[Federal Register Volume 76, Number 19 (Friday, January 28, 2011)]
[Notices]
[Pages 5225-5227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1860]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63758; File No. SR-ISE-2011-05]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the Purchase 
of Equity Interests by International Securities Exchange Holdings, Inc. 
in Ballista Holdings LLC

January 24, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on January 14, 2011, the International Securities 
Exchange, LLC (the ``Exchange'' or ``ISE'') filed with the Securities 
and Exchange Commission (``Commission'' or ``SEC'') the proposed rule 
change as described in Items I and II below, which items have been 
prepared by the Exchange. 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 Exchange is submitting this proposed rule change (the 
``Proposed Rule Change'') to the Commission to amend ISE Rule 312 
(Limitation on Affiliation between the Exchange and Members) in 
connection with the capital contribution by its parent company, 
International Securities Exchange Holdings, Inc. (``ISE Holdings''), in 
Ballista Holdings LLC (formerly Optifreeeze [sic] LLC), a Delaware 
Limited Liability Company (``Ballista

[[Page 5226]]

Holdings''). The text of the proposed rule change is available on the 
Exchange's Web site http://www.ise.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, 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
    On June 5, 2009, ISE Holdings entered into a Membership Purchase 
Agreement (``Purchase Agreement'') with Ballista Holdings. Pursuant to 
the Purchase Agreement, ISE Holdings contributed cash to the capital of 
Ballista Holdings in exchange for membership interests representing on 
the date of such issuance 8.57% of the aggregate membership interests 
in Ballista Holdings (``Purchased Interests''). ISE Holdings and its 
subsidiaries and affiliates do not have any voting or other ``control'' 
arrangements with any of the other members of Ballista Holdings 
relating to its investment in Ballista Holdings. The purchase by ISE 
Holdings of the Purchased Interests was consummated on June 5, 2009 
(the ``Transaction''). As a result of such purchase, ISE Holdings 
became a member of Ballista Holdings pursuant to the Third Amended and 
Restated Operating Agreement of Ballista Holdings dated June 5, 2009, 
and has one representative on the Ballista Holdings Board of Directors. 
Ballista Securities LLC (``Ballista Securities''), a wholly-owned 
subsidiary of Ballista Holdings, is an electronic access member of the 
Exchange.
    The Exchange, through ISE Holdings, maintains an ownership interest 
in an ISE member, Ballista Securities, which, without Commission 
approval, would be prohibited by ISE Rule 312.\3\ In 2009, recognizing 
that the Commission has previously expressed concern regarding (1) the 
potential for conflicts of interest in instances where an exchange is 
affiliated with one of its members, and (2) the potential for 
informational advantages that could place an affiliated member of an 
exchange at a competitive advantage vis-[agrave]-vis the other non-
affiliated members, the ISE submitted a proposed rule change to amend 
ISE Rule 312 to permit the proposed affiliation subject to several 
limitations and obligations. Specifically, the limitations and 
obligations of ISE Rule 312 provide that for so long as (i) ISE 
Holdings maintains an ownership interest in Ballista Securities; and 
(ii) Ballista Securities remains a member of the Exchange: (1) 
Financial Industry Regulatory Authority (``FINRA''), a self-regulatory 
organization unaffiliated with the Exchange or any of its affiliates, 
will carry out oversight and enforcement responsibilities as the 
designated examining authority designated by the Commission pursuant to 
Rule 17d-1 of the Exchange Act with the responsibility for examining 
Ballista Securities for compliance with applicable financial 
responsibility rules; (2) the Exchange shall (a) enter into a plan 
pursuant to Rule 17d-2 under the Exchange Act with a non-affiliated 
self-regulatory organization (``SRO'') to relieve the Exchange of 
regulatory responsibilities for Ballista Securities with respect to 
rules that are common rules between the Exchange and the SRO, and (b) 
enter into a regulatory services contract with a non-affiliated SRO to 
perform certain regulatory responsibilities for Ballista Securities for 
unique Exchange rules; \4\ (3) the regulatory services contract shall 
require the Exchange to provide the non-affiliated SRO with 
information, in an easily accessible manner, regarding all exception 
reports, alerts, complaints, trading errors, cancellations, 
investigations, and enforcement matters (collectively, ``Exceptions'') 
in which Ballista Securities is identified as a participant that has 
potentially violated Exchange or SEC rules, and shall require that the 
nonaffiliated SRO provide a report to the Exchange quantifying 
Exceptions on not less than a quarterly basis; (4) the Exchange shall 
establish and maintain procedures and internal controls reasonably 
designed to ensure that Ballista Securities and its affiliates do not 
have access to nonpublic information obtained as a result of ISE 
Holdings' ownership interest in Ballista Securities, until such 
information is available generally to similarly situated members of the 
Exchange; and (5) the ownership interest of ISE Holdings, Inc. in 
Ballista Securities is subject to the conditions set forth above and is 
granted on a temporary basis, for not longer than one year from the 
date of Commission approval of the filing.
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    \3\ In relevant part, ISE Rule 312 provides that, without prior 
SEC approval, the Exchange, or any entity with which the Exchange is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member or non-member owner. In addition, ISE 
Rule 312 provides that nothing in that rule shall prohibit a member 
or non- member owner from being or becoming an affiliate of the 
Exchange, or an affiliate of an affiliate of the Exchange solely by 
reason of any officer, director or partner of such member becoming 
an Exchange Director (as defined in the Amended and Restated 
Constitution of the ISE).
    \4\ The non-affiliated SRO will perform certain regulatory 
responsibilities for Ballista Securities other than market 
surveillance, including, but not limited to, investigative and 
disciplinary services.
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    On September 1, 2009, the Commission approved the amendments to ISE 
Rule 312 (Limitation on Affiliation between the Exchange and Members) 
to reflect ISE Holdings' ownership interest in Ballista Securities and 
to set forth such limitations and obligations relating to the 
relationship, and an exemption from ISE Rule 312 of the Exchange with 
respect to the investment by ISE Holdings in Ballista Holdings for a 
one (1) year pilot period which ended on September 1, 2010.\5\ The 
Exchange now proposes that there be an exemption from Rule 312 of the 
Exchange with respect to the investment by ISE Holdings in Ballista 
Holdings for a second one (1) year pilot period subject to the same 
limitations and obligations as were previously approved by the 
Commission, and to make certain technical changes to Rule 312 to 
reflect that the 17d-2 Plan \6\ and the Regulatory Services Agreement 
with a non-affiliated self-regulatory organization are currently in 
place, and also to reflect that the Exchange has established and 
maintains procedures and internal controls reasonably designed to 
ensure that Ballista Securities and its affiliates do not have access 
to nonpublic information obtained as a result of ISE Holdings' 
ownership interest in Ballista Securities, until such information is 
available generally to similarly situated members of the Exchange.
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    \5\ See Securities and Exchange Act Release No. 34-60598 
(September 1, 2009), 74 FR 38068 (July 30, 2009) [sic] (SR-ISE-2009-
45).
    \6\ See Securities and Exchange Act Release No. 34-61853 (April 
6, 2010), 75 FR 18925 (April 13, 2010).
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    In addition, the Exchange notes that ISE Holdings continues to own 
less than 9% of the equity in Ballista Holdings and therefore does not 
own a controlling interest or otherwise have any veto or other special 
voting rights with respect to the management or operation of Ballista 
Holdings. The Exchange acknowledges that if the Exchange or

