Self-Regulatory Organizations; International Securities Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto and Order Granting Accelerated Approval of Amendment Nos. 2, 3, 4, and 5 Thereto Relating to the Pricing of Block and Facilitation Trades, 25631-25634 [E5-2381]

Download as PDF Federal Register / Vol. 70, No. 92 / Friday, May 13, 2005 / Notices participants of DTC and their affiliates may utilize the services of other third parties. DTC has determined that it would be more efficient and less costly if the fees that members agree to pay for such services were collected by DTC rather than through independent billing mechanisms that would otherwise have to be established by each subsidiary of DTCC and third party that is not a registered clearing agency. DTC’s rules currently allow for fee collection arrangements with respect to collection of fees from participants. The proposed rule change would further clarify this practice and facilitate collection of fees with respect to affiliates of participants. DTC will enter into appropriate agreements with such subsidiaries and others regarding the collection of fees. DTC believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder because DTC will implement this service in a manner whereby DTC will be able to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. (B) Self-Regulatory Organization’s Statement on Burden on Competition DTC does not believe that the proposed rule change would have any impact or impose any burden on competition. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the proposed rule change have not been solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (a) By order approve the proposed rule change or (b) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, VerDate jul<14>2003 15:59 May 12, 2005 Jkt 205001 including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments 25631 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–51666; File No. SR–ISE– 2003–07] • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml) or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–DTC–2005–03 on the subject line. Self-Regulatory Organizations; International Securities Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto and Order Granting Accelerated Approval of Amendment Nos. 2, 3, 4, and 5 Thereto Relating to the Pricing of Block and Facilitation Trades Paper Comments May 9, 2005. • 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–DTC–2005–03. 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of DTC and on DTC’s Web site at https://www.dtc.com. 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–DTC– 2005–03 and should be submitted on or before June 3, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority.3 I. Introduction On February 25, 2003, the International Securities Exchange, Inc. (‘‘ISE’’ or ‘‘Exchange’’) 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 provide for the entry and execution of block and facilitation trades at the midpoint between the standard trading increments. On December 18, 2003, the ISE amended the proposed rule change. The proposed rule change, as amended by Amendment No. 1, was published for comment in the Federal Register on January 20, 2004.3 The Commission received two comment letters in response to the proposed rule change, which were submitted by the Boston Stock Exchange and its wholly-owned subsidiary, Boston Options Exchange Regulation (collectively, ‘‘BSE’’),4 and the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’).5 The ISE submitted a letter in response to the BSE Letter on March 4, 2004.6 Also, on March 4, 2004, the ISE filed Amendment No. 2 to the proposed rule change.7 On March 24, 2004, the Jill M. Peterson, Assistant Secretary. [FR Doc. E5–2376 Filed 5–12–05; 8:45 am] BILLING CODE 8010–01–P 3 17 PO 00000 CFR 200.30–3(a)(12). Frm 00111 Fmt 4703 Sfmt 4703 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 49056 (January 12, 2004), 69 FR 2798. 4 See Letter from Glenn Verdi, Chief Regulatory Officer, Boston Options Exchange Regulation, to Jonathan G. Katz, Secretary, Commission, dated February 26, 2004 (‘‘BSE Letter’’). 5 See E-mail from Steve Youhn, CBOE, to Elizabeth King, Associate Director, Division of Market Regulation (‘‘Division’’), Commission, and Ira Brandriss, Assistant Director, Division, Commission, dated April 26, 2005 (‘‘CBOE Letter’’). 6 See Letter from Michael J. Simon, Senior Vice President and General Counsel, ISE, to Jonathan G. Katz, Secretary, Commission, dated March 4, 2004. 7 In Amendment No. 2, the ISE revised the text of the proposed rule change to remove language relating to the ISE’s Solicited Order Mechanism. This language, however, was reinserted in Amendment No. 4 because the Commission had approved the ISE’s Solicited Order Mechanism. See Securities Exchange Act Release No. 49943 (June 30, 2004), 69 FR 41317 (July 8, 2004) (SR–ISE– 2001–22). 2 17 E:\FR\FM\13MYN1.SGM 13MYN1 25632 Federal Register / Vol. 70, No. 92 / Friday, May 13, 2005 / Notices ISE filed Amendment No. 3 to the proposed rule change.8 On April 18, 2005, the ISE filed Amendment No. 4 to the proposed rule change.9 On May 4, 2005, the ISE filed Amendment No. 5 to the proposed rule change.10 This order approves the proposed rule change, as amended, grants accelerated approval to Amendment Nos. 2, 3, 4, and 5 and solicits comments from interested persons on Amendment Nos. 2, 3, 4, and 5. II. Description of the Proposed Rule Change The proposed rule change would permit the ISE to execute and report block, facilitation, and solicited order trades through its Block Order, Facilitation, and Solicited Order Mechanisms at prices that are at the midpoint between the standard $.05 and $.10 trading increments (‘‘Split Prices’’), i.e., in $.025 increments for options with a standard minimum trading increment of $.05 (e.g., $1.025, $1.05, $1.075, etc.) and in $.05 increments for options with a standard minimum trading increment of $.10 (e.g., $4.05, $4.10, $4.15, etc.). The proposal would permit members to enter both public customer and broker-dealer orders into the Block Order, Facilitation, and Solicited Order Mechanisms at Split Prices. As is the case under the ISE’s current rules, upon the entry of an order into the Block Order, Facilitation, and Solicited Order Mechanisms, a broadcast message is sent. The proposed rule change, however, would expand the members who receive such 8 In Amendment No. 3, the ISE revised the text of the proposed rule change to delete the phrase ‘‘Public Customer’’ from Rule 716(d). The ISE stated that the purpose of this change is to allow Electronic Access Members (‘‘EAMs’’) to use ISE’s facilitation mechanism to facilitate broker-dealer orders as well as Public Customer orders. 