

[Federal Register: November 7, 2007 (Volume 72, Number 215)]
[Notices]               
[Page 62885-62892]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07no07-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56733; File No. SR-ISE-2007-101]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to a Corporate 
Transaction in Which Its Parent, International Securities Exchange 
Holdings, Inc., Will Become a Wholly-Owned Indirect Subsidiary of Eurex 
Frankfurt AG

November 1, 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 November 1, 2007, the International Securities Exchange, LLC 
(``Exchange'' or ``ISE'') 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 
substantially by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Under the proposed rule change, the ISE is proposing a corporate 
transaction (``Transaction'') in which its parent, International 
Securities Exchange Holdings, Inc. (``Holdings'' or ``Corporation''), 
will become a wholly-owned indirect subsidiary of Eurex Frankfurt AG 
(``Eurex Frankfurt''), which operates a derivatives exchange. Article 
FOURTH, Section III of Holdings' Certificate of Incorporation 
(``Certificate'') imposes certain ownership and voting restrictions 
(``Restrictions'') that, in effect, require approval of the Transaction 
by the Commission. Specifically, the Certificate provides that 
Holdings' board of directors (``Board of Directors'') may waive the 
Restrictions in an amendment to the Bylaws of the Holdings (``Bylaws'') 
if the Board of Directors makes certain findings and the amendment to 
the Bylaws is approved by the Commission. Acting pursuant to this 
waiver provision, the Board of Directors has approved the following 
amendment to the Bylaws:

Article XI--Waiver of Limits

    Section 1.1 Waiver of Ownership Limits and Voting Limits To Permit 
Merger.
    (a) The Board of Directors hereby waives (i) pursuant to Article 
FOURTH, Section III(a)(i) of the certificate of incorporation of the 
Corporation dated November 16, 2004, as amended, (``2004 
Certificate''), the restrictions on ownership of capital stock of the 
Corporation described in Article FOURTH, Section III(a)(i) of the 2004 
Certificate, and (ii) pursuant to Article FOURTH, Section III(b)(i) of 
the 2004 Certificate, the restrictions on voting rights with respect to 
the capital stock of the Corporation as described in Article FOURTH, 
Section III(b)(i) of the 2004 Certificate, in each case solely in order 
to permit the merger and the other transactions contemplated by that 
certain Agreement and Plan of Merger, dated as of April 30, 2007, by 
and among Eurex Frankfurt AG, a stock corporation organized under the 
laws of the Federal Republic of Germany (``Eurex Frankfurt''), Ivan 
Acquisition Co., a Delaware corporation and a wholly-owned indirect 
subsidiary of Eurex Frankfurt, and the Corporation, under which the 
Corporation (A) will become a wholly-owned subsidiary of U.S. Exchange 
Holdings, Inc., a Delaware corporation that is a wholly-owned 
subsidiary of Eurex Frankfurt, and (B) will become an indirect 
subsidiary of Eurex Frankfurt, Eurex Zurich AG (``Eurex Zurich''), a 
stock corporation organized under the laws of Switzerland, Deutsche 
Brse AG (``Deutsche Brse''), a stock corporation organized under the 
laws of the Federal Republic of Germany, SWX Swiss Exchange (``SWX''), 
a stock corporation organized under the laws of Switzerland, SWX Group, 
a stock corporation organized under the laws of Switzerland, and Verein 
SWX Swiss Exchange, an association organized under the laws of 
Switzerland. For the purpose of this Article XI, Deutsche Brse, Eurex 
Frankfurt, Eurex Zurich, SWX, SWX Group, Verein SWX Swiss Exchange, and 
U.S. Exchange Holdings, Inc. are collectively referred to as the 
``Upstream Owners.''
    (b) In so waiving the applicable Ownership Limits and Voting Limits 
to allow ownership and voting of the capital stock of the Corporation 
by the Upstream Owners, the Board of Directors has determined, with 
respect to each Upstream Owner, that: (i) Such waiver will not impair 
the ability of the Corporation and ISE, LLC to carry out ISE, LLC's 
functions and responsibilities as an ``exchange'' under the Exchange

[[Page 62886]]

Act and the rules promulgated thereunder; (ii) such waiver is otherwise 
in the best interests of the Corporation, its stockholders, and ISE, 
LLC; (iii) such waiver will not impair the ability of the Commission to 
enforce the Exchange Act; (iv) neither the Upstream Owner nor any of 
its Related Persons are subject to any applicable ``statutory 
disqualification'' (within the meaning of Section 3(a)(39) of the 
Exchange Act); and (v) neither the Upstream Owner nor any of its 
Related Persons is an Exchange Member (as such term is defined in the 
Constitution of ISE, LLC).

