

[Federal Register: January 19, 2006 (Volume 71, Number 12)]
[Notices]               
[Page 3144-3145]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19ja06-133]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53103; File No. SR-ISE-2006-01]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of Proposed Rule Change To Amend Exchange Rule 
Governing Directed Orders

January 11, 2006.
    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 January 5, 2006, the International Securities Exchange, Inc. 
(``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 prepared by the ISE. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The ISE is proposing to amend its ISE Rule 811 with respect to 
identifying to a Directed Market Maker (``DMM'') the identity of the 
firm entering a Directed Order.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Rule 811. Directed Orders

* * * * *
    (b) Exchange market makers may only receive and handle orders on an 
agency basis if they are Directed Orders and only in the manner 
prescribed in the Rule 811. A market maker can elect whether or not to 
accept Directed Orders on a daily basis. If a market maker elects to be 
a Directed Market Maker, it must accept Directed Orders from all 
Electronic Access Members[. A Directed market maker] and cannot reject 
a Directed Order. The identity of the Electronic Access Member that 
entered the Directed Order will be made available to the Directed 
Market Maker.
* * * * *

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 ISE included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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 Exchange operates a Directed Order system in which Electronic 
Access Members (``EAMs'') can send an order to a DMM for possible price 
improvement.\3\ If a DMM accepts Directed Orders generally, that DMM 
must accept all Directed Orders from all EAMs. Once such a DMM receives 
a Directed Order, it either must enter the order into the Exchange's 
``Price Improvement Mechanism'' (``PIM'') or must release the order 
into the Exchange's limit order book, in which case there are certain 
restrictions on the DMM interacting with the order.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 52331 (August 24, 
2005), 70 FR 51856 (August 31, 2005) (SR-ISE-2004-16).
---------------------------------------------------------------------------

    The Boston Options Exchange (``BOX'') operates a system almost 
identical to ISE's Directed Order system. Based on BOX's published 
rules, the ISE believed that BOX's system had the same anonymity 
feature as ISE's system. However, the Boston Stock Exchange, Inc. 
(``BSE'') has filed a proposed rule change that acknowledges that BOX 
provides its directed market makers with the identity of the order 
entry firm and seeks to amend the BOX rules to be consistent with the 
actual operation of the BOX system (the ``BOX Proposal'').\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 53015 (December 22, 
2005), 70 FR 77207 (December 29, 2005) (SR-BSE-2005-52).
---------------------------------------------------------------------------

    The ISE has significant concerns with the BOX Proposal and will be 
filing a comment letter arguing against its approval. Notwithstanding 
ISE's concerns with the BOX Proposal, the ISE believes it needs to 
remain competitive in the market place if the Commission determines to 
approve the BOX Proposal and allow exchanges to disclose the identity 
of order-entry

[[Page 3145]]

firms in their order routing and execution systems. In this respect, 
the ISE has modified its system to disclose the identity of order entry 
firms to DMMs on a temporary basis.\5\ The purpose of this proposed 
rule change is to specify in the ISE rules that Directed Orders are not 
anonymous, which if approved by the Commission, will make the temporary 
system change permanent.\6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 53104 (January 11, 
2006) (File No. SR-ISE-2006-02). This temporary system change was 
effective upon filing pursuant to Rule 19b-4(f)(5) under the Act. 17 
CFR 240.19b-4(f)(5).
    \6\ Currently, the ISE rules do not specify that Directed Orders 
are sent to a DMM on an anonymous basis. The ISE also enforces 
anonymity in certain other trading systems, such as its Facilitation 
Mechanism. The Exchange plans to file a proposed rule change 
eliminating the anonymity provisions in certain of these areas as 
well.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is found in section 6(b)(5),\7\ in that the 
proposed rule change is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. In particular, the proposed rule 
change will enable the Exchange to remain competitive in the market 
place.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    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 shall:
    (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 rule-comments@sec.gov. Please include 

File No. SR-ISE-2006-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-ISE-2006-01. 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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-2006-01 
and should be submitted on or before February 9, 2006.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
Nancy M. Morris,
Secretary.
[FR Doc. E6-521 Filed 1-18-06; 8:45 am]

BILLING CODE 8010-01-P
