
[Federal Register: November 20, 2008 (Volume 73, Number 225)]
[Notices]               
[Page 70396-70398]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20no08-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58940; File No. SR-ISE-2008-83]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Market Maker Trading Licenses for Foreign Currency 
Options

November 13, 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 November 7, 2008, the International Securities Exchange, LLC 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') 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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[[Page 70397]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify its Rule 2213, Market Maker Trading 
Licenses, related to listing and trading of Foreign Currency Options on 
the Exchange. 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 Exchange proposes to modify its Rule 2213, Market Maker Trading 
Licenses, related to listing and trading of Foreign Currency Options 
(``FX Options'') on the Exchange. ISE currently lists for trading FX 
Options on six of the most active currency pairs.\3\ Under the 
Exchange's current FX options rules, FX primary market makers 
(``FXPMMs'') are required to purchase, through an auction, a three-year 
trading license, and provide market quality commitments to ISE, to make 
a market in a particular FX currency pair.\4\ At the end of the three-
year term, each currency pair is once again auctioned with the 
incumbent FXPMM of a currency pair retaining the right of first refusal 
to match the highest bid and market quality commitment to retain its 
status as a FXPMM in that currency pair.
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    \3\ Options on the following currency pairs are currently listed 
for trading on ISE: USD/AUD, USD/GBP, USD/CAD, USD/EUR, USD/CHF, and 
USD/JPY.
    \4\ See ISE Rule 2213(f)(1).
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    The Exchange now proposes to amend its FXPMM trading license rule 
for trading licenses sold on or after January 1, 2009.\5\ Specifically, 
ISE proposes to revise its current auction such that, beginning January 
1, 2009, allocation of currency pairs and currency indexes to FX market 
makers shall be on a permanent basis. The proposed revised auction will 
be substantially the same as the existing auction in that the 
allocation of a FX currency pair will still be based on market quality 
commitments \6\ and dollar bid amount \7\ submitted by prospective 
FXPMMs; the only difference being that currency pairs, going forward, 
will be permanently allocated to FXPMMs rather than for a three-year 
term. Under this proposal, FXPMMs that are selected by the Exchange 
pursuant to the auction process will be required to pay ISE the winning 
bid amount annually for as long as the member chooses to remain a FXPMM 
in a currency pair. ISE will continue to measure, as it does now, 
market quality commitments on a quarterly basis to ensure FXPMMs are in 
compliance with their stated commitments. Continuous failure to meet 
stated commitments will result in ISE terminating an allocation and 
conducting an auction to reallocate the failing FXPMM's currency pair 
and/or FX index option to another FXPMM.
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    \5\ While the Exchange's current rule for FXPMMs, which applies 
for trading licenses sold prior to January 1, 2009, shall remain 
unchanged under this proposal, the Exchange notes that after January 
1, 2009, the current rule will no longer be applicable because all 
foreign currency product auctions after January 1, 2009, shall be 
conducted pursuant to the rules proposed in this filing. The 
Exchange will submit a proposed rule change after January 1, 2009 to 
delete the current rule for FXPMMs.
    \6\ A Member seeking a FXPMM trading license will continue to be 
required to provide, at a minimum, market quality commitments 
regarding (i) the average quotation size it will disseminate in the 
foreign currency option, and (ii) the maximum quotation spread it 
will disseminate in such product at least ninety percent (90%) of 
the time. See ISE Rule 2213(f)(2).
    \7\ The minimum Reserve Price shall continue to be $5,000 per 
year. See ISE Rule 2213(f)(1).
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    Under both the current rule and the proposal, a FXPMM cannot 
terminate its trading license. The Exchange notes, however, that there 
may be instances when a Member is unable to fulfill its market making 
obligations. For example, a Member may experience connectivity issues 
that prevent the Member from being in the market, e.g., the Member is 
unable to quote and trade in the currency pair in which it makes a 
market. For those instances, the Exchange will rely on the back-up 
FXPMM, who is selected at the time of the initial auction, to serve as 
a FXPMM on a temporary basis until the FXPMM is fully back in the 
market. Further, there may also be instances where a FXPMM determines 
that it is unable to fulfill its obligations as a market maker and can 
no longer serve as a FXPMM. For those instances, ISE will relieve that 
FXPMM of its obligation once all open interest in the product to which 
that Member was appointed has been closed out or the Exchange is able 
to conduct a successful auction and reallocate the product, whichever 
occurs first.
    All of the currency pairs that are currently trading on the 
Exchange already have a market maker. Specifically, the four currency 
pairs listed for trading on April 17, 2007, e.g., USD/EUR, USD/GBP, 
USD/JPY, and USD/CAD, were allocated to the market maker that currently 
serves as a FXPMM for a three (3) year term, ending in December 2010. 
On February 21, 2008, the Exchange launched 2 additional currency 
pairs, e.g., USD/CHF and USD/AUD, which were allocated to the market 
maker that currently serves as a FXPMM for a three (3) year term also, 
ending in December 2011. ISE will allocate USD/GBP, USD/CAD, USD/EUR, 
and USD/JPY in December 2010 and USD/CHF and USD/AUD in December 2011 
\8\ on a permanent basis, pursuant to proposed rule 2213(f)(ii). Until 
such time, the instant proposal will not affect the status of those 
FXPMMs. The Exchange anticipates utilizing the new auction process when 
it solicits a market maker for additional currency pairs the Exchange 
will list at a future date and for a proprietary foreign currency index 
which the Exchange expects to launch in 2009, pending a filing and 
approval of a proposed rule change by the Commission. In anticipation 
of creating a foreign currency index, the Exchange is also proposing to 
amend its current Rule 802 by adding ``foreign currency indexes'' to 
the definition of ``Index-Based Products.''
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    \8\ See ISE Rule 2213(f)(7). The auction for USD/EUR was 
conducted on February 26, 2007; for USD/GBP on March 5, 2007; for 
USD/JPY on March 12, 2007; for USD/CAD on March 19, 2007; for USD/
CHF on February 21, 2008 and for USD/AUD on February 21, 2008 also.
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    The Exchange believes giving market makers a trading license on a 
permanent basis, or as long as a firm wishes to remain a market maker 
in a currency product, will result in a more competitive market at ISE. 
A permanent allocation will allow FXPMMs to create and execute a long-
term strategy to promote growth and trading in the foreign currency 
product that has been allocated to it.
    The Exchange also proposes to make minor amendments to Rule 2213(g) 
to include references to foreign currency index options. Specifically, 
the Exchange proposes to add rule text to