The Transaction

    Pursuant to the Agreement and Plan of Merger by and among Eurex 
Frankfurt, Ivan Acquisition, Co., a newly-formed, indirect, wholly-
owned subsidiary of Eurex Frankfurt (``Acquisition Co.''), and 
Holdings, dated April 30, 2007 (``Agreement''), Acquisition Co. will 
merge with and into Holdings,\3\ which will become a wholly-owned 
subsidiary of U.S. Exchange Holdings, Inc. (``U.S. Exchange 
Holdings''), which in turn is a wholly-owned subsidiary of Eurex 
Frankfurt. Holdings' stockholders will receive cash in exchange for 
their shares. Consummation of the Transaction is subject to 
satisfaction of customary conditions for a transaction of this nature, 
including the approval of Holdings' stockholders \4\ and the approval 
of this rule change by the Commission.
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    \3\ Under the terms of the Agreement, the bylaws of Acquisition 
Co. will become the bylaws of the surviving corporation of the 
Transaction, which will be Holdings. The proposed bylaws of Holdings 
filed as Exhibit 5B to this proposed rule change currently are the 
bylaws of Acquisition Co. Upon the closing of the Transaction, those 
bylaws will become the bylaws of Holdings.
    \4\ Holdings' stockholders approved the Transaction at a special 
meeting of stockholders held on July 27, 2007.
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    Eurex Frankfurt is a wholly-owned subsidiary of Eurex Z[uuml]rich 
AG (``Eurex Z[uuml]rich''), which in turn is jointly owned by Deutsche 
B[ouml]rse AG (``Deutsche B[ouml]rse'') and SWX Swiss Exchange 
(``SWX''). SWX is owned by SWX Group, which in turn is owned by Verein 
SWX Swiss Exchange (Eurex Frankfurt, Eurex Z[uuml]rich, Deutsche 
B[ouml]rse, SWX, SWX Group, Verein SWX Swiss Exchange, and U.S. 
Exchange Holdings are collectively referred to herein as ``Upstream 
Owners''). The Transaction will not affect Holdings' ownership of the 
ISE. After the Transaction, Holdings will continue to be the sole 
member of the ISE, which is organized as a Delaware limited liability 
company. The ISE's members will continue to own ``exchange rights,'' as 
that term is defined in the Second Amended and Restated Limited 
Liability Agreement of the ISE (``LLC Agreement'').\5\ As such, ISE 
members will continue to have the same trading and voting rights in the 
ISE as they had prior to the Transaction.
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    \5\ See Article VI of the LLC Agreement.
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    In addition to the amendment to the Bylaws to waive the 
Restrictions, the ISE is proposing the following changes to its 
governing documents relating to the Transaction:
     Public Company Related Provisions. Under the proposed rule 
change, the Certificate and the Bylaws would be amended to remove or 
revise certain provisions that will no longer be necessary after the 
consummation of the Transaction in view of the fact that Holdings will 
cease to be a publicly traded company on the New York Stock Exchange 
(``NYSE''). Specifically, the proposals are to: (i) Decrease the 
capital stock of Holdings from 150,000,000 shares of common stock to 
1,000 shares of common stock and from 100,000 shares of preferred stock 
to 100 shares of preferred stock; (ii) eliminate the classified board 
structure and remove term limits for directors; (iii) remove the 
requirement that the Board of Directors establish an Executive 
Committee, a Finance & Audit Committee, a Corporate Governance 
Committee, and a Compensation Committee; (iv) decrease the affirmative 
vote requirement with respect to the election of the Chairman and Vice 
Chairman of the Board of Directors; (v) delete the requirement that the 
Chief Executive Officer of Holdings not engage in any other occupation 
during his or her incumbency except with the approval of the Board of 
Directors; (vi) provide that the Chief Executive Officer of the 
Corporation may be removed by the Board of Directors with or without 
cause; (vii) empower the Board of Directors to adopt bylaws and from 
time to time alter, amend, or repeal bylaws without the approval of 
stockholders; (viii) delete stockholder voting and notice requirements 
with respect to the adoption, amendment, or repeal of Bylaw provisions; 
and (ix) delete notice requirements for stockholder action required at 
any annual or special meeting of stockholders and provide for the 
taking of stockholder action by written consent.\6\
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    \6\ These proposed amendments apply only to Holdings, the 
current public company. The ISE is not proposing any changes to the 
organizational documents or governing structure of the ISE, the 
registered exchange.
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     Ownership and Voting Restrictions. The Certificate 
currently provides that, other than persons approved by the Commission 
through a proposed rule change under Section 19(b) of the Act: (1) No 
person or group may, directly or indirectly, own more than 40% of the 
outstanding shares of Holdings; and (2) no person or group may, 
directly or indirectly, have voting control over more than 20% of the 
outstanding shares of Holdings.\7\ Under the proposed rule change, the 
Certificate would be amended to provide further that if a person that 
is not approved by the Commission directly or indirectly owns more than 
40% of the outstanding shares of Holdings, or if a person that is not 
approved by the Commission directly or indirectly acquires voting 
control over more than 20% of the outstanding shares of Holdings, then 
an amount of shares of Holdings sufficient to reduce that person's 
ownership or voting control to the applicable limit would be 
transferred to a trust, as described in more detail below.
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    \7\ Additionally, the Certificate provides that no ISE member 
may directly or indirectly own or vote more than 20% of the 
outstanding shares of Holdings. The proposed rule change would not 
affect this restriction.
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    Each of the Upstream Owners would take appropriate steps to 
incorporate concepts regarding ownership, jurisdiction, books and 
records, and other issues related to their control of the ISE. 
Specifically, the U.S. Upstream Owner (i.e., U.S. Exchange Holdings) 
would include appropriate provisions in its governing documents to 
incorporate the above mentioned concepts with respect to itself, as 
well as its directors, officers, employees, and agents (as applicable). 
Each of the non-U.S. Upstream Owners (i.e., Deutsche B[ouml]rse, Eurex 
Frankfurt, Eurex Z[uuml]rich, SWX, SWX Group, and Verein SWX Swiss 
Exchange) would adopt resolutions to incorporate these concepts with 
respect to itself, as well as its board members, officers, employees, 
and agents (as applicable).\8\
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    \8\ Persons who are selected to be board members of the non-U.S. 
Upstream Owners after consummation of the Transaction would be 
required to consent to the matters included in the resolutions in 
order to become a board member.
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     Jurisdiction. Under the proposed rule change, each 
Upstream Owner would adopt either resolutions or appropriate provisions 
in its governing documents to provide for jurisdiction of the U.S. 
federal courts and the Commission over the Upstream Owner and its 
directors or board members, officers, and employees for the purposes of 
any suit, action, or proceeding pursuant to the U.S. federal securities 
laws, and the rules or regulations thereunder, arising out of, or 
relating to, the activities of the ISE. In addition,

