

[Federal Register: May 24, 2007 (Volume 72, Number 100)]
[Notices]               
[Page 29189-29191]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24my07-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55784; File No. SR-ISE-2007-27]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Order Delivery

May 18, 2007.
    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 May 16, 2007, the International Securities Exchange, LLC (``ISE'' or 
``Exchange'') 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 substantially prepared by 
ISE. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it effective upon 
filing with the Commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange has asked the Commission to waive the 30-day 
operative delay required by Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-
4(f)(6)(iii). See discussion infra Section III.
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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 amend its rules to allow for order 
delivery. The text of the proposed rule change is available at ISE, the 
Commission's Public Reference Room, and http://www.iseoptions.com.


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 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 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 purpose of this filing is to amend ISE Rules to allow order 
delivery Electronic Communication Networks (``ECNs'') to display 
quotations on the ISE Stock Exchange (``ISE Stock'' or ``System''). An 
order delivery ECN submits quotations that are displayed on the 
Exchange, while simultaneously executing buy and sell orders internally 
as agent for its subscribers. To preclude the potential for double 
liability on a single order (e.g., an order executing internally in the 
ECN immediately before the quotation that reflects such order is 
executed in ISE order book), the Exchange will first confirm the 
continued availability of an order before executing it against incoming 
orders. In this context, the Commission requires that the system that 
connects an exchange facility and an ECN be of very high reliability 
and speed, and that the exchange's rules governing order delivery 
assure fast and efficient handling of quotation updates.\6\
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    \6\ See Question 2.04: Automated Trading Centers/Order-Delivery 
ECNs, Responses to Frequently Asked Questions Concerning Rule 611 
and Rule 610 of Regulation NMS, Division of Market Regulation, SEC 
(October 31, 2006).
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    The Exchange proposes to amend ISE Rule 2107 (the ``Rule'') to 
offer order delivery to Equity Electronic Access Members (``EAMs'') in 
a manner consistent with the Commission's requirements. To be eligible 
to use the order delivery functionality, an ECN that is an Equity EAM 
must demonstrate the ability to produce system response times that meet 
or exceed the maximum standard set by the Exchange, which shall not 
exceed 100 milliseconds.\7\ The System will automatically cancel a 
limit order designated for order delivery treatment if no response is 
received from the Equity EAM within a time limit established by the 
Exchange, which shall not exceed 500 milliseconds. The Exchange will 
notify Equity EAMs of the required response times under the Rule by 
issuing a Regulatory Information Circular.
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    \7\ ``Response time'' shall include the Exchange's message to 
the order delivery ECN, the order delivery ECN's response to the 
Exchange, and the execution of the trade.
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    The Exchange also proposes to further amend the Rule to clarify 
that, in order to receive an immediate execution, Fill-or-Kill 
(``FOK'') orders will execute against regular limit orders on the ISE 
order book and will be canceled if any portion of the FOK order would 
need to

[[Page 29190]]

execute against an order that has been entered on an order delivery 
basis to receive its fill.\8\ FOK orders are immediately executed upon 
receipt in their entirety at the Best Available Price \9\ or canceled. 
Accordingly, the System cannot hold an FOK order for the duration of 
time necessary to confirm that the order entered on an order delivery 
basis is still available. To ensure a maximum execution rate for FOK 
orders, the System, in seeking a fill for a FOK order, will suppress 
time priority for orders on the ISE order book that have been entered 
on an order delivery basis to those that are limit orders, but will not 
violate price priority. In other words, FOK orders will only be 
eligible to execute against limit orders on the ISE order book. The 
following example shows how this will work:
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    \8\ Equity EAMs should conduct a regular and rigorous review of 
their order routing practices to ensure that their orders are 
routing in compliance with their best execution obligations.
    \9\ See ISE Rule 2100(c)(3).
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    Assume there are the following orders on the ISE order book in 
Company XYZ: An order entered on an order delivery basis to buy 1000 
shares for 10.00, a limit order to buy 1000 shares for 10.00, and a 
limit order to buy 500 for 9.99--and the orders were received in that 
time sequence. If the ISE Stock then receives a FOK order with a limit 
price of 9.99 to sell 1000 shares of Company XYZ, then the order will 
execute against the regular limit order to buy 1000 shares for 10.00 
and the order delivery order will remain at the top of the book. In 
contrast, if the ISE Stock receives a FOK order with a limit price of 
9.99 to sell 1500 shares, the order would be canceled because to 
receive the best available price the order would need to be filled at 
10.00, which would require an execution against the order entered on 
the order delivery basis.
    The above example illustrates that the System will skip order 
delivery orders with respect to time priority when doing so will allow 
for an execution of a FOK order, but will never give an inferior 
execution price by ignoring the limit price of order delivery orders.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
found in Section 6(b)(5).\10\ Specifically, the Exchange believes the 
proposed rule change is consistent with Section 6(b)(5) requirements 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, serve to remove impediments to and perfect the 
mechanism for a free and open market and a national market system, and, 
in general, to protect investors and the public interest. In 
particular, this filing will provide investors with more flexibility in 
entering orders and receiving executions of such orders.
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    \10\ 15 U.S.C. 78f(b)(5).
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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

    Because the foregoing proposed rule change does not (1) 
significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for thirty days from the date on which it was filed, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ Pursuant to Rule 19b-4(f)(6)(iii), the Exchange gave the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date on which the 
Exchange filed the proposed rule change. See 17 CFR 240.19b-
4(f)(6)(iii).
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    A proposed rule change filed under Commission Rule 19b-4(f)(6) \14\ 
normally does not become operative prior to thirty days after the date 
of filing. The Exchange requests that the Commission waive the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate 
the proposed rule change to become operative immediately. The 
Commission hereby grants the request. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest because such waiver will enable the 
Exchange to benefit investors by affording them access, without delay, 
to the additional liquidity available from order-delivery ECNs. For 
these reasons, the Commission designates the proposed rule change as 
effective upon filing.\15\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ For the purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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-2007-27 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 20549-1090.

All submissions should refer to File No. SR-ISE-2007-27. 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 Exchange. All comments received will be posted

[[Page 29191]]

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 No. SR-ISE-2007-27 and should 
be submitted on or before June 14, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10008 Filed 5-23-07; 8:45 am]

BILLING CODE 8010-01-P