9 In Amendment No. 4, the ISE added Paragraph .07 to Supplementary Material to ISE Rule 716 to state that orders of 50 to 499 contracts executed through the Block Order and Facilitation Mechanisms will not be executed at prices inferior to the national best bid or offer at the time of execution. Amendment No. 4 also reinstated language removed in Amendment No. 2 that proposes to permit Orders and Responses to be entered into the Solicited Order Mechanism at Split Prices. In addition, Amendment No. 4 expands the group of participants who may enter Responses in to the ISE’s Solicited Order Mechanism to all ISE members. 10 In Amendment No. 5, the ISE explained that Amendment No. 4 reinstated references to the Solicited Order Mechanism removed by Amendment No. 2 to reflect the Commission’s approval of the Solicited Order Mechanism. See Exchange Act Release No. 49943, supra note 7. Amendment No. 5 also explained that Amendment No. 4 revised the Solicited Order Mechanism to expand to all ISE members the group of participants who receive broadcast messages and who may enter Responses and to permit orders to be entered and executed at Split Prices. VerDate jul<14>2003 15:59 May 12, 2005 Jkt 205001 broadcast messages to include all members, not just market makers appointed to an options class and other members with proprietary orders at the inside bid or offer for a particular series. In addition, the proposal would permit members to enter ‘‘Responses’’ 11 to a broadcast message at Split Prices. Finally, while the ISE’s current rules only permit members to indicate whether they want to participate in the facilitation of an order at the facilitation price or a price no better than the ISE’s best bid or offer, the proposed rule change would permit members to enter Responses that improve the ISE’s best bid or offer. The proposed rule change also would bar executions of orders of between 50 and 499 contracts through the Block Order and Facilitation Mechanisms at prices inferior to the national best bid or offer at the time of execution. Orders executed at a Split Price would be reported to the Options Price Reporting Authority (‘‘OPRA’’) and cleared by The Options Clearing Corporation (‘‘OCC’’) at the Split Price. III. Discussion After careful consideration of the proposed rule change, the BSE Letter, the CBOE Letter, and the ISE’s response to the BSE Letter, 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.12 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,13 which requires, among other things, that the Exchange’s rules be 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 of a free and open market and a national market system, and in general, to protect investors and the public interest. A. Participation in Block Order, Facilitation, and Solicited Order Mechanisms Currently ISE Rule 716 provides that only market makers appointed to an options class and other members with proprietary orders at the inside bid or offer for a particular series (‘‘Crowd Participants’’) receive notifications of orders entered into the Block Order, 11 A ‘‘Response’’ is an electronic message that is sent by a member in response to a broadcast message. 12 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). 13 15 U.S.C. 78f(b)(5). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 Facilitation, and Solicited Order Mechanisms, and only Crowd Participants may enter Responses to such orders. The proposal would expand the universe of market participants who would receive notification of an order entered into the Block Order, Facilitation, or Solicited Order Mechanism to all ISE members. The proposal also would expand the universe of market participants who could enter Responses into the Block Order, Facilitation, or Solicited Order Mechanism to all market participants, other than Responses for the account of an options market maker from another options exchange.14 The BSE Letter commented that the proposal is unclear as to how the ISE defines an ‘‘options market maker from another options exchange.’’ Further, the BSE Letter contends that if the ISE is referring to the unit that acts as a market maker on another options exchange, the proposal is unfairly discriminatory against BOX market makers. The CBOE Letter similarly contends that this aspect of the proposal is discriminatory. In its response, the ISE clarified that the ‘‘account of an options market maker on another exchange’’ is the options market maker account of a member at OCC. Thus, the limitation in Supplementary Material .03 does not restrict members from entering Responses with respect to any other firm proprietary accounts. The Commission believes that the ISE’s proposal to expand those ISE members who can enter Responses into the Block Order, Facilitation, and Solicited Order Mechanisms will improve the opportunities for orders executed in those Mechanisms to receive price improvement. The Commission does not believe that it is unfairly discriminatory for the ISE not to further expand to away options market makers the ability to enter Responses into the Block Order, Facilitation, and Solicited Order Mechanisms. B. Consistency With Linkage Plan The BSE Letter expressed concern that the ISE’s proposed rule does not require that the EAM’s facilitation price be equal to or greater than the ISE best bid or offer or the national best bid or offer and that, therefore, facilitated orders could trade at prices inferior to these on other exchanges, i.e., a tradethrough, in contravention of the ISE’s obligations under the Linkage Plan. In Amendment No. 4, the ISE revised the proposed rule text to bar executions in the Block Order and Facilitation 14 See Paragraph .03 to Supplementary Material to ISE Rule 716. E:\FR\FM\13MYN1.SGM 13MYN1 Federal Register / Vol. 70, No. 92 / Friday, May 13, 2005 / Notices Mechanisms of orders of 50 to 499 contracts at prices inferior to the national best bid or offer. Accordingly, the Commission believes the ISE’s proposal is now consistent with the Linkage Plan. In addition, the BSE Letter expressed concern that the ISE’s rules do not address how incoming Options Intermarket Linkage orders interact with the Block Order and Facilitation Mechanisms and the orders being submitted to the Mechanisms. The Linkage Plan does not require incoming orders sent to the ISE through the Options Intermarket Linkage to interact with orders submitted to the Mechanisms, and this is not inconsistent with the Options Intermarket Linkage. C. Trading and Reporting at NonStandard Increments The BSE Letter expressed concerns that the ISE’s proposal ‘‘is attempting to introduce subpenny trading in the options arena,’’ and recommended that the Commission seek additional comment on this issue in light of its proposal ‘‘in new Regulation NMS to eliminate subpenny trading in equities.’’ The BSE believes that ‘‘it is inconsistent for the Commission to approve the ISE proposal for subpenny trading while at the same time it seeks to eliminate the practice for the equities market.’’ The ISE responded to this comment by reiterating that its proposal would introduce a single price point between the existing $.05 and $.10 trading increments to permit the ISE to achieve what floor-based exchanges currently achieve by executing half of a trade at one standard trading increment and half at one standard trading increment higher, thereby creating an average price for the trade that is at the mid-point between the standard increments. However, the ISE continued, reporting and clearing trades at the actual price, rather than achieving an average price, provides greater transparency to the market.15 The Commission agrees with this analysis and believes that the ISE’s proposal is consistent with the Act. The Commission notes that there are significant differences in the options and stock markets. Most notably, options are not quoted in pennies. Accordingly, the Commission does not agree with the BSE that approving the ISE’s proposal is inconsistent with its adoption of a rule to limit subpenny pricing of stocks. In addition, the BSE Letter commented that the ISE’s proposal does not explain how the ISE would report 15 See supra note 6. VerDate jul<14>2003 15:59 May 12, 2005 Jkt 205001 Split Price trades, and expressed concern that OPRA might not be prepared to report Split Price trades. The Commission believes the ISE’s proposal is clear that the trades would be reported and cleared at Split Prices. Moreover, the ISE confirmed in its response that OPRA and OCC could process Split Prices. D. Section 11(a) Under the Exchange Act The BSE Letter and the CBOE Letter expressed the view that the ISE’s Facilitation Mechanism violates Section 11(a) of the Act 16 and Rule 11a1–1(T) thereunder 17 because the EAM is not required to yield to certain noncustomer orders. Section 11(a) of the Act prohibits a member of a national securities exchange from effecting transactions on that exchange for its own account, the account of an associated person, or an account over which it or its associated person exercises discretion (collectively, ‘‘covered accounts’’) unless an exception applies. In addition to the exceptions set forth in the statute and Rule 11a1–1(T), Rule 11a2–2(T) 18 provides exchange members with an exemption from this prohibition. Known as the ‘‘effect versus execute’’ rule, Rule 11a2–2(T) permits an exchange member, subject to certain conditions, to effect transactions for covered accounts by arranging for an unaffiliated member to execute the transactions on the exchange. To comply with the rule’s conditions, a member: (i) Must transmit the order from off the exchange floor; (ii) may not participate in the execution of the transaction once it has been transmitted to the member performing the execution;19 (iii) may not be affiliated with the executing member; and (iv) with respect to an account over which the member has investment discretion, neither the member nor its associated person may retain any compensation in connection with effecting the transaction except as provided in the rule. The Commission believes that the ISE’s Facilitation, Block Order, and Solicited Order Mechanisms satisfy the four conditions of Rule 11A2–2(T).20 U.S.C. 78k(a). CFR 240.11a1–1(T). 18 17 CFR 240.11a2–2(T). 19 The member, however, may participate in clearing and settling the transaction. 20 The Commission and its staff, on numerous occasions, have considered the application of Rule 11a2–2(T) to electronic trading and order routing systems. See, e.g., Securities Exchange Act Release Nos. 49068 (January 13, 2004) (Order approving the Boston Options Exchange as a facility of the Boston Stock Exchange, Inc.); 44983 (October 25, 2001) (Order approving the Archipelago Exchange as the PO 00000 16 15 17 17 Frm 00113 Fmt 4703 Sfmt 4703 25633 First, all orders are electronically submitted through remote terminals. Second, because a member relinquishes control of its order after it is submitted to the Facilitation, Block Order, and Solicited Order Mechanisms, the member does not receive special or unique trading advantages. Third, although the rule contemplates having an order executed by an exchange member who is not affiliated with the member initiating the order, the Commission recognizes that this requirement is satisfied when automated exchange facilities are used.21 Finally, to the extent that ISE members rely on Rule 11a2–2(T) for a managed account transaction, they must comply with the limitations on compensation set forth in the rule. Therefore, the Commission believes that the ISE’s Facilitation, Block Order, and Solicited Order Mechanisms comply with the requirements of Section 11(a) of the Act and Rule 11a2–2(T) thereunder. E. Other Issues Raised by Comments The BSE objected to the fact that if Public Customer bids or offers on the ISE are better than the facilitation price, those Public Customer bids or offers receive the facilitated price, such that the Public Customer receives price improvement rather than the customer order being facilitated. This feature of the ISE’s Facilitation Mechanism was previously approved by the Commission equities trading facility of PCX Equities Inc.); and 29237 (May 31, 1991) (regarding NYSE’s Off-Hours Trading Facility); 15533 (January 29, 1979) (regarding the Amex Post Execution Reporting System, the Amex Switching System, the Intermarket Trading System, the Multiple Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX’s Communications and Execution System, and the Phlx’s Automated Communications and Execution System); and 14563 (March 14, 1978) (regarding the NYSE’s Designated Order Turnaround System). See also Letter from Larry E. Bergmann, Senior Associate Director, Division, Commission to Edith Hallahan, Associate General Counsel, Phlx (March 24, 1999) (regarding Phlx’s VWAP Trading System); letter from Catherine McGuire, Chief Counsel, Division, Commission, to David E. Rosedahl, PCX (November 30, 1998) (regarding Optimark); and Letter from Brandon Becker, Director, Division, Commission, to George T. Simon, Foley & Lardner (November 30, 1994) (regarding Chicago Match). 