[[Page 62887]]

each Upstream Owner would adopt either resolutions or appropriate 
provisions in its governing documents to provide that, to the extent 
the directors or board members, officers, and employees of the Upstream 
Owners are involved in the activities of the ISE, such directors or 
board members, officers, and employees would be deemed to be directors 
or board members, officers, and employees of the ISE.
     Books and Records. Under the proposed rule change, each 
Upstream Owner would adopt either resolutions or appropriate provisions 
in its governing documents to provide that the books and records of the 
Upstream Owner would be deemed to be the books and records of the ISE 
to the extent the books and records are related to the activities of 
the ISE and that such books and records will at all times be made 
available for inspection and copying by the Commission and by the ISE.
     Additional Matters. Under the proposed rule change, each 
Upstream Owner would adopt either resolutions or appropriate provisions 
in its governing documents regarding notification of certain ownership 
levels, cooperation with the Commission and the ISE, compliance with 
the federal securities laws, confidentiality of information regarding 
the ISE's self-regulatory function, preservation of the independence of 
the ISE's self-regulatory function, and directors' consideration of the 
effect of the Upstream Owner's actions on the ISE's ability to carry 
out its responsibilities under the Act. Further, each non-U.S. Upstream 
Owner would adopt resolutions regarding taking reasonable steps to 
cause Holdings to be in compliance with the ownership limits and voting 
limits.
    The text of the proposed rule change is available at the Exchange, 
the Commission's Public Reference Room, and on the Exchange's Web site 
(http://www.ise.com). The text of Exhibits 5A through 5H of the 

proposed rule change are also available on the Exchange's Web site and 
on the Commission's Web site (http://www.sec.gov/rules/sro/ise.shtml). 

This proposed rule change will be effective upon Commission approval 
and will be operative at the closing of the Transaction.

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 purpose of this rule filing is to adopt the rules necessary to 
permit the Exchange and Holdings to effect the Transaction.
    General. Other than as specifically described in this filing, the 
ISE will not be making any changes to its governance structure in 
connection with the consummation of the Transaction. Thus, the ISE will 
continue to have a 15-member board of directors, consisting of the 
Chief Executive Officer, six industry directors elected by the members, 
and eight non-industry directors elected by Holdings as the sole LLC 
member. Moreover, the ISE is not proposing any changes to its trading 
rules or to any of the rules governing the operation of its markets or 
regulatory functions. If the ISE determines to make any changes to its 
regulatory activities in the future, it will seek the approval of the 
Commission as necessary.
    Each of the Upstream Owners and Holdings acknowledges that it is 
responsible for referring possible rule violations to the ISE. In 
addition, there will be an explicit agreement among the Upstream 
Owners, Holdings, and the ISE to provide adequate funding for the ISE's 
regulatory responsibilities.
Public Company Related Provisions
    Holdings' Capital Stock; Board and Management Structure. Following 
the consummation of the Transaction, Holdings' common stock will no 
longer be publicly traded on the NYSE, and the registration of 
Holdings' common stock will be terminated upon application to the 
Commission. In connection therewith, Holdings will no longer be subject 
to the NYSE's listing standards \9\ or to corporate governance 
requirements applicable to publicly traded companies. As such, the ISE 
is proposing that provisions relating to the capital stock and the 
board and management structure of Holdings be amended as follows:
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    \9\ Section 303A of the NYSE Listed Company Manual.
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    Article FOURTH of the Certificate currently provides that the total 
number of shares of all classes of capital stock which Holdings has the 
authority to issue is 150,100,000 shares, which is divided as 
150,000,000 shares of common stock, par value $.01 per share, and 
100,000 shares of preferred stock, par value $.01 per share. In light 
of the fact that Holdings will no longer be a publicly traded company 
after the consummation of the Transaction and will no longer need to 
maintain a public float or reserve shares of common stock for future 
acquisitions, issuance of stock options, stock purchase, or other 
equity compensation plans, the ISE proposes that the number of 
authorized shares of common stock be decreased from 150,000,000 shares 
to 1,000 shares and that the number of authorized shares of preferred 
stock be decreased from 100,000 shares to 100 shares.
    Article FIFTH of the Certificate and Section 3.2 of the Bylaws 
currently provide for the number, tenure, and qualifications of 
directors of Holdings. Under the proposed rule change, the Certificate 
would be amended to remove Article FIFTH in its entirety and the 
requirements relating to the number, tenure, and qualifications of 
directors of Holdings would be addressed in the Bylaws. Specifically, 
Section 3.2 of the Bylaws would be amended to eliminate the classified 
board structure and term limitations and provide that each director 
shall hold office until his or her successor shall be duly elected and 
qualified or until his or her earlier death, resignation, or removal.
    Section 3.10 of the Bylaws currently requires the establishment of 
an Executive Committee, a Finance & Audit Committee, a Corporate 
Governance Committee, and a Compensation Committee. Under the proposed 
rule change, Section 3.10 of the Bylaws would be amended to delete the 
requirement that the Board of Directors establish an Executive 
Committee, a Finance & Audit Committee, a Corporate Governance 
Committee, and a Compensation Committee and would instead provide that 
the Board of Directors may establish, by resolution, an Executive 
Committee and one or more other committees.
    The ISE is also proposing to make the following amendments to the 
Bylaws: (i) Decrease the affirmative vote requirement in Sections 3.11 
and 3.12 with respect to the election of the Chairman and Vice Chairman 
of the Board of Directors, respectively, from a two-thirds vote to a 
majority vote of the directors then in office; (ii) delete in