[[Page 70398]]

indicate that in addition to there being ten (10) FXCMMs for each 
currency pair listed for trading by the Exchange, there shall also be 
ten (10) FXCMMs for each foreign currency index option the Exchange may 
list in the future and that the Exchange will conduct one (1) FXCMM 
trading license auction per each currency pair and per each foreign 
currency index option. Finally, members will be limited to holding no 
more than one (1) FXCMM trading license per currency pair and no more 
than one (1) FXCMM trading license per foreign currency index option.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) 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 proposed rule change will strengthen the 
Exchange's foreign currency products by providing them with permanent 
market making support. A permanent allocation of foreign currency 
products will also allow FXPMMs to create and execute a long-term 
strategy to promote growth and trading in the foreign currency product 
that has been allocated to it.

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

    This proposed rule change does not significantly affect the 
protection of investors or the public interest, does not impose any 
significant burden on competition, and, by its terms, does not become 
operative for 30 days after the date of the filing, 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).\9\ For the 
foregoing reasons, the Exchange believes the proposed rule filing 
qualifies for immediate effectiveness as a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 of the Act.
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    \9\ 17 CFR 240.19b-4(f)(6).
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    The proposed rule change does not make any substantive changes to 
the current rule other than to make allocations of FX Options to market 
makers permanent. In doing so, the proposed rule change will strengthen 
the Exchange's foreign currency products to the benefit of all market 
participants. For the foregoing reason, the Exchange believes the 
proposed rule change is non-controversial, does not raise any new, 
unique or substantive issues, and is beneficial for competitive 
purposes and to promote a free and open market for the benefit of 
investors.
    At any time within 60 days of the filing of the 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 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-2008-83 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-2008-83. 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, 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 Number SR-ISE-
2008-83 and should be submitted on or before December 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,
Acting Secretary.
[FR Doc. E8-27597 Filed 11-19-08; 8:45 am]

BILLING CODE 8011-01-P
