
[Federal Register: September 15, 2008 (Volume 73, Number 179)]
[Notices]               
[Page 53298-53300]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15se08-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58486; File No. SR-ISE-2008-36)

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

September 8, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on August 28, 2008, the International Securities 
Exchange, LLC (the ``Exchange'' or the ``ISE'') filed with the 
Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared 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

    The ISE is proposing to allow non-displayed penny quotes and orders 
in options that trade in minimum pricing increments greater than one 
cent. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.ise.com), at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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
    The Commission has approved rules with respect to the Nasdaq 
Options

[[Page 53299]]

Exchange (``NOM'') and the Chicago Board Options Exchange (``CBOE'') 
that permit the entry of orders and quotes in penny increments in 
options series that have a minimum trading increment greater than one 
cent.\3\ Under these rules, the actual firm price of the order or quote 
is not displayed to market participants or the public. Rather, the 
penny price is hidden on the exchange and displayed at the next closest 
allowable trading increment. To avoid being competitively 
disadvantaged, the ISE proposes to adopt rules that similarly permit 
its members to enter orders and quotes in penny increments (``non-
displayed penny orders'' and ``non-displayed penny quotes'').
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    \3\ Securities Exchange Act Release No. 57478 (March 12, 2008), 
73 FR 14521 (March 18, 2008) (order approving SR-NASDAQ-2007-004 and 
SR-NASDAQ-2007-080); Securities Exchange Act Release No. 57716 
(April 25, 2008), 73 FR 24329 (May 2, 2008) (order approving SR-
CBOE-2007-39).
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    The Exchange proposes to allow both Electronic Access Members and 
market makers to enter non-displayed penny orders. In addition, 
Exchange market makers will be permitted to enter non-displayed penny 
quotes. Orders and quotes will be permitted in one-cent price 
increments in selected options where the applicable minimum price 
increment is larger than one-cent.\4\ The penny price of such orders 
will be firm for incoming orders.\5\ Non-displayed penny orders and 
quotes will be displayed at the nearest minimum trading increment for 
the security, and the penny price of non-displayed penny orders and 
quotes will not be disclosed to any market participants.
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    \4\ The Exchange will issue a circular to notify members of the 
options series in which non-displayed penny quotes and order may be 
entered.
    \5\ Incoming orders will receive the firm, non-displayed penny 
price. For example, if the non-displayed price of a limit order to 
buy is 2.02, an incoming limit order to sell at 2.01 will be 
executed at 2.02.
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    Non-displayed penny orders will participate in executions effected 
through the Block, Facilitation, Solicited Order and Price Improvement 
Mechanisms. Both the Block and the Price Improvement Mechanism 
currently allow members to enter orders and responses in penny 
increments.\6\ Accordingly, a non-displayed penny order will 
participate in executions effected through the Block and Price 
Improvement Mechanisms at the penny price. However, when entering 
orders and responses into the Facilitation and Solicited Order 
Mechanisms, members currently are limited to the regular trading 
increment for the security and the split price for the regular trading 
increment.\7\ In order to be consistent with the current rule, the 
proposal specifies that non-displayed penny orders also will be 
executed only at the regular increment or split price, as applicable. 
For example, if the displayed market is $2.00 by $2.05 and there is a 
hidden penny order to buy at 2.03, the hidden penny order will 
participate in the execution algorithms applied by the Facilitation and 
Solicited Order Mechanisms at the split price of $2.025. If the hidden 
penny price in this example is $2.02, the hidden penny order will 
participate in the execution algorithms at the regular trading 
increment of $2.00.
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    \6\ ISE Rule 716, Supplementary Material .09 (regarding penny 
prices in the Block Mechanism); ISE Rule 723(b)(2) and (c)(2) 
(regarding penny prices in the Price Improvement Mechanism).
    \7\ ISE Rule 716, Supplementary Material .06 (regarding split 
prices in the Facilitation and Solicited Order Mechanisms).
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2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
found in Section 6(b)(5), in that the proposed rule change is 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 general, to protect investors and the public 
interest. This rule will enable the Exchange to remain competitive with 
other options markets that permit orders and quotes to be entered and 
executed in penny increments.

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 Exchange 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

    The Exchange has designated the proposed rule change as one that 
does not: (i) Significantly affect the protection of investors or the 
public interest; (ii) impose any significant burden on competition; and 
(iii) become operative for 30 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. The Exchange 
provided the Commission with 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 the proposed rule change as required by Rule 19b-4(f)(6).\8\
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    \8\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further 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 Exchange 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-2008-36 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-2008-36. 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

[[Page 53300]]

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-
2008-36 and should be submitted on or before October 6, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21391 Filed 9-12-08; 8:45 am]

BILLING CODE 8010-01-P
