[Federal Register Volume 73, Number 62 (Monday, March 31, 2008)]
[Notices]
[Pages 16917-16919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6546]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57551; File No. SR-ISE-2008-28]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the Exposure 
of Public Customer Orders

March 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 March 18, 2008, the International Securities Exchange, LLC (the 
``Exchange'' or the ``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 substantially 
prepared by ISE. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to expose public customer orders that are not 
executable on the Exchange before sending an order through the 
intermarket linkage system (a ``Linkage Order'') on behalf of the 
public customer. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.iseoptions.com), at the principal 
office of the Exchange, 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, ISE 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. 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 ISE will not automatically execute a customer's options order

[[Page 16918]]

when the ISE's best bid or offer (``BBO'') is inferior to the national 
best bid or offer (``NBBO'').\3\ Under ISE Rule 803(c)(2)(ii), the 
primary market maker (``PMM'') is obligated to address public customer 
orders that are not automatically executed because there is a better 
price on another exchange. Rule 803(c) specifies that the PMM can 
either execute the order or send a Linkage Order to any other exchange 
displaying the best price in an attempt to get the better price for the 
public customer.\4\
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    \3\ See ISE Rule 714.
    \4\ ISE Rules, Chapter 19 (Intermarket Linkage Rules).
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    Under the current procedure, if the PMM does not execute the public 
customer order, it sends a Linkage Order(s) to a competing exchange(s) 
even though there may be other ISE market makers who would be willing 
to execute the public customer order at the better price. Additionally, 
when a PMM sends a Linkage Order to another exchange, it is charged the 
other exchange's execution fee. Therefore, the cost to the PMM of 
sending the Linkage Order can be substantial, particularly with respect 
to other options exchanges that have adopted a maker-taker fee 
schedule. To retain as much order flow as possible on the ISE and to 
help reduce PMM costs by reducing the number of Linkage Orders they 
need to send to other exchanges, we propose to expose public customer 
orders to all ISE market makers before the PMM sends a Linkage Order to 
another exchange to give all ISE market makers an opportunity to 
provide the public customer with the best price.\5\
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    \5\ Immediate-or-cancel orders are cancelled if they cannot be 
executed on the ISE upon entry. Therefore, such orders are not 
handled by the PMM under Rule 803(c)(2)(ii) and will not be exposed 
under this proposal.
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    Specifically, under the proposal, before the PMM sends a Linkage 
Order on behalf of a public customer, the public customer order will be 
exposed at the NBBO price for a period established by the Exchange not 
to exceed one second.\6\ During the exposure period, Exchange market 
makers may enter responses up to the size of the order being exposed in 
the regular trading increment applicable to the option. If at the end 
of the exposure period, the order is executable at the then-current 
NBBO and the ISE is not at the then-current NBBO, the order will be 
executed against responses that equal or better the then-current 
NBBO.\7\ The exposure period will be terminated if the exposed order 
becomes executable on the ISE at the prevailing NBBO or if the Exchange 
receives an unrelated order that could trade against the exposed order 
at the prevailing NBBO price.\8\ If, after an order is exposed, the 
order cannot be executed in full on the Exchange at the then-current 
NBBO or better, and it is marketable against the then-current NBBO, the 
PMM will send a Linkage Order on the customer's behalf for the balance 
of the order as provided in Rule 803(c)(2)(ii). If the balance of the 
order is not marketable against the then-current NBBO, it will be 
placed on the ISE book.
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    \6\ The Exchange will issue a Circular to inform members of the 
time period.
    \7\ Executions will be allocated pro-rata based on size (i.e., 
the percentage of the total number of contracts available at the 
same price that is represented by the size of a market maker's 
response).
    \8\ The order will be executed against orders and quotes on the 
book and responses received during the exposure period in price 
priority. At the same price, customer orders will be executed first 
in time priority and then all other interest (orders, quotes and 
responses) will be allocated pro-rata based on size.
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2. Statutory Basis
    The Exchange believes the proposed rule change 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 in that it should promote 
just and equitable principles of trade, serve to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest. Exposing 
public customer orders before the PMM sends a Linkage Order on the 
public customer's behalf will give additional ISE participants an 
opportunity to provide the orders an execution at the NBBO on the ISE 
and reduce PMM costs by reducing the number of Linkage Orders sent to 
other exchanges.
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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

    This 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 ISE 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 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-2008-28 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-2008-28. 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 on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be 
available for

[[Page 16919]]

inspection and copying at the principal office of 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 Number SR-ISE-2008-28 and should be 
submitted on or before April 21, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-6546 Filed 3-28-08; 8:45 am]
BILLING CODE 8011-01-P