Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the International Securities Exchange, Inc., Relating to the Elimination of the Restriction on Electronically Generated Orders, 16321-16322 [E5-1390]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 60 (Wednesday, March 30, 2005)]
[Notices]
[Pages 16321-16322]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1390]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51424; File No. SR-ISE-2005-15]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange, Inc., Relating to the Elimination of the Restriction on 
Electronically Generated Orders

March 23, 2005.
    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 March 16, 2005, the International Securities Exchange, Inc. (``ISE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the ISE. The ISE has 
designated the proposed rule change as ``non-controversial'' under 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to eliminate ISE Rule 717(f) and all 
references thereto in the Exchange's Rules. ISE Rule 717(f) currently 
prohibits the electronic generation and communication of certain 
orders. Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *
Rule 717. Limitations on Orders
    (a)-(e) no change.
    (f) Reserved. [Electronic Orders.
    Members may not enter, nor permit the entry of, orders created and 
communicated electronically without manual input (i.e., order entry by 
Public Customers or associated persons of Members must involve manual 
input such as entering the terms of an order into an order-entry screen 
or manually selecting a displayed order against which an off-setting 
order should be sent), unless such orders are (1) non-marketable limit 
orders to buy (sell) that are priced higher (lower) than the best bid 
(offer) on the Exchange (i.e., limit orders that improve the best price 
available on the Exchange), (2) limit orders that are designated as 
fill-or-kill or immediate-or-cancel, or (3) market orders. Nothing in 
this paragraph, however, prohibits Electronic Access Members from 
electronically communicating to the Exchange orders manually entered by 
customers into front-end communications systems (e.g., Internet 
gateways, online networks, etc.).]
    (g) no change.
* * * * *
Rule 723. Price Improvement Mechanism for Crossing Transactions
    (a)-(d) no change.
    Supplemental Material to Rule 717
    .01-.04 no change.
    [.05 Rule 717(f) does not apply to transactions executed pursuant 
to this Rule 723.]
    [.06] .05 Paragraphs (c)(5) and (d)(6) will be effective for a 
Pilot Period expiring on July 18, 2005. During the Pilot Period, the 
Exchange will submit certain data relating to the frequency with which 
the exposure period is terminated by unrelated orders. Any data which 
is submitted to the Commission will be provided on a confidential 
basis.
* * * * *
Rule 805. Market Maker Orders
    (a) no change.
    (b) Options Classes Other Than Those to Which Appointed.
    (1) A market maker may enter all order types permitted to be 
entered by non-customer participants under the Rules to buy or sell 
options in classes of options listed on the Exchange to which the 
market maker is not appointed under Rule 802, provided that:
    [(i) market maker orders are subject to the limitations contained 
in Rule 717(f) as that paragraph applies to principal orders entered by 
Electronic Access Members;]
    [(ii)] (i) the spread between a limit order to buy and a limit 
order to sell the same options contract complies with the parameters 
contained in Rule 803(b)(4); and
    [(iii)] (ii) the market maker does not enter orders in options 
classes to which it is otherwise appointed, either as a Competitive or 
Primary Market Maker.
    (2) Competitive Market Makers. The total number of contracts 
executed during a quarter by a Competitive Market Maker in options 
classes to which it is not appointed may not exceed twenty-five percent 
(25%) of the total number of contracts traded per each Competitive 
Market Maker Membership.
    (3) Primary Market Makers. The total number of contracts executed 
during a quarter by a Primary Market Maker in options classes to which 
it is not appointed may not exceed ten percent (10%) of the total 
number of contracts traded per each Primary Market Maker Membership.

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 Exchange 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 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 delete ISE Rule 717(f) and all other 
references to Rule 717(f). ISE Rule 717(f) prohibits the electronic 
generation and communication of certain orders. In August 2004, the 
Exchange amended the rule to allow market orders and certain marketable 
limit orders to be electronically generated and communicated.\5\ The 
Exchange now believes the remaining restriction on electronically 
generated orders is unnecessary. In this regard, the Exchange notes 
that the Chicago Board Options Exchange, Incorporated (``CBOE'') and 
Philadelphia Stock Exchange, Inc. (``Phlx'') have both

[[Page 16322]]

entirely eliminated their limitations on electronic generation of 
orders.\6\
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    \5\ Securities Exchange Act Release No. 50208 (August 17, 2004), 
69 FR 52054 (August 24, 2004).
    \6\ Securities Exchange Act Release Nos. 51030 (January 12, 
2005), 70 FR 3404 (January 24, 2005) (SR-CBOE-2004-91); and 48648 
(October 16, 2003), 68 FR 60762 (October 23, 2003) (SR-Phlx-2003-
37).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act,\7\ in general, and 
Section 6(b)(5) of the Act,\8\ in particular, 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. The Exchange believes allowing 
members to electronically generate and communicate orders will enhances 
access to the Exchange.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE believes that 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

    The Exchange asserts that the foregoing proposed rule change has 
become effective upon filing pursuant to Section 19(b)(3)(A) of the Act 
\9\ and Rule 19b-4(f)(6) thereunder \10\ because it does not:
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    (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 of filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change at least five business days 
prior to the filing date of the proposed rule change.
    The ISE has requested that the Commission waive the 30-day pre-
operative period, which would make the rule change operative 
immediately, because the proposed rule change is based on rule changes 
filed by CBOE and the Phlx and approved by the Commission. The 
Commission believes that it is consistent with the protection of 
investors and the public interest to waive the 30-day pre-operative 
period in this case. Allowing the proposed rule change to become 
operative immediately should enhance access to the Exchange and the 
proposed rule change does not raise any new issues of regulatory 
concern as the proposal is based on a rule change previously filed by 
CBOE with the Commission pursuant to Section 19(b)(3)(A) of the 
Act,\11\ as well as, a rule change previously filed by the Phlx and 
approved by the Commission pursuant to Section 19(b)(2) of the Act.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 15 U.S.C. 78s(b)(2). For the purposes only of accelerating 
the operative date of this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
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    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 (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2005-15 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-ISE-2005-15. 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 (https://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. 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-2005-15 
and should be submitted on or before April 20, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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 J. Lynn Taylor,
 Assistant Secretary.
[FR Doc. E5-1390 Filed 3-29-05; 8:45 am]
BILLING CODE 8010-01-P