
[Federal Register: August 4, 2008 (Volume 73, Number 150)]
[Notices]               
[Page 45260-45262]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04au08-78]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58237; File No. SR-ISE-2008-61]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Non-Customer Options Orders

July 29, 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 July 23, 2008, 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 ISE. The Exchange has 
filed the proposal as a ``non-controversial'' rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders it effective upon filing with the Commission. 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).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding non-customer 
options orders. The text of the proposed rule change is as follows, 
with deletions in [brackets] and additions in italics:
Rule 717. Limitations on Orders
    (a) Reserved. [Market Orders and Marketable Limit Orders.
    Electronic Access Members shall not enter into the System, as 
principal or agent, Non-Customer market orders. Non-Customer limit 
orders that cross the market and that cannot be executed within two (2) 
minimum variations below the best bid or above the best offer cannot be 
executed on the Exchange. Such limit orders will be canceled by the 
System.]
    (b) through (g) no change.
Supplemental Material to Rule 717
    .01 through .02 no change.
* * * * *
Rule 805. Market Maker Orders
    (a) Options Classes to Which Appointed. Market makers may not

[[Page 45261]]

place principal orders to buy or sell options in the options classes to 
which they are appointed under Rule 802, other than immediate-or-cancel 
orders, market orders, fill-or-kill orders, complex orders and block-
size orders executed through the Block Order Mechanism pursuant to Rule 
716(c). Competitive Market Makers shall comply with the provisions of 
Rule 804(e)(2)(ii) upon the entry of such orders if they were not 
previously quoting in the series.
    (b) No change.
* * * * *

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 self-regulatory organization 
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 self-regulatory organization 
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
    ISE proposes to amend its rules regarding non-customer options 
orders. ISE rules currently prohibit members from entering non-customer 
market orders and non-customer limit orders that cross the market and 
that cannot be executed within two minimum variations below the best 
bid or above the best offer. This limitation on non-customer trading 
was included in the ISE rules at the time ISE was launched. 
Specifically, in support of this limitation, in its Form 1 application 
seeking registration as a national securities exchange, ISE represented 
that, in an electronic market, non-customer market orders have the 
potential to create market volatility by trading at different price 
levels until their order is fully executed. ISE further noted that, 
without this limitation, non-customers would be able to use large-size 
orders to quickly take out ISE's entire order book without giving other 
market participants an opportunity to react.\5\ Also, at the time this 
restriction was adopted, there were various limitations imposed on non-
customer trading. For example, displayed quotes were firm only for 
public customer orders. Since that time, electronic options trading has 
evolved. With the adoption of trade-through protection under the 
intermarket linkage, every order must be executed at the best quoted 
price. Further, ISE has also removed restrictions on non-customer 
trading. For example, Electronic Access Members (``EAMs'') may now 
submit non-customer limit orders regardless of the size of the order 
where previously EAMs were prohibited from submitting orders for non-
customers that caused ISE's best bid and offer to be for less than 10 
contracts.\6\ The Exchange does not believe there is any reason to 
maintain the current restriction on non-customer market and marketable 
limit orders, and therefore proposes to delete Rule 717(a) in its 
entirety.
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    \5\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11388 (March 2, 2000) (File No. 10-127) (In the Matter 
of the Application of The International Securities Exchange LLC for 
Registration as a National Securities Exchange; Findings and Opinion 
of the Commission).
    \6\ See Securities Exchange Act Release No. 49602 (April 22, 
2004), 69 FR 23841 (April 30, 2004) (SR-ISE-2003-26).
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    The Exchange also proposes to clarify in Rule 805(a) that market 
makers may enter market orders and fill-or-kill orders in the options 
classes to which they are appointed. The limitation on the types of 
orders market makers can enter in their appointed classes is intended 
to prevent market makers from having both standing limit orders and 
quotes in the same options class, which is why the rule specifically 
allows immediate-or-cancel orders. Like immediate-or-cancel orders, 
fill-or-kill orders and market orders are either filled immediately or 
automatically cancelled.\7\ Therefore, the Exchange believes that 
allowing ISE market makers to utilize these orders types is consistent 
with the Exchange's practice of not allowing market makers to have both 
standing limit orders and quotes in the same options class.
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    \7\ ISE Rule 715 (Types of Orders) defines a fill-or-kill order 
as a limit order that is to be executed in its entirety as soon as 
it is received and, if not so executed, treated as cancelled. A 
market order is defined in Rule 715 as an order to buy or sell a 
stated number of options contracts that is to be executed at the 
best price obtainable when the order reaches the Exchange. Pursuant 
to ISE Rule 714, incoming non-customer orders (which includes fill-
or-kill and market orders entered by market makers) that cannot be 
automatically executed on ISE because there is a better price on 
another options exchange are automatically rejected.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange and, in particular, the requirements of 
Section 6(b) of the Act.\8\ Specifically, the Exchange believes the 
proposed rule change is consistent with Section 6(b)(5) of the Act's 
\9\ requirements that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and, in general, to protect investors 
and the public interest. In particular, the proposed rule change will 
permit members to enter non-customer market orders and non-customer 
limit orders and thus, enable the Exchange to compete effectively with 
other options exchanges who do not have a similar restriction.
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    \8\ 15 U.S.C. 78f(b).
    \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 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 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 30 
days after the date of this filing, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to 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 of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied the five-day pre-filing 
notice requirement.
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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

[[Page 45262]]

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 Number SR-ISE-2008-61 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2008-61. 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 the filing also will be available for 
inspection and copying at the principal office of 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-2008-61 and should be 
submitted on or before August 25, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-17762 Filed 8-1-08; 8:45 am]

BILLING CODE 8010-01-P
