

[Federal Register: June 6, 2006 (Volume 71, Number 108)]
[Notices]               
[Page 32617-32619]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jn06-75]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53903; File No. SR-ISE-2005-49]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 
2 Relating to Complex Order Execution

May 31, 2006.
    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 October 4, 2005, the International Securities Exchange, Inc. 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the

[[Page 32618]]

proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the ISE. The ISE filed Amendment Nos. 1 and 
2 to the proposal on February 1, 2006, and April 20, 2006, 
respectively.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 2 replaced the initial filing and Amendment 
No. 1 in their entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend ISE Rule 722, ``Complex 
Orders,'' with respect to complex order execution. The text of the 
proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in [brackets].
* * * * *
    Rule 722. Complex Orders.
    (a) no change.
    (b) Applicability of Exchange Rules. Except as otherwise provided 
in this Rule, complex orders shall be subject to all other Exchange 
Rules that pertain to orders generally.
    (1) Minimum Increments. Bids and offers on complex orders may be 
expressed in any decimal price, and the [option] leg(s) of a [stock-
option] complex order may be executed in one cent increments, 
regardless of the minimum increments otherwise applicable to the 
individual [options] legs of the order. [Complex orders expressed in 
net price increments that are not multiples of the minimum increment 
are not entitled to the same priority under subparagraph (b)(2) of this 
Rule as such orders expressed in increments that are multiples of the 
minimum increment.]
    (2) Complex Order Priority. Notwithstanding the provisions of Rule 
713, a complex order, as defined in paragraph (a) of this Rule, may be 
executed at a total credit or debit price with one other Member without 
giving priority to bids or offers established in the marketplace that 
are no better than the bids or offers comprising such total credit or 
debit; provided, however, that if any of the bids or offers established 
in the marketplace consist of a Public Customer limit order, the price 
of at least one leg of the complex order must trade at a price that is 
better than the corresponding bid or offer in the marketplace by at 
least one minimum trading increment as defined in Rule 710. Under the 
circumstances described above, the option leg of a stock-option order, 
as defined in subparagraph (a)(5)(i)(A) of this Rule, or SSF-option 
order as defined in subparagraph (a)(5)(ii)(A) of this Rule, has 
priority over bids and offers established in the marketplace by Non-
Customer orders and market maker quotes that are no better than the 
price of the options leg, but not over such bids and offers established 
by Public Customer Orders. The option legs of a stock-option order as 
defined in subparagraph (a)(5)(ii)(B), or SSF-option order as defined 
in subparagraph (a)(5)(ii)(B), consisting of a combination order with 
stock or single stock futures, as the case may be, may be executed in 
accordance with the first sentence of this subparagraph (b)(2).
    (3) through (5) no change.
* * * * *

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 Exchange 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 proposes to allow the legs of an options-only complex 
order to be executed in penny increments. Currently under ISE Rule 722, 
the options leg of a stock-option order may be executed in penny 
increments, but the legs of an options-only complex order must be 
executed at the standard trading increments. The Exchange proposes to 
allow the legs of all complex orders to trade in penny increments. The 
Exchange believes that the proposed rule change will provide investors 
with flexibility in pricing the complex orders and create more 
opportunities for complex orders to receive an execution.
    Under ISE Rule 722, a complex order may be executed at a total 
credit or debit price with one other Member without giving priority to 
bids or offers established in the marketplace that are no better than 
the bids or offers comprising such total credit or debit, provided that 
if any of the bids or offers established in the marketplace consist of 
a Public Customer limit order, the price of at least one leg of the 
complex order must trade at a price that is better than the 
corresponding bid or offer in the marketplace. While the Exchange 
proposes to allow the legs of complex orders to be executed in penny 
increments, it does not propose to change the existing requirement that 
to have priority over Public Customer limit orders, at least one leg of 
the complex order must trade at a price that is better than the 
corresponding bid or offer in the marketplace by at least one minimum 
trading increment.\4\ Thus, Public Customer limit orders will maintain 
their existing priority under ISE Rule 722.
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    \4\ A minimum trading increment is defined in ISE Rule 710, 
``Minimum Trading Increments,'' as $0.05 if the options contract is 
trading at less than $3.00 and $0.10 if the options contract is 
trading at or above $3.00.
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2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is found in Section 6(b)(5), in that the proposed 
rule change is designed to promote just and equitable principles of 
trade, to remove \5\ 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 that it will provide 
investors with more flexibility in pricing complex orders and increase 
the opportunity for complex orders to be executed.
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    \5\ 15 U.S.C. 78f(b).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that 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 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

[[Page 32619]]

longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the Exchange 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, as amended, 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 Number SR-ISE-2005-49 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-2005-49. 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 the 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-
2005-49 and should be submitted on or before June 27, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-8717 Filed 6-5-06; 8:45 am]

BILLING CODE 8010-01-P
