

[Federal Register: September 11, 2006 (Volume 71, Number 175)]
[Notices]               
[Page 53483-53485]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11se06-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54401; File No. SR-ISE-2006-53]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Order Granting Accelerated Approval of a 
Proposed Rule Change Relating To Doing Business With the Public

 September 1, 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 August 31, 2006, the International Securities Exchange, Inc. 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II 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 and is

[[Page 53484]]

approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to adopt a rule with respect to members doing 
business with the public on the ISE, in anticipation of the Exchange's 
entry into the trading of non-option equity securities. Below is the 
text of the proposed rule change. Proposed new language is in italics.
* * * * *

Rule 2106. Doing Business With the Public

    An Equity EAM that does business with the public must also be a 
member of the NASD.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
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 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 III 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
    Currently, the ISE only trades options on equity securities and 
indices. The purpose of this proposed rule change is to adopt a rule 
that incorporates provisions related to non-option equity securities to 
reflect ISE's intention to begin trading non-option equity securities. 
Specifically, the ISE will require ISE Electronic Access Members 
(``EAMs'') trading equity securities on the ISE (``Equity EAMs'') who 
do business with the public to also be members of the NASD. As such 
those ISE members would be required to comply with NASD rules that 
govern the practices of members when doing business with the public. 
Among other things, these members would be obligated:
     To make suitable recommendations to customers when 
recommending the purchase, sale or exchange of any security; \3\
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    \3\ See NASD Rules 2310, IM-2310-3 and 2315.
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     To be aware of possible application of SEC Rule 15g-1 
through 15g-9 when a transaction involves a non-exchange listed equity 
security trading for less than five dollars per share; \4\
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    \4\ See NASD Rule IM-2310-1.
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     To deal fairly with customers and others; \5\
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    \5\ See NASD Rule IM-2310-2.
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     To use reasonable diligence to ascertain the best inter-
dealer market for the subject security and buy or sell in such market 
so that the resultant price to the customer is as favorable as possible 
under prevailing market conditions; \6\
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    \6\ See NASD Rule 2320.
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     To segregate and identify by customers both fully paid and 
``excess margin'' securities; \7\
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    \7\ See NASD Rule IM-2330.
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     To make proper use of a customer's securities or funds; 
\8\
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    \8\ See NASD Rule 2330.
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     To send a statement of account, no less than once every 
calendar year, containing a description of any securities position, 
money balances, or account activity to each customer whose account had 
a security position, money balance, or account activity during the 
period since the last such statement was sent to the customer; \9\
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    \9\ See NASD Rule 2340.
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     To provide customers with a margin disclosure statement 
prior to or at the time of opening a margin account; \10\
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    \10\ See NASD Rule 2341.
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     To comply with the provisions of NASD Rule 2350 if the 
member accepts deposits on the premises of a financial institution; 
\11\
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    \11\ See NASD Rule 2350.
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     To provide a risk disclosure statement set forth in NASD 
Rule 2361 prior to opening a day-trading account for a customer; \12\ 
and
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    \12\ See NASD Rules 2360 and 2361.
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     To not borrow from, or lend money to, a customer unless 
the member complies with the provisions of NASD Rule 2370.\13\
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    \13\ See NASD Rule 2370.
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2. Statutory Basis
    The proposed rule change is consistent with the requirements of the 
Act, and the rules and regulations thereunder applicable to a national 
securities exchange, and in particular, with the requirements of 
Section 6(b)(5) \14\ of the Act. Section 6(b)(5) requires, among other 
things, that the rules of an exchange be designed to promote just and 
equitable principles of trade, 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. Specifically, 
ISE believes the proposed rule change will promote just and equitable 
principles of trade and protect investors and the public interest by 
utilizing rules applicable to NASD members to provide safeguards for 
public investors.
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    \14\ 5 U.S.C. 78f(b)(5).
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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 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. 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-2006-53 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-2006-53. 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

[[Page 53485]]

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-2006-53 and should be 
submitted on or before October 2, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder, applicable to a national securities exchange.\15\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \16\ in that it promotes 
just and equitable principles of trade and protects investors and the 
public interest by requiring Equity EAMs that do business with the 
public to become NASD members. As NASD members those broker-dealers 
would be subject to a set of rules designed to protect investors.\17\
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    \15\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See, e.g., NASD Rules 2310, 2315, 2320. 2330, 2340, 2341, 
2350, 2360, 2361, and 2370, as well as IM-2310 and IM-2330.
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    ISE has requested accelerated effectiveness of the proposed rule 
change. ISE has also indicated that it believes most EAMs that do 
business with the public are already NASD members and all Equity EAMs 
that do business with the public are NASD members.\18\ After careful 
consideration, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\19\ for approving the proposed rule change prior 
to the thirtieth day after the date of publication of notice in the 
Federal Register. The Commission notes ISE must have rules concerning 
doing business with the public in place prior to ISE commencing trading 
in non-option equity securities. Moreover, because most EAMs are 
already NASD members, the proposal would not impose additional 
requirements on the majority of ISE members. Therefore, granting 
accelerated approval would facilitate ISE's ability to trade equity 
securities in a timely manner. Accordingly, the Commission finds that 
there is good cause, consistent with Section 6(b)(5) of the Act,\20\ to 
approve the proposal on an accelerated basis.
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    \18\ Telephone call between Laura Clare, Assistant General 
Counsel, ISE, and Haimera Workie, Special Counsel, Office of Chief 
Counsel, Division of Market Regulation, SEC, on August 31, 2006.
    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 15 U.S.C. 78f(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-ISE-2006-53) is hereby 
approved on an accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-14947 Filed 9-8-06; 8:45 am]

BILLING CODE 8010-01-P