[[Page 62888]]

Section 4.5(a), the requirement that the Chief Executive Officer of 
Holdings not engage in any other occupation during his or her 
incumbency except with the approval of the Board of Directors; and 
(iii) amend Section 4.5 to provide that the Chief Executive Officer of 
the Corporation may be removed by the Board of Directors with or 
without cause.
    Holdings' Stockholder Rights. Following the consummation of the 
Transaction, certain provisions in the Certificate and the Bylaws 
relating to the rights of Holdings' stockholders will no longer be 
applicable due to the fact that U.S. Exchange Holdings, a wholly-owned 
subsidiary of Eurex Frankfurt, will be the sole stockholder with 
ownership of 100% of Holdings' common stock. As such, the ISE is 
proposing that such provisions relating to stockholder rights be 
amended as follows:
    Article SEVENTH of the Certificate and Section 10.1 of the Bylaws 
currently provide for certain stockholder rights with respect to voting 
and notice requirements for the adoption, amendment, or repeal of 
provisions in the Certificate and the Bylaws and the inspection of the 
accounts and books of Holdings. The ISE proposes that Article SEVENTH 
be deleted in its entirety and replaced by a provision that provides 
that the Board of Directors be empowered to make bylaws and from time 
to time alter, amend, or repeal bylaws and that Section 10.1 of the 
Bylaws be amended to delete the stockholder voting and notice 
requirements with respect to the adoption, amendment, or repeal of 
bylaw provisions.
    In addition, Articles EIGHTH and NINTH of the Certificate and 
Sections 2.7 and 2.10 of the Bylaws currently provide for certain 
notice requirements for stockholder action required at any annual or 
special meeting of stockholders and prohibit the taking of stockholder 
action by written consent. The ISE proposes that Article EIGHTH and 
subsections (b) and (c) of Article NINTH of the Certificate and Section 
2.7 of the Bylaws be deleted in their entirety. Furthermore, the ISE 
proposes that Section 2.10 of the Bylaws be amended to allow for the 
taking of stockholder action without prior notice and by written 
consent.
    Holdings' Current Ownership and Voting Limitations. Article FOURTH, 
Section III of the Certificate contains the Restrictions, which provide 
in general that: (1) No person, acting alone or with others, may own, 
directly or indirectly, more than 40% of any class of Holdings' 
outstanding capital stock; (2) no ISE member, acting alone or with 
others, may own, directly or indirectly, more than 20% of any class of 
Holdings' outstanding capital stock; and (3) no person, acting alone or 
with others, may control, directly or indirectly, the vote of more than 
20% of any class of Holdings' outstanding capital stock.
    The Board of Directors may waive certain of the Restrictions if it 
makes the following three findings: (1) The waiver will not impair the 
ability of the ISE to carry out its functions and responsibilities as 
an exchange under the Act and the rules thereunder; (2) the waiver is 
otherwise in the best interests of Holdings, its stockholders, and the 
ISE; and (3) the waiver will not impair the ability of the Commission 
to enforce the Act. However, the Board of Directors may not waive the 
Restrictions as they apply to ISE members. In addition, the Board of 
Directors may not waive any Restriction that would result in a person 
subject to a ``statutory disqualification'' \10\ owning or voting 
shares above the stated thresholds. Any waiver of the Restrictions must 
be by way of an amendment to the Bylaws approved by the Board of 
Directors, which amendment must be approved by the Commission.
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    \10\ See Section 3(a)(39) of the Act. 15 U.S.C. 78c(a)(39).
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    The Board of Directors has considered the Transaction, and it has 
made the three necessary findings with respect to each of the Upstream 
Owners. None of the Upstream Owners is a member of the ISE or is 
subject to a statutory disqualification. In making the findings, the 
Board of Directors determined that ownership of Holdings by the 
Upstream Owners would not impair the ISE's ability to carry out its 
functions and responsibilities as an exchange and self-regulatory 
organization. The ISE will continue to operate its market and regulate 
its market and members exactly as it has done prior to the Transaction. 
As noted, the ISE is not proposing any amendments to its trading or 
regulatory rules. The current governance of the Exchange will remain 
unchanged, and it is the current intention of the ISE's senior 
management to remain in place, subject to the previously-announced 
retirement of the ISE's Chief Executive Officer, as of January 1, 2008.
    The Board of Directors also determined that ownership of Holdings 
by the Upstream Owners is in the best interests of Holdings, its 
stockholders, and the ISE. With respect to Holdings and its 
stockholders, Eurex Frankfurt has offered to purchase 100% of Holdings' 
stock for $67.50 a share, significantly above the closing price of 
$45.72 on the last public trading date before the rumor of a possible 
business transaction was publicly reported by The Wall Street Journal 
Online. Once Eurex Frankfurt completes its purchase of the 
Corporation's stock, Holdings' current stockholders will have no 
continuing interest in Holdings or the ISE. With respect to the 
interests of the ISE, the Exchange notes the continuing consolidation 
and internationalization of the securities markets. In particular, the 
boards of Holdings and the ISE note the recent merger of NYSE Group, 
Inc. and Euronext N.V. to create a large transatlantic exchange complex 
offering derivatives markets in both North America and Europe.\11\ In 
order to remain competitive in this increasingly global market, the ISE 
believes it is imperative to align with strong international partners 
such as Eurex Frankfurt and its parents, Deutsche B[ouml]rse and SWX.
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    \11\ See Securities Exchange Act Release No. 55293 (February 14, 
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
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    With respect to the ability of the Commission to enforce the Act as 
it applies to the ISE after the Transaction closes, the ISE will 
operate in the same manner following the Transaction in which it 
operates today. Thus, the Commission will continue to have plenary 
regulatory authority over the ISE, as is the case currently with the 
ISE being a wholly-owned subsidiary of a public company. As described 
in the following sections of this filing, the ISE is proposing a series 
of amendments to Holdings' governing documents, as well as resolutions 
and governing documents of the Upstream Owners, that will create an 
ownership structure and will provide the Commission with appropriate 
oversight tools to ensure that the Commission will have the ability to 
enforce the Act with respect to the ISE, the Upstream Owners, and their 
respective directors, officers, employees, and agents to the extent 
that they are involved in the activities of the ISE.
    Ownership and Voting Restrictions After the Transaction. As 
discussed above, the Restrictions currently limit ownership and voting 
of Holdings' capital stock. The ISE initially adopted certain voting 
and ownership restrictions prior to its initial public offering as part 
of a package of rule changes that provide protections against 
inappropriate persons acquiring direct or indirect control of the 
ISE.\12\ Holdings adopted the Restrictions, in connection with the 
ISE's reorganization into a

