[Federal Register Volume 75, Number 122 (Friday, June 25, 2010)]
[Notices]
[Pages 36458-36460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15357]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62316; File No. SR-ISE-2010-15]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change, as Modified by Amendment Nos. 1 and 2, Related to the Price 
Improvement Mechanism

June 17, 2010.
    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 May 28, 2010, 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 prepared by the 
Exchange. On June 10, 2010, the Exchange filed Amendment No. 1 to the 
proposed rule change. On June 17, 2010, the Exchange filed Amendment 
No. 2 to the proposed rule change.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as modified by 
Amendment Nos. 1 and 2, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 2 replaces and supersedes the original filing 
and Amendment No. 1 thereto in their entirety.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 723 to allow Crossing 
Transactions to be entered into the Price Improvement Mechanism 
(``PIM'') at a price that matches the ISE BBO in certain circumstances. 
The text of the proposed rule change is as follows (deletions are in 
[brackets]; additions are in italics):
* * * * *

Rule 723. Price Improvement Mechanism for Crossing Transactions

    (a) No change.
    (b) Crossing Transaction Entry. A Crossing Transaction is comprised 
of the order the Electronic Access Member represents as agent (the 
``Agency Order'') and a counter-side order for the full size of the 
Agency Order (the ``Counter-Side Order''). The Counter-Side Order may 
represent interest for the Member's own account, or interest the Member 
has solicited from one or more other parties, or a combination of both.
    (1) Except as provided in Supplementary Material.08 below, [A] a 
Crossing Transaction must be entered only at a price that is better 
than the ISE best bid or offer (``ISE BBO'') and equal to or better 
than the national best bid or offer (``NBBO'').
    (2) and (3) no change.
    (c) and (d) no change.

Supplementary Material to Rule 723

    .01 through .07 no change.
    .08 When the ISE BBO is equal to the NBBO, a Crossing Transaction 
may be entered where the price of the Crossing Transaction is equal to 
the ISE BBO if the Agency Order is on the opposite side of the market 
from the ISE BBO. In this case, the Agency Order will be automatically 
executed against the ISE BBO. If the Agency Order is not fully executed 
after the ISE BBO is fully exhausted and is no longer at a price equal 
to the Crossing Transaction, the PIM will be initiated for the balance 
of the order as provided in Rule 723. With respect to any portion of an 
Agency Order that is automatically executed against the ISE BBO 
pursuant to this paragraph .08, the exposure requirements contained in 
Rule 717(d) and (e) will not be satisfied for the fact that the member 
utilized the Price Improvement Mechanism.
* * * * *

Rule 811. Directed Orders

    (a) through (d) no change.
    (e) Except as provided in this paragraph (e), when a Directed Order 
is released, the System processes the order in the same manner as any 
other order received by the Exchange. Directed Orders will not be 
automatically executed at a price that is inferior to the NBBO and, 
except as provided in subparagraph (e)(3), will be handled pursuant to 
Rule 803(c)(2) when the ISE best bid or offer is inferior to the NBBO.
    (1) A marketable Directed Order that is released, or entered into 
the PIM pursuant to Supplemental Material .08 to Rule 723, will be 
matched against orders and quotes according to Rule 713 except that, at 
any given price level, the Directed Market Maker will be last in 
priority.
* * * * *

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 self-regulatory organization 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
    PIM is a process by which a member can provide price improvement 
opportunities for a transaction wherein the member seeks to execute an 
agency order as principal or execute an agency order against a 
solicited order (a Crossing Transaction'').\4\ Currently under Rule 
723, a Crossing Transaction may only be entered at a price that is 
better than the ISE best bid or offer (``ISE BBO'') and equal to or 
better than the national best bid or offer (``NBBO'').
---------------------------------------------------------------------------

    \4\ ISE Rule 723(a).
---------------------------------------------------------------------------

    The Exchange proposes to modify PIM so that members may enter 
transactions at a price that matches the ISE BBO and the NBBO if the 
agency order is on the opposite side of the market from the ISE BBO. In 
this case, the agency order will be automatically executed against the 
ISE BBO in the same manner as marketable orders entered directly. If 
the agency order is not fully executed after the ISE BBO is

[[Page 36459]]

fully exhausted and is no longer at a price equal to the Crossing 
Transaction, the PIM will be initiated for the balance of the order as 
provided in Rule 723.
    Currently, the Exchange automatically rejects a Crossing 
Transaction that does not improve upon the ISE BBO so that the 
transaction does not occur ahead of interest on the book. However, in 
the case where the agency order is marketable against the best price on 
the ISE, we believe it would benefit the agency order to receive an 
execution against the available liquidity on the ISE book rather than 
being rejected. Moreover, members have indicated that it would be 
preferable to receive an execution in this instance, as such treatment 
would better serve their customers.
    Any portion of an order that is immediately executed against the 
ISE BBO would be subject to the exposure requirements contained in Rule 
717(d) and (e). Rule 717(d) and (e) require members to expose certain 
orders for at least one second before executing such orders as 
principal or against orders solicited from a broker-dealer. This order 
exposure requirement can be satisfied by utilizing the Price 
Improvement Mechanism because the mechanism automatically exposes 
orders for one second. In the case of an automatic execution of an 
agency order against the ISE BBO under the proposal, there would be no 
exposure, so utilizing the Price Improvement Mechanism will not satisfy 
the requirements of Rule 717(d) and (e) in this case.\5\
---------------------------------------------------------------------------

    \5\ The Exchange conducts surveillance for compliance with the 
exposure requirement of Rule 717(d) and (e). Automatic execution of 
orders against the ISE BBO through the PIM under this proposal will 
be included in this surveillance.
---------------------------------------------------------------------------

    Pursuant to ISE Rule 811, an order may be directed to a market 
maker, which must either ``release'' the order into the system or enter 
the order into the PIM within three seconds. Rule 811 contains a number 
of safeguards with respect to the handling of directed orders by 
directed market makers, including modified execution priority rules 
when directed orders are entered by the directed market maker directly 
that assure all other market participants are given an opportunity to 
trade with the directed order before the directed market maker. The 
proposed rule change to allow agency orders entered into PIM to be 
automatically executed upon entry if they are marketable will not 
affect the execution of directed orders under Rule 811 in any manner. 
As stated in the filing, the agency order will be automatically 
executed against the ISE BBO in the same manner as marketable orders 
entered directly, i.e., ``released'' by the directed market maker under 
Rule 811.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Act'') 
for this proposed rule change is the requirement under Section 6(b)(5) 
that an exchange have rules that are designed to promote just and 
equitable principles of trade, and 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 proposal will provide execution opportunities for 
marketable agency orders entered into the PIM in the same manner as 
marketable orders entered directly. This will provide better execution 
opportunity for agency orders entered into the PIM, as well as for 
interest at the ISE BBO, because they will be automatically executed 
instead of being rejected.

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

    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 unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-4(f)(6) 
thereunder.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and text of the proposed rule change, or such 
shorted time as designated by the Commission. The Exchange provided 
a copy of this rule filing to the Commission at least five business 
days prior to the date of this filing.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-ISE-2010-15 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-ISE-2010-15. 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 changes 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
am and 3 pm. Copies of such filing also will be available for 
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 No.

[[Page 36460]]

SR-ISE-2010-15 and should be submitted on or before July 16, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15357 Filed 6-24-10; 8:45 am]
BILLING CODE 8010-01-P