21 In considering the operation of automated execution systems operated by an exchange, the Commission noted that while there is no independent executing exchange member, the execution of an order is automatic once it has been transmitted into the systems. Because the design of these systems ensures that members do not possess any special or unique trading advantages in handling their orders after transmitting them to the exchange, the Commission has stated that executions obtained through these systems satisfy the independent execution requirement of Rule 11a2–2(T). See Securities Exchange Act Release No. 15533 (January 29, 1979). E:\FR\FM\13MYN1.SGM 13MYN1 25634 Federal Register / Vol. 70, No. 92 / Friday, May 13, 2005 / Notices and the Commission continues to believe it is consistent with the Act.22 The BSE Letter also expressed concern that the ISE’s Facilitation Mechanism contains no prohibition on the cancellation of a facilitation order, which the BSE stated could leave a customer order potentially unexecuted and subject to market risk. The BSE contends that BOX’s rules are better because they prohibit cancellation of facilitation orders. The Commission, however, previously found this feature of the ISE’s Facilitation Mechanism to be consistent with the Act.23 Moreover, the Commission notes that Paragraph .01 to Supplementary Material to ISE Rule 716 states, among other things: It will be a violation of a Member’s duty of best execution to its customer if it were to cancel a facilitation order to avoid execution of the order at a better price. The availability of the Facilitation Mechanism does not alter a Member’s best execution duty to get the best price for its customer. The BSE Letter also commented that the ISE’s Facilitation Mechanism does not provide for the dissemination to ISE members of information regarding the price and size of the orders competing with the facilitation order, which the BSE believes restricts potential price improvement. Although the ISE’s rules are different than those proposed by the BSE and approved by the Commission, the Commission nevertheless believes the ISE’s rules in this regard are consistent with the Act.24 In addition, the BSE Letter asked why ‘‘Public Customer Order’’ would be replaced by ‘‘order’’ in ISE Rule 716(d)(1). The ISE explains in Amendment No. 3 that the purpose of the deletion of the phrase ‘‘Public Customer’’ is to allow the use of the Facilitation Mechanism for brokerdealer orders as well as Public Customer orders.25 The BSE Letter questioned the reference in the Supplementary Material to ISE Rule 716 to ‘‘Solicited Order’’ Mechanism, which at the time the ISE filed its proposal was not part of the ISE’s rules. As noted above, Amendment No. 2 addressed this comment by removing the reference to ‘‘Solicited Order’’ Mechanism.26 Amendment No. 4, however, reinserted this language following the 22 See Securities Exchange Act Release No. 42455 (February 24, 2000), 65 FR 11388 (March 2, 2000) (File No. 10–127) (order approving the application of the ISE for registration as a national securities exchange) at 11397. 23 Id. at 11398. 24 Id. at 11397. 25 See supra note 8. 26 See supra note 7. VerDate jul<14>2003 15:59 May 12, 2005 Jkt 205001 Commission’s approval of the ISE’s Solicited Order Mechanism.27 The BSE Letter asked why the proposed rule change would delete the phrase ‘‘on the Exchange’’ from ISE Rule 716(d)(3)(i). The ISE represents that the deletion of ‘‘on the Exchange,’’ is a technical clarification that will not affect the operation of Rule 716.28 The Commission finds good cause for approving Amendment Nos. 2, 3, 4, and 5 to the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. The Commission believes that accelerated approval of Amendment Nos. 2, 3, 4, and 5 is appropriate because it will immediately allow broker-dealer and public customer orders to be executed at Split Prices. Accordingly, the Commission believes that there is good cause, consistent with Section 19(b) of the Act, to approve Amendment Nos. 2, 3, 4, and 5 to the proposed rule change on an accelerated basis. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment Nos. 2, 3, 4, and 5 are 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 rulecomments@sec.gov. Please include File Number SR–ISE–2003–07 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–2003–07. 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 supra notes 9 and 10. conversation between Katherine Simmons, Vice President and Associate General Counsel, ISE, and Theodore R. Lazo, Senior Special Counsel, Division, Commission (March 22, 2004). PO 00000 27 See 28 Telephone Frm 00114 Fmt 4703 Sfmt 4703 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 Section, 450 Fifth Street, NW., Washington, DC 20549. 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– 2003–07 and should be submitted on or before June 3, 2005. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,29 that the proposed rule change (SR–ISE–2003–07) and Amendment No. 1 thereto are hereby approved and that Amendment Nos. 2, 3, 4, and 5 thereto are hereby approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.30 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–2381 Filed 5–12–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–51669; File No. SR–NSCC– 2004–09] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Establish a Comprehensive Standard of Care and Limitation of Liability to Its Members May 9, 2005. I. Introduction On December 8, 2004, the National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–NSCC–2004– 09 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’).1 Notice of the proposal was 29 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 30 17 E:\FR\FM\13MYN1.SGM 13MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 92 (Friday, May 13, 2005)]
[Notices]
[Pages 25631-25634]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51666; File No. SR-ISE-2003-07]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto 
and Order Granting Accelerated Approval of Amendment Nos. 2, 3, 4, and 
5 Thereto Relating to the Pricing of Block and Facilitation Trades

