Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendments No. 1 and 2 Thereto To Amend Its Summary Fine Schedule for Position Limit Violations, 40762-40764 [E5-3747]

Download as PDF 40762 Federal Register / Vol. 70, No. 134 / Thursday, July 14, 2005 / Notices Significantly, deletion of the rulebased mandate regarding limit order protection would not remove a CHX specialist’s obligation to provide a timely best execution for each order, nor would it modify any other specialist obligations set forth in CHX Article XXX of the CHX Rules. The CHX Department of Market Regulation would continue its surveillance of order executions to ensure that CHX specialists meet all of their obligations to each order. Accordingly, many CHX specialists would continue to execute resting limit orders for listed issues voluntarily, when quotes or executions at the limit price occur in other markets, as a means of satisfying their best execution obligations and maintaining superior execution quality statistics. 2. Statutory Basis The Exchange believes that the proposal, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.8 Specifically, the CHX believes that the proposal, as amended, is consistent with Section 6(b)(5) of the Act,9 in that it is designed 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. B. Self-Regulatory Organization’s Statement of Burden on Competition The Exchange does not believe that the proposed rule change, as amended, will impose any burden on competition. C. Self-Regulatory Organization’s Statement on Comments Regarding the Proposed Rule Changes Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Changes and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such other period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or To the extent that the Exchange approved some variation in the limit order protection criteria, the Exchange would notify all CHX participants of this change. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). VerDate jul<14>2003 18:32 Jul 13, 2005 Jkt 205001 (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, including whether the proposed rule change, as amended, 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 rulecomments@sec.gov. Please include File Number SR–CHX–2004–17 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File No. SR–CHX–2004–17. 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 will also be available for inspection and copying at the principal office of the CHX. 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 No. SR–CHX–2004–17 and should be submitted on or before August 4, 2005. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.10 J. Lynn Taylor, Assistant Secretary. [FR Doc. E5–3743 Filed 7–13–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52000; File No. SR–ISE– 2005–21] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendments No. 1 and 2 Thereto To Amend Its Summary Fine Schedule for Position Limit Violations July 8, 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 June 15, 2005, the International Securities Exchange, Inc. (‘‘Exchange’’ or ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by ISE. On June 23, 2005, the Exchange filed Amendment No. 1 to the proposed rule change.3 On July 7, 2005, the Exchange filed Amendment No. 2 to the proposed rule change.4 The Commission is publishing this notice and order to solicit comments on the proposed rule change, as amended, from interested persons and to approve the proposal on an accelerated basis. 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, the Exchange amended the proposed rule change such that under proposed ISE Rule 1614(d)(1)(B): (1) fines for member accounts would be based on the number of violations in any 12-month rolling period and not within one calendar year; and (2) the $5,000 fine proposed by the Exchange would be for the fourth and each subsequent offense and not just for the fourth offense. 4 In Amendment No. 2, the Exchange added a footnote to ISE Rules 1614(d)(1)(A) and (B) providing that (i) a one-trade date overage, (ii) a consecutive string of trade date overage violations where the position does not change or where a steady reduction in the overage occurs, or (iii) a consecutive string of trade violations resulting from other mitigating circumstances, may be deemed to constitute one offense, provided that the violations are inadvertent. 1 15 E:\FR\FM\14JYN1.SGM 14JYN1 Federal Register / Vol. 70, No. 134 / Thursday, July 14, 2005 / Notices I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change ISE proposes to amend its summary fine schedule for position limits. The text of the rule change is available on ISE’s Web site (https:// www.iseoptions.com), at ISE’s principal office, 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, ISE 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. ISE 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’s disciplinary rules authorize the imposition of fines for minor rule violations, which are set forth in ISE Rule 1614. With respect to option position limit violations, current ISE Rule 1614(d)(1) sets forth a graduated fine schedule that increases the dollar amount of the fine as the number of cumulative violations increase. The dollar amount of the fines ranges from $1.00 to $5.00 per contract for every contract exceeding the applicable position limit. Pursuant to ISE Rule 1614(a), a violation where the fine amount exceeds $5,000 is subject to disciplinary procedures under ISE Rules 1601 et seq.5 Based on its experience with processing position limit violations, the Exchange has found that most position limit violations are technical in nature. Accordingly, the Exchange believes that position limit violations should be processed under a summary fine schedule. For example, the Exchange often encounters situations that involve inadvertent calculation errors or computer systems problems which result in sizable position limit overages 5 ISE Rule 1614(a) provides in relevant part: ‘‘In lieu of commencing a disciplinary proceeding, the Exchange may, subject to the requirements set forth herein, impose a fine, not to exceed $5,000, on any Member, or person associated or employed by a Member, with respect to any Rule violation listed in section (d) of this Rule.’’ VerDate jul<14>2003 18:32 Jul 13, 2005 Jkt 205001 and a consecutive string of single trade date violations. Because the ISE member is unaware of the problem that caused the violation, the violation can be sizeable and occur over a string of days. In these situations, once the Exchange has identified the overage and notified the ISE member, the ISE member takes appropriate action to bring the position into compliance and, if the overage was based on a computer systems problem, implements appropriate procedures to prevent a recurrence. Notwithstanding the unintentional nature of the violations, the Exchange’s current rules provide for the imposition of fines for position limit violations in accordance with the fine schedule set forth in ISE Rule 1614(d)(1). For violations occurring in customer and member accounts, ISE Rule 1614(d)(1) deems one violation to equal a single date overage. Therefore, a single position limit overage that continues over a string of consecutive days would significantly increase the probability that the fine would exceed the $5,000 threshold set forth in ISE Rule 1614 as a result of reaching the next level in the graduated fine schedule. In these situations, the Exchange rules require the Exchange to remove the violation from the summary fine process of ISE Rule 1614(d) and place it under the disciplinary process set forth in ISE Rules 1601 et seq. The Exchange believes that removal of these types of violations from the summary fine process is incongruous with what it believes is the unintentional nature of the majority of the position limit violations that the Exchange comes across. To realign ISE Rule 1614(d) with the current landscape, the Exchange proposes to establish a fixed dollar fine amount per each offense, with the fine amount equaling $2,500 for violations occurring in the accounts of non-member customers and $5,000 for violations occurring in all other accounts. ISE believes that the cap on the fine amount would permit the Exchange to process the majority of position limit violations under the summary fine process without having to subject the violation to the disciplinary procedures provided in ISE Rules 1601 et seq. In addition to restructuring the fine amounts, the proposal would add a footnote to ISE Rules 1614(d)(1)(A) and (B) that the following may be deemed to constitute one offense, provided that the violations are inadvertent: (i) A one-trade-date overage, (ii) a consecutive string of trade-date overage violations where the position does not change or where a steady reduction in the overage occurs, or (iii) a consecutive string of trade PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 40763 violations where there are other mitigating circumstances. Contemporaneous with the imposition of a fine, the Exchange’s regulatory staff would work with the subject ISE member to correct the problem that caused the position limit violation. Pursuant to ISE Rule 1614, the Exchange has the authority to remove the position limit violation from the summary fine process of ISE Rule 1614(d)(1). Under ISE Rule 1614, ‘‘the Exchange is not required to impose a fine pursuant to this Rule with respect to the violation of any Rule included herein, and the Exchange may, whenever it determines that any violation is not minor in nature, proceed under Exchange Rules 1603 or 1604, rather than under this Rule.’’ Therefore, the Exchange may remove the violation from the summary fine process whenever it determines that the violation is not minor in nature. 2. Statutory Basis The Exchange believes the proposed rule change, as amended, would enable the Exchange to deal more efficiently with the majority of position limit violations and to provide the Exchange with a more equitable method of dealing with inadvertent position limit violations. Therefore, ISE believes the proposed rule change, as amended, is consistent with Section 6(b) of the Act,6 in general, and Section 6(b)(5),7 in particular, in that it is designed to promote just and equitable principles of trade and to remove impediments to and perfect the mechanism for a free and open market and a national market system. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the proposed rule change, as amended, would 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 its members or other interested parties. 6 15 7 15 E:\FR\FM\14JYN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 14JYN1 40764 Federal Register / Vol. 70, No. 134 / Thursday, July 14, 2005 / Notices securities exchange.8 In particular, the Commission believes that the proposal Interested persons are invited to is consistent with Section 6(b)(5) of the submit written data, views, and Act,9 which requires that the rules of an arguments concerning the foregoing, exchange be designed to promote just including whether the proposed rule and equitable principles of trade, to change, as amended, is consistent with remove impediments and to perfect the the Act. Comments may be submitted by mechanism of a free and open market any of the following methods: and a national market system, and, in Electronic Comments general, to protect investors and the public interest. The Commission also • Use the Commission’s Internet believes that the proposal is consistent comment form (https://www.sec.gov/ with Sections 6(b)(1) and 6(b)(6) of the rules/sro.shtml); or Act 10 which require that the rules of an • Send an e-mail to ruleexchange enforce compliance with, and comments@sec.gov. Please