
[Federal Register: May 29, 2008 (Volume 73, Number 104)]
[Notices]               
[Page 30987-30988]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29my08-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57847; File No. SR-ISE-2008-29]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving Proposed Rule Change Relating to the Price 
Improvement Mechanism

May 21, 2008.

I. Introduction

    On March 20, 2008, the International Securities Exchange, LLC 
(``ISE'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to allow members to enter orders into the Price 
Improvement Mechanism (``PIM'') at a price that matches the national 
best bid or offer (``NBBO'') when the ISE market is inferior to the 
NBBO. The proposed rule change was published for comment in the Federal 
Register on April 14, 2008.\3\ The Commission received one comment 
letter regarding the proposal.\4\ This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57632 (April 8, 
2008), 73 FR 20079.
    \4\ See letter from Lisa J. Fall, General Counsel, Boston 
Options Exchange (``BOX''), to Nancy M. Morris, Secretary, 
Commission, dated May 14, 2007 (``BOX Comment'').
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II. Description of the Proposal

    The PIM currently allows certain ISE members to enter two-sided 
orders (``Crossing Transaction'') for execution at a price that 
improves upon the NBBO.\5\ The customer side of these orders is then 
exposed to other members to give them an opportunity to participate in 
the trade at the proposed cross price or better. The Exchange proposes 
to extend the application of the PIM to permit a member to enter an 
order (``Agency Order'') into the PIM at a price that is equal to the 
NBBO when the ISE's best bid or offer (``ISE BBO'') is inferior to the 
NBBO. When the ISE BBO equals the NBBO, the member will continue to be 
required to enter a price at least one cent better than the NBBO.\6\
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    \5\ See Securities Exchange Act Release No. 50819 (December 8, 
2004), 69 FR 75093 (December 15, 2004) (approving rules implementing 
the PIM).
    \6\ See ISE Rule 723(b)(1).
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    The Commission received one comment letter regarding the proposed 
rule change.\7\ The commenter expresses concern that ISE's proposal 
would lead to greater rates of internalization and reduced amounts of 
price improvement being made available to public customers on ISE, 
especially to small orders under 50 contracts.\8\ The commenter further 
believes that the proposal would reduce the incentive for market 
participants to quote at the NBBO on ISE.\9\
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    \7\ See BOX Comment, supra note 4.
    \8\ Id. at 1 and 5.
    \9\ Id. at 4.
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III. Discussion and Commission Findings

    After carefully considering the proposal and the comment submitted, 
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 \10\ and, in particular, 
the requirements of section 6 of the Act.\11\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act,\12\ which requires, among other things, 
that the rules of a national securities 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

[[Page 30988]]

general, to protect investors and the public interest.
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    \10\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal will continue to provide 
customers with an opportunity for price improvement over the NBBO. The 
Commission notes that once a Crossing Transaction is submitted into the 
PIM auction, the Crossing Transaction may not be cancelled.\13\ 
Therefore, the Agency Order submitted to the PIM auction when ISE's BBO 
is not equal to the NBBO will be guaranteed an execution price of at 
least the NBBO and, moreover, will be given an opportunity for 
execution at a price better than the NBBO.
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    \13\ See ISE Rule 723(b)(3).
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    The Commission does not agree with the concerns raised by the 
commenter. Under the proposal, the PIM will continue to provide an 
opportunity for customer orders to receive an execution at a price 
better than NBBO. All orders entered into the PIM will continue to be 
exposed to all ISE members before the submitting member can execute 
against the Agency Order. Moreover, the Commission believes the 
proposal may increase the likelihood of members entering Agency Orders 
into the PIM because the member will only be required to guarantee an 
execution at the NBBO when ISE's BBO is not equal to the NBBO, which 
would provide additional customer orders an opportunity for price 
improvement over the NBBO. The proposal also may encourage increased 
participation in a PIM by ISE members willing to trade with an agency 
order at the NBBO but not better than the NBBO. Increased participation 
by ISE members would decrease the proportion of an Agency Order that 
would be internalized by the submitting member.\14\
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    \14\ See ISE Rule 723(d)(4).
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    The Commission thus believes that ISE's proposal is consistent with 
the requirements of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change (File No. SR-ISE-2008-29), be, 
and it hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E8-11931 Filed 5-28-08; 8:45 am]

BILLING CODE 8010-01-P