May 9, 2005.

I. Introduction

    On February 25, 2003, the International Securities Exchange, Inc. 
(``ISE'' or ``Exchange'') 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 provide for the entry and 
execution of block and facilitation trades at the midpoint between the 
standard trading increments. On December 18, 2003, the ISE amended the 
proposed rule change. The proposed rule change, as amended by Amendment 
No. 1, was published for comment in the Federal Register on January 20, 
2004.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 49056 (January 12, 
2004), 69 FR 2798.
---------------------------------------------------------------------------

    The Commission received two comment letters in response to the 
proposed rule change, which were submitted by the Boston Stock Exchange 
and its wholly-owned subsidiary, Boston Options Exchange Regulation 
(collectively, ``BSE''),\4\ and the Chicago Board Options Exchange, 
Incorporated (``CBOE'').\5\ The ISE submitted a letter in response to 
the BSE Letter on March 4, 2004.\6\ Also, on March 4, 2004, the ISE 
filed Amendment No. 2 to the proposed rule change.\7\ On March 24, 
2004, the

[[Page 25632]]

ISE filed Amendment No. 3 to the proposed rule change.\8\ On April 18, 
2005, the ISE filed Amendment No. 4 to the proposed rule change.\9\ On 
May 4, 2005, the ISE filed Amendment No. 5 to the proposed rule 
change.\10\ This order approves the proposed rule change, as amended, 
grants accelerated approval to Amendment Nos. 2, 3, 4, and 5 and 
solicits comments from interested persons on Amendment Nos. 2, 3, 4, 
and 5.
---------------------------------------------------------------------------

    \4\ See Letter from Glenn Verdi, Chief Regulatory Officer, 
Boston Options Exchange Regulation, to Jonathan G. Katz, Secretary, 
Commission, dated February 26, 2004 (``BSE Letter'').
    \5\ See E-mail from Steve Youhn, CBOE, to Elizabeth King, 
Associate Director, Division of Market Regulation (``Division''), 
Commission, and Ira Brandriss, Assistant Director, Division, 
Commission, dated April 26, 2005 (``CBOE Letter'').
    \6\ See Letter from Michael J. Simon, Senior Vice President and 
General Counsel, ISE, to Jonathan G. Katz, Secretary, Commission, 
dated March 4, 2004.
    \7\ In Amendment No. 2, the ISE revised the text of the proposed 
rule change to remove language relating to the ISE's Solicited Order 
Mechanism. This language, however, was reinserted in Amendment No. 4 
because the Commission had approved the ISE's Solicited Order 
Mechanism. See Securities Exchange Act Release No. 49943 (June 30, 
2004), 69 FR 41317 (July 8, 2004) (SR-ISE-2001-22).
    \8\ In Amendment No. 3, the ISE revised the text of the proposed 
rule change to delete the phrase ``Public Customer'' from Rule 
716(d). The ISE stated that the purpose of this change is to allow 
Electronic Access Members (``EAMs'') to use ISE's facilitation 
mechanism to facilitate broker-dealer orders as well as Public 
Customer orders.
    \9\ In Amendment No. 4, the ISE added Paragraph .07 to 
Supplementary Material to ISE Rule 716 to state that orders of 50 to 
499 contracts executed through the Block Order and Facilitation 
Mechanisms will not be executed at prices inferior to the national 
best bid or offer at the time of execution. Amendment No. 4 also 
reinstated language removed in Amendment No. 2 that proposes to 
permit Orders and Responses to be entered into the Solicited Order 
Mechanism at Split Prices. In addition, Amendment No. 4 expands the 
group of participants who may enter Responses in to the ISE's 
Solicited Order Mechanism to all ISE members.
    \10\ In Amendment No. 5, the ISE explained that Amendment No. 4 
reinstated references to the Solicited Order Mechanism removed by 
Amendment No. 2 to reflect the Commission's approval of the 
Solicited Order Mechanism. See Exchange Act Release No. 49943, supra 
note 7. Amendment No. 5 also explained that Amendment No. 4 revised 
the Solicited Order Mechanism to expand to all ISE members the group 
of participants who receive broadcast messages and who may enter 
Responses and to permit orders to be entered and executed at Split 
Prices.
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II. Description of the Proposed Rule Change