[[Page 62889]]

holding company structure.\13\ The Restrictions will remain in effect 
at Holdings after the closing of the Transaction. In addition, the 
proposed rule change would add provisions to the Certificate to provide 
for an automatic transfer of Holdings' shares to a trust (``ISE 
Trust'') if a person \14\ were to obtain an ownership or voting 
interest in Holdings in excess of the Restrictions through ownership of 
one or more of the Upstream Owners without obtaining the approval of 
the Commission.\15\ Under the proposed rule change, each of the 
Upstream Owners would adopt resolutions or governing document 
provisions requiring notification to the board of directors of the ISE 
and the ISE Trust if any person acquired 10% or more of the U.S. 
Upstream Owner or 20% or more of the non-U.S. Upstream Owners. The 
Certificate would be amended to provide that Holdings would deliver 
notice to the ISE Trust. In addition, each of the non-U.S. Upstream 
Owners would adopt resolutions requiring the non-U.S. Upstream Owner to 
take reasonable steps necessary to cause Holdings to be in compliance 
with the Restrictions.
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    \12\ See Securities Exchange Act Release No. 51029 (January 12, 
2005), 70 FR 3233 (January 21, 2005) (SR-ISE-2004-29).
    \13\ See Securities Exchange Act Release No. 53705 (April 21, 
2006), 71 FR 25260 (April 28, 2006) (SR-ISE-2006-04).
    \14\ The Certificate currently provides, and will continue to 
provide, that the term ``person'' shall mean an individual, 
partnership (general or limited), joint stock company, corporation, 
limited liability company, trust, or unincorporated organization or 
any governmental entity or agency or political subdivision thereof.
    \15\ If a person were to obtain an indirect ownership or voting 
interest in Holdings in excess of the Restrictions through ownership 
of one or more of the Upstream Owners without the approval of the 
Commission, shares of Holdings would be transferred to the ISE Trust 
automatically by operation of law. See Section 202(c)(4) of the 
Delaware General Corporation Law.
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    Under the proposed rule change, the Certificate would be amended to 
provide that, if a person or group that the Commission had not approved 
through a proposed rule change under Section 19(b) of the Act (an 
``Unapproved Person'') were to directly or indirectly own more than 40% 
(or 20%, if the Unapproved Person is an ISE member) of the outstanding 
shares of Holdings, or if an Unapproved Person directly or indirectly 
acquired voting control over more than 20% of the outstanding shares of 
Holdings, then an amount of Holdings' shares (``Excess Shares'') 
sufficient to reduce the Unapproved Person's ownership of Holdings to 
40% (or 20% with respect to ISE members) or below, or sufficient to 
reduce the Unapproved Person's voting control over outstanding shares 
of Holdings to 20% or below, would be transferred to the ISE Trust.\16\
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    \16\ The factors used to determine the extent of an Unapproved 
Person's ownership or voting interest in Holdings would include, 
among other things, the amount of the Unapproved Person's ownership 
or voting interest in a particular Upstream Owner, the amount of 
that Upstream Owner's direct or indirect ownership or voting 
interest in Holdings, and the board composition of Holdings and the 
applicable Upstream Owners.
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    ISE Trust Agreement. The ISE Trust will operate pursuant to a trust 
agreement (``Trust Agreement'') among Holdings, U.S. Exchange Holdings, 
the trustees of the ISE Trust (``Trustees''), and a Delaware trustee. 
The Trustees will be persons who are independent of the Upstream 
Owners, Holdings, the ISE, and their affiliates; are not subject to any 
statutory disqualification (as defined in Section 3(a)(39) of the Act); 
are of high repute and have experience and expertise in, or knowledge 
of, the securities industry, regulation and/or corporate governance; 
are independent to such a degree that they can be entrusted to resist 
undue pressures; and are not unacceptable to the Commission staff.
    The ISE Trust would serve two general purposes. First, as described 
above, the ISE Trust would hold Excess Shares in the event that a 
person obtained direct or indirect ownership or voting interest in 
Holdings in excess of the Restrictions without obtaining the approval 
of the Commission. In the event that Excess Shares are transferred to 
the ISE Trust:
     The Trustees would be required under the terms of the 
Trust Agreement to vote any Excess Shares held by the ISE Trust 
consistent with the public interests of the markets operated by the 
ISE.
     While the shares are held by the ISE Trust, U.S. Exchange 
Holdings, as the trust beneficiary, would continue to receive the 
economic benefit of the Excess Shares (e.g., dividends and other 
distributions).
     U.S. Exchange Holdings would have the right to reacquire 
the Excess Shares from the ISE Trust if the Unapproved Person's direct 
or indirect ownership of Holdings no longer exceeds the Restrictions 
(e.g., if the Commission approved the Unapproved Person or if the 
Unapproved Person sold its interest such that the Unapproved Person no 
longer exceeds the Restrictions).
     If directed by U.S. Exchange Holdings, the ISE Trust would 
sell the Excess Shares, in one or more transactions, in market 
transactions, by public offering, or otherwise, at a time or times and 
in a manner so as to maximize the return on the Excess Shares to any 
person or persons designated by the Trustees whose ownership or voting 
would not violate the Restrictions, and that is not a non-U.S. Upstream 
Owner with respect to which a Material Compliance Event (as described 
below) has occurred and is continuing.
     Upon a sale of the Excess Shares, the net proceeds of the 
sale (plus any accrued dividends and less any administrative fees 
incurred by the Trustees in administering the ISE Trust) would be paid 
to U.S. Exchange Holdings.
    Second, the ISE Trust would hold a call option over Holdings' 
shares (``Call Option'') that could be exercised after the occurrence 
of a Material Compliance Event. Under the Trust Agreement, the term 
``Material Compliance Event'' would be defined, with respect to a non-
U.S. Upstream Owner, as any state of facts, development, event, 
circumstance, condition, occurrence, or effect that results in the 
failure of any of the non-U.S. Upstream Owners to adhere to their 
respective commitments under the resolutions in any material 
respect.\17\ Under the proposed rule change, the Trust Agreement would 
provide generally that, if a Material Compliance Event had occurred and 
continued to be in effect, then the ISE Trust would exercise the Call 
Option.
---------------------------------------------------------------------------

