
[Federal Register: March 21, 2008 (Volume 73, Number 56)]
[Notices]               
[Page 15241-15243]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr08-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57507; File No. SR-ISE-2007-77]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 Thereto, Relating to Complex Orders

March 14, 2008.
    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 August 24, 2007 the International Securities Exchange, LLC (``ISE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the ISE. On November 
27, 2007, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange filed Amendment No. 2 to the proposed rule 
change on March 11, 2008.\4\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as modified by 
Amendment Nos. 1 and 2, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 expanded the discussion in the purpose 
section of the original filing, but did not change the text of the 
proposed rule change.
    \4\ Amendment No. 2 modified the original filing to make 
exposure of marketable complex orders voluntary. Amendment No. 2 
replaced the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend ISE Rule 722 pertaining to Complex Orders 
to provide an opportunity for marketable complex orders to receive 
price improvement and to provide more specificity on the mechanics of 
how complex orders are executed. 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 Exchange has

[[Page 15242]]

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
    ISE Rule 722 describes execution principles for complex orders, 
including priority rules regarding the execution of complex orders when 
there are Public Customer orders resting on the Exchange's limit order 
book in the options series that comprise the individual leg(s) of a 
complex order. The Exchange's System automatically executes complex 
orders in conformance with the requirements of ISE Rule 722, and the 
Exchange is not proposing any changes to these substantive 
requirements. Additionally, other ISE rules, such as Rule 717(d) and 
(e) that require members to expose orders to the marketplace before 
executing them against proprietary or solicited orders, also apply to 
the execution of complex orders. The Exchange is not proposing any 
changes to the application of these other Exchange rules to the 
execution of complex orders.
    The purpose of the proposed rule change is to amend ISE Rule 722 to 
provide an opportunity for marketable complex orders to receive price 
improvement and to provide more specificity in the Rule on the 
mechanics of how complex orders are executed by the System in 
conformance with the existing requirements of Rule 722.\5\ In 
particular, the Exchange proposes to amend ISE Rule 722 to specify that 
complex orders: (1) Are executed against orders on the complex order 
book in price priority and in time priority at the same price; and (2) 
will be executed against the bids and offers for the individual legs in 
the Exchange's options market provided the complex order can be 
executed in full or in a permissible ratio by such bids and offers. The 
System matches incoming complex orders against contra-side complex 
orders when possible, and then executes the individual legs of a 
complex order against the limit order book when possible. In each of 
these circumstances, the System assures that the requirements of ISE 
Rule 722 are satisfied. For example, the System will not execute two 
complex orders against each other if the execution price of the options 
leg(s) would be below the best price available on the ISE for the 
options series, nor will it execute two complex orders at a price that 
matches the best price available on the ISE when there is a Public 
Customer order on the book unless the specific requirements of ISE Rule 
722 are satisfied.
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    \5\ The Exchange also proposes to delete an outdated cross 
reference from ISE Rule 722. Specifically, ISE Rule 722(b)(5) 
specifies that the restrictions on order entry contained in two 
paragraphs of ISE Rule 717 do not apply to Complex Orders. The 
requirements contained in the two paragraphs have been removed from 
ISE Rule 717, so the Exchange proposes to delete subparagraph (5) 
from Rule 722(b).
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    Under the proposal, the Exchange also will allow members to choose 
to give their marketable complex orders an opportunity for price 
improvement by introducing a delay of up to one second before 
automatically executing designated incoming complex orders.\6\ During 
this delay, the complex order will be exposed on the complex order book 
to give market participants an opportunity to enter contra-side complex 
orders.\7\ While the Exchange is not proposing to conduct an actual 
auction for an incoming marketable complex order (i.e., there will be 
no messages sent to members specifically soliciting interest to trade 
with the complex order), this short delay before executing a marketable 
complex order will provide an opportunity for the order to receive 
price improvement. The System will execute the incoming order against 
interest on the complex order book in price time priority following the 
delay, so while it is possible that the order will receive price 
improvement as a result of contra-side orders being entered during the 
delay, it is also possible that orders will no longer be executable at 
the end of the delay. Members will be able to mark all complex orders 
for price improvement, including stock-option orders.\8\
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    \6\ The Exchange will determine the appropriate length of the 
delay, not to exceed one second, from time to time. The initial 
delay period and any subsequent changes to the delay period will be 
communicated to Members via an Exchange circular.
    \7\ The complex order book is available to all ISE market 
participants. However, the application of ISE Rules 717(d) and (e), 
which require a three-second exposure period, will prohibit the 
member that entered the complex order from entering contra-side 
principal orders or orders solicited from other broker-dealers 
during the proposed one-second (or less) exposure period.
    \8\ See Supplementary Material to ISE Rule 722 regarding 
execution of the stock legs of stock-option orders.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(5) of the Act,\9\ in that it is 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 of 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 provide an opportunity for marketable 
complex orders to receive price improvement.
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    \9\ 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 the proposed rule change. The Exchange has not received any 
unsolicited written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission 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 No. SR-ISE-2007-77 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.


[[Page 15243]]


All submissions should refer to File No. SR-ISE-2007-77. 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 at 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 the filing also will be available for 
inspection and copying at the principal office of the Exchange. 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 No. SR-ISE-2007-77 and should be 
submitted on or before April 11, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5695 Filed 3-20-08; 8:45 am]

BILLING CODE 8011-01-P