    The proposed rule change would permit the ISE to execute and report 
block, facilitation, and solicited order trades through its Block 
Order, Facilitation, and Solicited Order Mechanisms at prices that are 
at the midpoint between the standard $.05 and $.10 trading increments 
(``Split Prices''), i.e., in $.025 increments for options with a 
standard minimum trading increment of $.05 (e.g., $1.025, $1.05, 
$1.075, etc.) and in $.05 increments for options with a standard 
minimum trading increment of $.10 (e.g., $4.05, $4.10, $4.15, etc.). 
The proposal would permit members to enter both public customer and 
broker-dealer orders into the Block Order, Facilitation, and Solicited 
Order Mechanisms at Split Prices. As is the case under the ISE's 
current rules, upon the entry of an order into the Block Order, 
Facilitation, and Solicited Order Mechanisms, a broadcast message is 
sent. The proposed rule change, however, would expand the members who 
receive such broadcast messages to include all members, not just market 
makers appointed to an options class and other members with proprietary 
orders at the inside bid or offer for a particular series. In addition, 
the proposal would permit members to enter ``Responses'' \11\ to a 
broadcast message at Split Prices. Finally, while the ISE's current 
rules only permit members to indicate whether they want to participate 
in the facilitation of an order at the facilitation price or a price no 
better than the ISE's best bid or offer, the proposed rule change would 
permit members to enter Responses that improve the ISE's best bid or 
offer. The proposed rule change also would bar executions of orders of 
between 50 and 499 contracts through the Block Order and Facilitation 
Mechanisms at prices inferior to the national best bid or offer at the 
time of execution. Orders executed at a Split Price would be reported 
to the Options Price Reporting Authority (``OPRA'') and cleared by The 
Options Clearing Corporation (``OCC'') at the Split Price.
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    \11\ A ``Response'' is an electronic message that is sent by a 
member in response to a broadcast message.
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III. Discussion

    After careful consideration of the proposed rule change, the BSE 
Letter, the CBOE Letter, and the ISE's response to the BSE Letter, 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.\12\ In particular, the 
Commission believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\13\ which requires, among other things, 
that the Exchange's rules be 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 
of a free and open market and a national market system, and in general, 
to protect investors and the public interest.
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    \12\ 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).
    \13\ 15 U.S.C. 78f(b)(5).
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A. Participation in Block Order, Facilitation, and Solicited Order 
Mechanisms

    Currently ISE Rule 716 provides that only market makers appointed 
to an options class and other members with proprietary orders at the 
inside bid or offer for a particular series (``Crowd Participants'') 
receive notifications of orders entered into the Block Order, 
Facilitation, and Solicited Order Mechanisms, and only Crowd 
Participants may enter Responses to such orders. The proposal would 
expand the universe of market participants who would receive 
notification of an order entered into the Block Order, Facilitation, or 
Solicited Order Mechanism to all ISE members. The proposal also would 
expand the universe of market participants who could enter Responses 
into the Block Order, Facilitation, or Solicited Order Mechanism to all 
market participants, other than Responses for the account of an options 
market maker from another options exchange.\14\
---------------------------------------------------------------------------

    \14\ See Paragraph .03 to Supplementary Material to ISE Rule 
716.
---------------------------------------------------------------------------

    The BSE Letter commented that the proposal is unclear as to how the 
ISE defines an ``options market maker from another options exchange.'' 
Further, the BSE Letter contends that if the ISE is referring to the 
unit that acts as a market maker on another options exchange, the 
proposal is unfairly discriminatory against BOX market makers. The CBOE 
Letter similarly contends that this aspect of the proposal is 
discriminatory. In its response, the ISE clarified that the ``account 
of an options market maker on another exchange'' is the options market 
maker account of a member at OCC. Thus, the limitation in Supplementary 
Material .03 does not restrict members from entering Responses with 
respect to any other firm proprietary accounts.
    The Commission believes that the ISE's proposal to expand those ISE 
members who can enter Responses into the Block Order, Facilitation, and 
Solicited Order Mechanisms will improve the opportunities for orders 
executed in those Mechanisms to receive price improvement. The 
Commission does not believe that it is unfairly discriminatory for the 
ISE not to further expand to away options market makers the ability to 
enter Responses into the Block Order, Facilitation, and Solicited Order 
Mechanisms.

B. Consistency With Linkage Plan

    The BSE Letter expressed concern that the ISE's proposed rule does 
not require that the EAM's facilitation price be equal to or greater 
than the ISE best bid or offer or the national best bid or offer and 
that, therefore, facilitated orders could trade at prices inferior to 
these on other exchanges, i.e., a trade-through, in contravention of 
the ISE's obligations under the Linkage Plan. In Amendment No. 4, the 
ISE revised the proposed rule text to bar executions in the Block Order 
and Facilitation

[[Page 25633]]

Mechanisms of orders of 50 to 499 contracts at prices inferior to the 
national best bid or offer. Accordingly, the Commission believes the 
ISE's proposal is now consistent with the Linkage Plan.
    In addition, the BSE Letter expressed concern that the ISE's rules 
do not address how incoming Options Intermarket Linkage orders interact 
with the Block Order and Facilitation Mechanisms and the orders being 
submitted to the Mechanisms. The Linkage Plan does not require incoming 
orders sent to the ISE through the Options Intermarket Linkage to 
interact with orders submitted to the Mechanisms, and this is not 
inconsistent with the Options Intermarket Linkage.