    \17\ The Trust Agreement also would provide that the term 
Material Compliance Event would apply with respect to the 
resolutions of any future upstream owner of Holdings.
---------------------------------------------------------------------------

    However, the Trust Agreement also would provide for certain steps 
to be carried out prior to any exercise of the Call Option. 
Specifically, upon becoming aware of facts, developments, events, 
circumstances, conditions, occurrences, or effects that could 
reasonably be expected to result in the occurrence of a Material 
Compliance Event, the Trustees would be required to meet promptly and 
to make a determination of whether or not a Material Compliance Event 
had occurred, within five (5) business days of that meeting. After 
making a determination that a Material Compliance Event had occurred, 
and prior to any exercise of the Call Option, the Trustees would 
provide written notice to the non-U.S. Upstream Owners and to the 
Commission of the occurrence of the Material Compliance Event, which 
notice would provide for sixty (60) calendar days in which to address 
the Material Compliance Event (``Cure Period'').
    The Trust Agreement would provide further that, during the Cure 
Period, the

[[Page 62890]]

Trustees would consult with the boards of directors (or equivalent) of 
the ISE, ISE Holdings, and the non-U.S. Upstream Owners, and with the 
Commission, to consider alternatives to the exercise of the Call Option 
to address the Material Compliance Event. After such consultation, if 
the Trustees determine that the Material Compliance Event had not been 
addressed, they would provide written notice to the boards of directors 
(or equivalent) of the ISE, Holdings, and the non-U.S. Upstream Owners 
that they have determined that the exercise of the Call Option is 
necessary to address the effects of the Material Compliance Event.
    If the ISE Trust were to exercise the Call Option, it would deliver 
a written notice to Holdings and U.S. Exchange Holdings, promptly after 
the end of the Cure Period, that the ISE Trust had determined to 
exercise the Call Option in accordance with the terms of the Trust 
Agreement. Subsequently, Holdings and U.S. Exchange Holdings would be 
required to promptly transfer to the ISE Trust the minimum number of 
Holdings' shares necessary, in the reasonable opinion of the Trustees, 
to address the Material Compliance Event (``Deposited Shares'').
    Under the Trust Agreement, the Trustees would transfer the 
Deposited Shares from the ISE Trust to U.S. Exchange Holdings in the 
event that: (a) No Material Compliance Event is continuing; or (b) 
notwithstanding the continuation of a Material Compliance Event, the 
Trustees determine that the retention of the Deposited Shares by the 
ISE Trust could not reasonably be expected to address any continuing 
Material Compliance Event (in this specific case, any such 
determination would not be effective unless it is filed with, or filed 
with and approved by, the Commission under Section 19 of the Act and 
the rules thereunder).
    As would be the case with Excess Shares, while Deposited Shares are 
held by the ISE Trust, U.S. Exchange Holdings would continue to receive 
the economic benefit of the Deposited Shares (e.g., dividends and other 
distributions). Additionally, if directed by U.S. Exchange Holdings, 
the ISE Trust would sell the Deposited Shares, in one or more 
transactions, in market transactions, by public offering or otherwise, 
at a time or times and in a manner so as to maximize the return on the 
Deposited Shares to any person or persons designated by the Trustees 
whose ownership or voting would not violate the Restrictions, and that 
is not a non-U.S. Upstream Owner with respect to which a Material 
Compliance Event has occurred and is continuing. Upon a sale of the 
Deposited Shares, the net proceeds of the sale (plus any accrued 
dividends and less any administrative fees incurred by the Trustees in 
administering the ISE Trust) would be paid to U.S. Exchange Holdings.
    Jurisdiction over Individuals. Article FOURTEENTH of the 
Certificate currently provides that, as long as Holdings controls the 
ISE, the directors, officers, and employees of Holdings shall be deemed 
to be directors, officers, and employees of the ISE for purposes of, 
and subject to oversight pursuant to, the Act but only to the extent 
that such directors, officers, and employees of Holdings relate to the 
exchange business of the ISE. In addition, Section 1.4 of the Bylaws 
currently provides that Holdings and its directors, officers, and 
employees are deemed to irrevocably submit to the jurisdiction of the 
U.S. federal courts and the Commission for the purposes of any suit, 
action, or proceeding pursuant to the U.S. federal securities laws, and 
the rules or regulations thereunder, arising out of, or relating to, 
the activities of the ISE.
    Under the proposed rule change, each Upstream Owner would adopt 
resolutions or appropriate provisions in its governing documents to 
include jurisdictional provisions tailored to the proposed ISE-Eurex 
ownership structure. Specifically, the resolutions or governing 
documents of the Upstream Owners would provide that, to the extent the 
directors, officers, and employees of any Upstream Owner are involved 
in the activities of the ISE, such directors, officers, and employees 
would be deemed to be directors, officers, and employees of the ISE for 
purposes of, and subject to oversight pursuant to, the Act.
    In addition, the resolutions or governing documents of the Upstream 
Owners would provide that the Upstream Owners, and the directors, 
officers, and employees of the Upstream Owners, would irrevocably 
submit to the jurisdiction of the U.S. federal courts and the 
Commission for the purposes of any suit, action, or proceeding pursuant 
to the U.S. federal securities laws, and the rules and regulations 
thereunder, commenced or initiated by the Commission arising out of, or 
relating to, the activities of the ISE to the extent such Upstream 
Owner or such Upstream Owner's directors, officers, and employees are 
involved in the activities of the ISE. The resolutions or governing 
documents of the Upstream Owners also would provide that, with respect 
to any such suit, action, or proceeding brought by the Commission, the 
Upstream Owners and their respective directors, officers, and employees 
would, to the extent they are involved in the activities of the ISE: 
(1) Agree that Holdings (or, in the case of U.S. Exchange Holdings, 
U.S. Exchange Holdings) may serve as U.S. agent for purposes of service 
of process in such suit, action, or proceeding; and (2) waive, and 
agree not to assert by way of motion, as a defense or otherwise, in any 
such suit, action, or proceeding, any claims that it or they are not 
personally subject to the jurisdiction of the Commission, that the 
suit, action, or proceeding is an inconvenient forum or that the venue 
of the suit, action, or proceeding is improper, or that the subject 
matter thereof may not be enforced in or by the U.S. federal courts or 
the Commission. The board members of the non-U.S. Upstream Owners would 
consent to the applicability to them of the jurisdictional provisions 
and the resolutions of the non-U.S. Upstream Owners would provide that 
the non-U.S. Upstream Owners would take reasonable steps to cause their 
officers and employees to so consent, all to the extent that such non-
U.S. Upstream Owners and their board members, officers, and employees 
are involved in the activities of the ISE.\18\ Likewise, the governing 
documents of the U.S. Upstream Owner would provide that such U.S. 
Upstream Owner would take reasonable steps to cause its directors, 
officers, and employees involved in the activities of the ISE to 
consent to these provisions.
---------------------------------------------------------------------------

