade with the Broker/Dealer.

    Example 2:
The Exchange's order book shows the same at the Best Bid as in Example 
1:
An order to sell 200 contracts at market will be executed as follows:
10 contracts trade with Customer 1
12 contracts trade with Customer 2
25 contracts trade with CMM
20 contracts trade with the Broker/Dealer
100 contracts (the entire reserve portion of Customer 1) trade with 
Customer 1
33 contracts (from the 500 contracts in reserve) trade with the Broker/
Dealer
    When the displayed portion of a Reserve Order is decremented, 
either in full or in part, it shall be refreshed from the non-displayed 
portion of the resting Reserve Order. If the displayed portion is 
refreshed in part, the new displayed portion shall include the 
previously displayed portion. Upon any refresh, the entire displayed 
portion shall be ranked at the specified limit price, assigned a new 
entry time and given priority in accordance with Rule 713.
    The non-displayed portion of Reserve Orders shall be ranked based 
on the specified limit price and the time of order entry. Upon any 
refresh, any remaining non-displayed portion shall be assigned a new 
time stamp, same as that assigned to the newly displayed portion. The 
non-displayed portion of any Reserve Order is available for execution 
only after all displayed interest has been executed.
    The Exchange notes that the full size, i.e., both the displayed and 
non-displayed portions, of an incoming Reserve Order will be available 
for execution if that incoming order is marketable. Further, in the 
event an incoming order is large enough to trade through all displayed 
quantities, the non-displayed quantities of all resting Reserve Orders 
will be eligible to trade, again in accordance with the Exchange's 
standard allocation rules.
    The Exchange believes that the new order type proposed in this rule 
change will provide greater flexibility to members to control their 
orders. By offering this new order type, members will be able to 
determine how much of their order they want disseminated at any point 
in time and help them eliminate the need to enter multiple orders in 
one series. The Exchange states that this new functionality will be 
purely voluntary and is similar to that currently offered \6\ or 
proposed \7\ by other options exchanges.
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    \6\ See NYSE Arca Rule 6.76(a).
    \7\ See Securities Exchange Act Release No. 55667 (April 25, 
2007), 72 FR 23869 (May 1, 2007) (SR-NASDAQ-2007-004) (Notice of 
Filing of Proposed Rule Change and Amendment No. 1 To Establish 
Rules Governing the Trading of Options on the NASDAQ Options 
Market).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section

[[Page 6226]]

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, promote just and equitable principles 
of trade, 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. The Exchange believes that this new 
order type will offer market participants new trading opportunities on 
the Exchange and enhance the Exchange's competitive position.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
    The Exchange believes that the 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 Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any 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 Exchange consents, the Commission will:
    A. By order approve the 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-2007-95 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 20549-1090.
All submissions should refer to File Number SR-ISE-2007-95. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. 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-2007-95 and should be 
submitted on or before February 22, 2008.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-1834 Filed 1-31-08; 8:45 am]
BILLING CODE 8011-01-P