C. Trading and Reporting at Non-Standard Increments

    The BSE Letter expressed concerns that the ISE's proposal ``is 
attempting to introduce subpenny trading in the options arena,'' and 
recommended that the Commission seek additional comment on this issue 
in light of its proposal ``in new Regulation NMS to eliminate subpenny 
trading in equities.'' The BSE believes that ``it is inconsistent for 
the Commission to approve the ISE proposal for subpenny trading while 
at the same time it seeks to eliminate the practice for the equities 
market.''
    The ISE responded to this comment by reiterating that its proposal 
would introduce a single price point between the existing $.05 and $.10 
trading increments to permit the ISE to achieve what floor-based 
exchanges currently achieve by executing half of a trade at one 
standard trading increment and half at one standard trading increment 
higher, thereby creating an average price for the trade that is at the 
mid-point between the standard increments. However, the ISE continued, 
reporting and clearing trades at the actual price, rather than 
achieving an average price, provides greater transparency to the 
market.\15\ The Commission agrees with this analysis and believes that 
the ISE's proposal is consistent with the Act. The Commission notes 
that there are significant differences in the options and stock 
markets. Most notably, options are not quoted in pennies. Accordingly, 
the Commission does not agree with the BSE that approving the ISE's 
proposal is inconsistent with its adoption of a rule to limit subpenny 
pricing of stocks.
---------------------------------------------------------------------------

    \15\ See supra note 6.
---------------------------------------------------------------------------

    In addition, the BSE Letter commented that the ISE's proposal does 
not explain how the ISE would report Split Price trades, and expressed 
concern that OPRA might not be prepared to report Split Price trades. 
The Commission believes the ISE's proposal is clear that the trades 
would be reported and cleared at Split Prices. Moreover, the ISE 
confirmed in its response that OPRA and OCC could process Split Prices.

D. Section 11(a) Under the Exchange Act

    The BSE Letter and the CBOE Letter expressed the view that the 
ISE's Facilitation Mechanism violates Section 11(a) of the Act \16\ and 
Rule 11a1-1(T) thereunder \17\ because the EAM is not required to yield 
to certain non-customer orders. Section 11(a) of the Act prohibits a 
member of a national securities exchange from effecting transactions on 
that exchange for its own account, the account of an associated person, 
or an account over which it or its associated person exercises 
discretion (collectively, ``covered accounts'') unless an exception 
applies. In addition to the exceptions set forth in the statute and 
Rule 11a1-1(T), Rule 11a2-2(T) \18\ provides exchange members with an 
exemption from this prohibition. Known as the ``effect versus execute'' 
rule, Rule 11a2-2(T) permits an exchange member, subject to certain 
conditions, to effect transactions for covered accounts by arranging 
for an unaffiliated member to execute the transactions on the exchange.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78k(a).
    \17\ 17 CFR 240.11a1-1(T).
    \18\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    To comply with the rule's conditions, a member: (i) Must transmit 
the order from off the exchange floor; (ii) may not participate in the 
execution of the transaction once it has been transmitted to the member 
performing the execution;\19\ (iii) may not be affiliated with the 
executing member; and (iv) with respect to an account over which the 
member has investment discretion, neither the member nor its associated 
person may retain any compensation in connection with effecting the 
transaction except as provided in the rule. The Commission believes 
that the ISE's Facilitation, Block Order, and Solicited Order 
Mechanisms satisfy the four conditions of Rule 11A2-2(T).\20\ First, 
all orders are electronically submitted through remote terminals. 
Second, because a member relinquishes control of its order after it is 
submitted to the Facilitation, Block Order, and Solicited Order 
Mechanisms, the member does not receive special or unique trading 
advantages. Third, although the rule contemplates having an order 
executed by an exchange member who is not affiliated with the member 
initiating the order, the Commission recognizes that this requirement 
is satisfied when automated exchange facilities are used.\21\ Finally, 
to the extent that ISE members rely on Rule 11a2-2(T) for a managed 
account transaction, they must comply with the limitations on 
compensation set forth in the rule. Therefore, the Commission believes 
that the ISE's Facilitation, Block Order, and Solicited Order 
Mechanisms comply with the requirements of Section 11(a) of the Act and 
Rule 11a2-2(T) thereunder.
---------------------------------------------------------------------------

    \19\ The member, however, may participate in clearing and 
settling the transaction.
    \20\ The Commission and its staff, on numerous occasions, have 
considered the application of Rule 11a2-2(T) to electronic trading 
and order routing systems. See, e.g., Securities Exchange Act 
Release Nos. 49068 (January 13, 2004) (Order approving the Boston 
Options Exchange as a facility of the Boston Stock Exchange, Inc.); 
44983 (October 25, 2001) (Order approving the Archipelago Exchange 
as the equities trading facility of PCX Equities Inc.); and 29237 
(May 31, 1991) (regarding NYSE's Off-Hours Trading Facility); 15533 
(January 29, 1979) (regarding the Amex Post Execution Reporting 
System, the Amex Switching System, the Intermarket Trading System, 
the Multiple Dealer Trading Facility of the Cincinnati Stock 
Exchange, the PCX's Communications and Execution System, and the 
Phlx's Automated Communications and Execution System); and 14563 
(March 14, 1978) (regarding the NYSE's Designated Order Turnaround 
System). See also Letter from Larry E. Bergmann, Senior Associate 
Director, Division, Commission to Edith Hallahan, Associate General 
Counsel, Phlx (March 24, 1999) (regarding Phlx's VWAP Trading 
System); letter from Catherine McGuire, Chief Counsel, Division, 
Commission, to David E. Rosedahl, PCX (November 30, 1998) (regarding 
Optimark); and Letter from Brandon Becker, Director, Division, 
Commission, to George T. Simon, Foley & Lardner (November 30, 1994) 
(regarding Chicago Match).
    \21\ In considering the operation of automated execution systems 
operated by an exchange, the Commission noted that while there is no 
independent executing exchange member, the execution of an order is 
automatic once it has been transmitted into the systems. Because the 
design of these systems ensures that members do not possess any 
special or unique trading advantages in handling their orders after 
transmitting them to the exchange, the Commission has stated that 
executions obtained through these systems satisfy the independent 
execution requirement of Rule 11a2-2(T). See Securities Exchange Act 
Release No. 15533 (January 29, 1979).
---------------------------------------------------------------------------