    \18\ As noted above, persons who become board members of the 
non-U.S. Upstream Owners after consummation of the Transaction would 
be required to consent to the matters included in the resolutions in 
order to become a board member.
---------------------------------------------------------------------------

    The ISE anticipates that these functions and activities generally 
will be carried out by the officers and directors of the Exchange 
itself, over whom the Commission has direct authority under Section 
19(h)(4) of the Act. In addition, however, the ISE acknowledges that 
the conditions under which the Commission might assert jurisdiction 
over Upstream Owners or their directors, officers, or employees would 
depend on the particular circumstances.
    Access to Books and Records. As discussed above, Article FOURTEENTH 
of the Certificate provides that Holdings' books and records are deemed 
to be the books and records of the ISE to the extent that they relate 
to the activities of the ISE. Under the proposed rule change, each 
Upstream Owner would adopt resolutions or provisions in its governing 
documents to provide that the books and records of the Upstream

[[Page 62891]]

Owners are deemed to be the books and records of the ISE for purposes 
of, and subject to oversight pursuant to, the Act to the extent that 
such books and records are related to the activities of the ISE. In 
addition, the resolutions or governing documents of each Upstream 
Owners would provide that the Upstream Owner's books and records 
related to the activities of the ISE shall at all times be made 
available for inspection and copying by the Commission and the ISE.\19\
---------------------------------------------------------------------------

    \19\ With respect to Eurex Z[uuml]rich, SWX, SWX Group, and 
Verein SWX Swiss Exchange, the resolutions would provide that, where 
necessitated by Swiss law, information related to the activities of 
the ISE, including books and records of the Swiss Upstream Owners 
related to the activities of the ISE, will be provided to the 
Commission promptly, through the Swiss Federal Banking Commission 
(``SFBC''), and that oral exchanges between the entities and the 
Commission related to the activities of the ISE will include the 
participation of the SFBC, where necessitated by Swiss law.
---------------------------------------------------------------------------

    Additional Matters. Holdings' current governing documents include 
provisions relating to cooperation with the Commission and the ISE,\20\ 
confidentiality of information regarding the ISE's self-regulatory 
function,\21\ preservation of the independence of the self-regulatory 
function of the ISE,\22\ and directors' consideration of the effect of 
Holdings' actions on the ISE's ability to carry out its 
responsibilities under the Act.\23\ Under the proposed rule change, 
each Upstream Owner would adopt either resolutions or provisions in its 
governing documents to incorporate these concepts.
---------------------------------------------------------------------------

    \20\ Article FIFTEENTH of the Certificate.
    \21\ Article THIRTEENTH of the Certificate.
    \22\ Section 1.5 of the Bylaws.
    \23\ Article TWELFTH of the Certificate.
---------------------------------------------------------------------------

