

[Federal Register: November 7, 2005 (Volume 70, Number 214)]
[Notices]               
[Page 67508-67509]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07no05-109]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52711; File No. SR-ISE-2004-04]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Order Approving Proposed Rule Change and Amendments No. 1 and 2 
Relating to Exposure Periods in the Facilitation and Solicited Order 
Mechanisms

November 1, 2005.

I. Introduction

    On February 23, 2004, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to reduce the exposure period in 
its Facilitation and Solicited Order Mechanisms from ten seconds to 
three seconds. The ISE filed Amendments No. 1 and 2 to the proposal on 
September 7, 2005, and September 20, 2005, respectively.\3\ The 
proposed rule change, as amended, was published for comment in the 
Federal Register on September 28, 2005.\4\ The Commission received no 
comment letters regarding the proposal. This order approves the 
proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded and replaced the ISE's original 
filing in its entirety. Amendment No. 2 corrected a non-substantive 
typographical error in the text of the proposed rule change, and two 
incorrect references in footnotes to the Form 19b-4 for Amendment 
No. 1 and Exhibit 1 thereto.
    \4\ See Securities Exchange Act Release No. 52479 (September 21, 
2005), 70 FR 56755.
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II. Description of Proposal

    Supplementary Material .04 to ISE Rule 716, ``Block Trades,'' 
currently provides ISE members with 10 seconds to respond to broadcast 
messages for orders entered into the ISE's Facilitation and Solicited 
Order Mechanisms. The ISE proposes to amend ISE Rule 716, Supplementary 
Material .04 to reduce the exposure period in the Facilitation and 
Solicited Order Mechanisms from 10 seconds to three seconds.\5\
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    \5\ ISE Rule 716 originally required that orders be exposed in 
the Facilitation Mechanism for 30 seconds. In September 2002, the 
Commission approved an ISE proposal to reduce this exposure period 
from 30 seconds to 10 seconds. See Securities Exchange Act Release 
No. 46514 (September 18, 2002), 67 FR 60627 (September 25, 2005) 
(order approving File No. SR-ISE-2001-19). The Commission approved 
the ISE's Solicited Order Mechanism in June 2004 with an exposure 
period of 10 seconds. See Securities Exchange Act Release No. 49943 
(June 30, 2004), 69 FR 41317 (July 8, 2004) (order approving File 
No. SR-ISE-2001-22).
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    Similar to the Facilitation and Solicited Order Mechanisms, the 
ISE's Price Improvement Mechanism (``PIM'') provides an auction process 
through which an ISE member may trade with its customer's order as 
principal or execute its customer's order against orders the member has 
solicited.\6\ The exposure period for orders entered into the ISE's PIM 
is three seconds. The ISE notes that the PIM is an interactive auction 
in which ISE members receive and may respond to multiple price updates 
within the three-second exposure period. In contrast, ISE members 
receive only one message at the start of an auction for orders entered 
into the Facilitation and Solicited Order Mechanisms. The ISE believes 
that there is no reason for providing different exposure periods in the 
three mechanisms because, in each of the three mechanisms, ISE members 
are notified of orders and enter their interest in trading with such 
orders in the same technical manner.
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    \6\ See ISE Rule 723, ``Price Improvement Mechanism for Crossing 
Transactions.'' See also Securities Exchange Act Release No. 50819 
(December 8, 2004), 69 FR 75093 (December 15, 2004) (order approving 
File No. SR-ISE-2003-06) (``PIM Order'').
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III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with Section 6(b) of the Act,\7\ 
in general, and furthers the objectives of Section 6(b),\8\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, 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.\9\ In particular, the 
Commission believes that reducing the exposure period for orders 
entered into the ISE's Facilitation and Solicited Order Mechanisms from 
10 seconds to three seconds could facilitate the prompt execution of 
these orders while providing participants in ISE's market with an 
adequate opportunity to compete and provide price improvement for the 
orders.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    In approving the ISE's PIM, the Commission concluded that the 
three-second PIM auction should afford electronic crowds sufficient 
time to compete for orders submitted to the PIM.\10\ In reaching this 
conclusion, the

[[Page 67509]]

Commission stated that the critical issue is determining whether the 
three-second timeframe would give participants in a fully automated 
marketplace sufficient time to respond to a PIM broadcast, to compete, 
and to provide price improvement for orders, and whether electronic 
systems were available to ISE members that would allow them to respond 
to PIM broadcasts in a meaningful way within the proposed 
timeframe.\11\ The Commission noted that the ISE is a fully electronic 
exchange where crowd members interact by electronic means, and that 
electronic systems were readily available, if not already in place, 
that would allow ISE members to respond to PIM broadcasts.\12\
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    \10\ See PIM Order, supra note 6.
    \11\ See PIM Order, supra note 6.
    \12\ See PIM Order, supra note 6.
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    The Commission believes that its rationale for approving the three-
second PIM auction applies equally to auctions in the Facilitation and 
Solicited Order Mechanisms. In this regard, the Commission notes that 
in contrast to the PIM, which provides an interactive auction in which 
ISE members may receive and respond to multiple price updates within 
the three-second exposure period, the Facilitation and Solicited Order 
Mechanisms provide ISE members with only one message at the start of 
the auctions. Accordingly, the Commission believes that the electronic 
systems that would allow ISE members to receive and respond to multiple 
price updates during a three-second PIM auction also should allow them 
to respond in a meaningful way to three-second auctions in the 
Facilitation and Solicited Order Mechanisms.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-ISE-2004-04), as amended, is 
approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-22179 Filed 11-4-05; 8:45 am]

BILLING CODE 8010-01-P