E. Other Issues Raised by Comments

    The BSE objected to the fact that if Public Customer bids or offers 
on the ISE are better than the facilitation price, those Public 
Customer bids or offers receive the facilitated price, such that the 
Public Customer receives price improvement rather than the customer 
order being facilitated. This feature of the ISE's Facilitation 
Mechanism was previously approved by the Commission

[[Page 25634]]

and the Commission continues to believe it is consistent with the 
Act.\22\
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11388 (March 2, 2000) (File No. 10-127) (order 
approving the application of the ISE for registration as a national 
securities exchange) at 11397.
---------------------------------------------------------------------------

    The BSE Letter also expressed concern that the ISE's Facilitation 
Mechanism contains no prohibition on the cancellation of a facilitation 
order, which the BSE stated could leave a customer order potentially 
unexecuted and subject to market risk. The BSE contends that BOX's 
rules are better because they prohibit cancellation of facilitation 
orders. The Commission, however, previously found this feature of the 
ISE's Facilitation Mechanism to be consistent with the Act.\23\ 
Moreover, the Commission notes that Paragraph .01 to Supplementary 
Material to ISE Rule 716 states, among other things:
---------------------------------------------------------------------------

    \23\ Id. at 11398.

    It will be a violation of a Member's duty of best execution to 
its customer if it were to cancel a facilitation order to avoid 
execution of the order at a better price. The availability of the 
Facilitation Mechanism does not alter a Member's best execution duty 
---------------------------------------------------------------------------
to get the best price for its customer.

    The BSE Letter also commented that the ISE's Facilitation Mechanism 
does not provide for the dissemination to ISE members of information 
regarding the price and size of the orders competing with the 
facilitation order, which the BSE believes restricts potential price 
improvement. Although the ISE's rules are different than those proposed 
by the BSE and approved by the Commission, the Commission nevertheless 
believes the ISE's rules in this regard are consistent with the 
Act.\24\
---------------------------------------------------------------------------

    \24\ Id. at 11397.
---------------------------------------------------------------------------

    In addition, the BSE Letter asked why ``Public Customer Order'' 
would be replaced by ``order'' in ISE Rule 716(d)(1). The ISE explains 
in Amendment No. 3 that the purpose of the deletion of the phrase 
``Public Customer'' is to allow the use of the Facilitation Mechanism 
for broker-dealer orders as well as Public Customer orders.\25\
---------------------------------------------------------------------------

    \25\ See supra note 8.
---------------------------------------------------------------------------

    The BSE Letter questioned the reference in the Supplementary 
Material to ISE Rule 716 to ``Solicited Order'' Mechanism, which at the 
time the ISE filed its proposal was not part of the ISE's rules. As 
noted above, Amendment No. 2 addressed this comment by removing the 
reference to ``Solicited Order'' Mechanism.\26\ Amendment No. 4, 
however, reinserted this language following the Commission's approval 
of the ISE's Solicited Order Mechanism.\27\
---------------------------------------------------------------------------

    \26\ See supra note 7.
    \27\ See supra notes 9 and 10.
---------------------------------------------------------------------------

    The BSE Letter asked why the proposed rule change would delete the 
phrase ``on the Exchange'' from ISE Rule 716(d)(3)(i). The ISE 
represents that the deletion of ``on the Exchange,'' is a technical 
clarification that will not affect the operation of Rule 716.\28\
---------------------------------------------------------------------------

    \28\ Telephone conversation between Katherine Simmons, Vice 
President and Associate General Counsel, ISE, and Theodore R. Lazo, 
Senior Special Counsel, Division, Commission (March 22, 2004).
---------------------------------------------------------------------------

    The Commission finds good cause for approving Amendment Nos. 2, 3, 
4, and 5 to the proposed rule change prior to the thirtieth day after 
the date of publication of notice of filing thereof in the Federal 
Register. The Commission believes that accelerated approval of 
Amendment Nos. 2, 3, 4, and 5 is appropriate because it will 
immediately allow broker-dealer and public customer orders to be 
executed at Split Prices. Accordingly, the Commission believes that 
there is good cause, consistent with Section 19(b) of the Act, to 
approve Amendment Nos. 2, 3, 4, and 5 to the proposed rule change on an 
accelerated basis.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment Nos. 2, 
3, 4, and 5 are 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-2003-07 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-2003-07. 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 Section, 450 Fifth Street, 
NW., Washington, DC 20549. 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-2003-07 and should be 
submitted on or before June 3, 2005.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-ISE-2003-07) and Amendment 
No. 1 thereto are hereby approved and that Amendment Nos. 2, 3, 4, and 
5 thereto are hereby approved on an accelerated basis.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-2381 Filed 5-12-05; 8:45 am]
BILLING CODE 8010-01-P

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