    Specifically, the resolutions or governing documents of each 
Upstream Owner would provide that such Upstream Owner shall comply with 
the U.S. federal securities laws and the rules and regulations 
thereunder and shall cooperate with the Commission and with the 
ISE.\24\ In addition, the resolutions of the non-U.S. Upstream Owners 
would provide that the board members would so consent to comply and 
cooperate and that each non-U.S. Upstream Owner would take reasonable 
steps to cause its officers and employees to also comply and cooperate. 
Likewise, the governing documents of the U.S. Upstream Owner would 
provide that it would take reasonable steps to cause its directors, 
officers, and employees to consent to comply with the U.S. federal 
securities laws and the rules and regulations thereunder and to 
cooperate with the Commission and with the ISE.
---------------------------------------------------------------------------

    \24\ With respect to the non-U.S. Upstream Owners, these 
provisions would apply in connection with such Upstream Owners' 
involvement in the activities of the ISE.
---------------------------------------------------------------------------

    The resolutions or governing documents of each Upstream Owner also 
would provide that, to the fullest extent permitted by applicable law, 
all confidential information that shall come into the possession of 
such Upstream Owner pertaining to the self-regulatory function of the 
ISE shall: (a) Not be made available to any persons other than to those 
officers, directors (or equivalent), employees and agents of the 
Upstream Owner that have a reasonable need to know the contents 
thereof; (b) be retained in confidence by the Upstream Owner and the 
officers, directors (or equivalent), employees, and agents of the 
Upstream Owner; and (c) not be used for any commercial purposes. In 
addition, the resolutions and governing documents would provide that 
the terms regarding such confidential information shall not be 
interpreted so as to limit or impede: (i) The rights of the Commission 
or the ISE to have access to and examine such confidential information 
pursuant to the U.S. federal securities laws and the rules and 
regulations thereunder; or (ii) the ability of any officers, directors, 
employees, or agents of the Upstream Owners to disclose such 
confidential information to the Commission or the ISE. The resolutions 
of the non-U.S. Owners would also provide that the board members 
consent to these requirements regarding confidential information and 
that each non-U.S. Upstream Owner would take reasonable steps to cause 
its officers, employees, and agents to agree to the requirements. The 
U.S. Upstream Owner would also take reasonable steps to cause its 
directors, officers, employees, and agents to so agree.
    Additionally, the resolutions or governing documents of each 
Upstream Owner would provide that such Upstream Owner shall, to the 
extent it is involved in the activities of the ISE, give due regard to 
the preservation of the independence of the self-regulatory function of 
the ISE and to its obligations to investors and the general public, and 
shall not take any actions that would interfere with the effectuation 
of any decisions by the board of directors of the ISE relating to its 
regulatory responsibilities (including enforcement and disciplinary 
matters) or that would interfere with the ability of the ISE to carry 
out its responsibilities under the Act. The resolutions of each non-
U.S. Upstream Owner also would provide that the board members would 
consent to the requirements and that such non-U.S. Upstream Owner would 
take reasonable steps to cause its officers and employees to agree to 
the requirements. Similarly, the U.S. Upstream Owner would take 
reasonable steps to cause its directors, officers, employees, and 
agents to so agree.
    Finally, the resolutions or governing documents of each Upstream 
Owner would provide that the board members or directors of such 
Upstream Owners would, in discharging his or her responsibilities, to 
the extent such board member or director is involved in the activities 
of the ISE and to the fullest extent permitted by applicable law, take 
into consideration the effect that such Upstream Owner's actions would 
have on the ability of: (a) The ISE to carry out its responsibilities 
under the Act; and (b) the ISE and such Upstream Owner: (i) To engage 
in conduct that fosters and does not interfere with the ability of the 
ISE and such Upstream Owner to prevent fraudulent and manipulative acts 
and practices in the securities markets; (ii) to promote just and 
equitable principles of trade in the securities markets; (iii) to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities; (iv) to remove impediments to 
and perfect the mechanisms of a free and open market in securities and 
a U.S. national securities market system; and (v) in general, to 
protect investors and the public interest.
    Amendments to Upstream Owners' Resolutions and Governing Documents. 
Currently, Article SIXTEENTH of the Certificate and Section 10.1 of the 
Bylaws provide that, before any amendment or repeal of any provision of 
Holdings' governing documents may become effective, the amendment or 
repeal must be submitted to the ISE's board of directors, which then 
determines whether the amendment or repeal must be filed with, or filed 
with and approved by, the Commission under Section 19 of the Act. Under 
the proposed rule change, each Upstream Owner would adopt either 
resolutions or provisions in its governing documents to incorporate 
these concepts regarding amendments and repeals. The resolutions or 
governing documents of each Upstream Owner would provide that, before 
any amendment to or repeal of any provision of any of the resolutions 
or governing documents became effective, the same shall be submitted to 
the board of directors of the ISE and if said board shall determine 
that the same must be filed with, or filed with and approved by, the 
Commission before the same may be effective under Section 19 of the

[[Page 62892]]

Act and the rules promulgated thereunder then the same shall not be 
effective until filed with, or filed with and approved by, the 
Commission, as the case may be. In addition, the resolutions of each 
non-U.S. Upstream Owner would apply these requirements to any action by 
such Upstream Owner that would have the effect of amending or repealing 
any provision of the resolutions.
2. Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act \25\ that an exchange have 
rules that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, 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, the proposal will permit the ISE to 
enter into the Transaction with Eurex Frankfurt, a leading 
international derivatives exchange, providing the ISE with strong 
ownership to be competitive in an increasingly global market.
---------------------------------------------------------------------------

    \25\ 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 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 self-regulatory organization 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 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-2007-101 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-2007-101. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. 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-2007-101 and should be 
submitted on or before November 28, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-21836 Filed 11-6-07; 8:45 am]

BILLING CODE 8011-01-P