[[Page 5227]]

any of its affiliates were to directly or indirectly increase the 
equity ownership of Ballista Holdings, such increase would require 
prior Commission approval. The Exchange believes that the foregoing 
measures and factors minimize the concerns identified by the Commission 
regarding potential conflicts of interest.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Exchange Act,\7\ in general, 
and with Sections 6(b)(1) and (b)(5) of the Exchange Act,\8\ in 
particular, in that the proposal enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply with and enforce compliance by 
members and persons associated with members with provisions of the 
Exchange Act, the rules and regulations thereunder, and SRO rules, and 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions 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, this rule change will provide for a second one (1) year 
pilot program designed to prevent any potential regulatory issues that 
could arise with ISE Holdings' investment in Ballista Holdings.\9\
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(3), (5).
    \9\ See e-mail from Tracy Tang, Assistant General Counsel, ISE, 
to Michael Gaw, Assistant Director, Division of Trading and Markets, 
Commission, dated January 20, 2011 (correcting text of the Statutory 
Basis at the Exchange's request).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange 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, participants or others.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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-2011-05 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 Number SR-ISE-2011-05. 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 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 
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 publicly available. All 
submissions should refer to File Number SR-ISE-2011-05 and should be 
submitted on or before February 18, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1860 Filed 1-27-11; 8:45 am]
BILLING CODE 8011-01-P