include File Number SR–ISE–2005–21 on the subject provide appropriate discipline for, violations of Commission and Exchange line. rules. In addition, because the existing Paper Comments ISE Rule 1614(c) offers procedural rights to a person fined under the ISE Rule • Send paper comments in triplicate 1614, the Commission believes ISE Rule to Jonathan G. Katz, Secretary, 1614, as amended by this proposal, Securities and Exchange Commission, provides a fair procedure for the Station Place, 100 F Street, NE., disciplining of members and persons Washington, DC 20549–9303. associated with members, consistent All submissions should refer to File with Sections 6(b)(7) and 6(d)(1) of the Number SR–ISE–2005–21. This file Act.11 number should be included on the Finally, the Commission finds that the subject line if e-mail is used. To help the proposal, as amended, is consistent with Commission process and review your the public interest, the protection of comments more efficiently, please use only one method. The Commission will investors, or otherwise in furtherance of post all comments on the Commission’s the purposes of the Act, as required by Rule 19d–1(c)(2) under the Act 12 which Internet Web site (https://www.sec.gov/ governs minor rule violation plans. The rules/sro.shtml). Copies of the Commission believes that the change to submission, all subsequent ISE Rule 1614 would strengthen its amendments, all written statements ability to carry out its oversight and with respect to the proposed rule enforcement responsibilities as a selfchange that are filed with the regulatory organization in cases where Commission, and all written full disciplinary proceedings are communications relating to the unsuitable in view of the minor nature proposed rule change between the Commission and any person, other than of the particular violation. The Commission also notes that ISE’s those that may be withheld from the proposal is similar to a proposal by the public in accordance with the Chicago Board Options Exchange provisions of 5 U.S.C. 552, will be (‘‘CBOE’’) that was previously approved available for inspection and copying in by the Commission.13 the Commission’s Public Reference In approving this proposed rule Room. Copies of such filing will also be change, the Commission in no way available for inspection and copying at minimizes the importance of the principal office of ISE. All compliance with Exchange rules and all comments received will be posted other rules subject to the imposition of without change; the Commission does fines under ISE Rule 1614. The not edit personal identifying Commission believes that the violation information from submissions. You of any self-regulatory organization’s should submit only information that you wish to make available publicly. All rules, as well as Commission rules, is a serious matter. However, ISE Rule 1614 submissions should refer to File Number SR–ISE–2005–21 and should be provides a reasonable means of submitted on or before August 4, 2005. 8 III. Solicitation of Comments IV. Commission’s Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national VerDate jul<14>2003 18:32 Jul 13, 2005 Jkt 205001 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78f(b)(1) and 78f(b)(6). 11 15 U.S.C. 78f(b)(7) and 78f(d)(1). 12 17 CFR 240.19d–1(c)(2). 13 See Securities Exchange Act Release No. 47959 (May 30, 2003), 68 FR 34441 (June 9, 2003) (SR– CBOE–2002–05). PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 addressing rule violations that do not rise to the level of requiring formal disciplinary proceedings, while providing greater flexibility in handling certain violations. The Commission expects that ISE will continue to conduct surveillance with due diligence and make a determination based on its findings, on a case-by-case basis, whether a fine of more or less than the recommended amount is appropriate under ISE Rule 1614 or whether a violation requires formal disciplinary action. The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,14 for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of the notice of the filing thereof in the Federal Register. Because the Commission recently approved a substantively similar proposal by CBOE after a full notice-and-comment period and this proposal does not raise any new regulatory issues, the Commission believes that accelerated approval is appropriate. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act 15 and Rule 19d–1(c)(2) thereunder,16 that the proposed rule change, as amended, (SR– ISE–2005–21) be, and hereby is, approved and declared effective. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.17 J. Lynn Taylor, Assistant Secretary. [FR Doc. E5–3747 Filed 7–13–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–51994; File No. SR–NASD– 2004–025] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendments No. 1 and 2 Thereto To Amend NASD’s Minor Rule Violation Plan July 7, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 14 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(2). 16 17 CFR 240.19d–1(c)(2). 17 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 15 15 E:\FR\FM\14JYN1.SGM 14JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 134 (Thursday, July 14, 2005)]
[Notices]
[Pages 40762-40764]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3747]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52000; File No. SR-ISE-2005-21]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change and Amendments No. 1 and 2 Thereto To Amend Its 
Summary Fine Schedule for Position Limit Violations

July 8, 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 June 15, 2005, the International Securities Exchange, Inc. 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by ISE. On 
June 23, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ On July 7, 2005, the Exchange filed Amendment No. 2 to the 
proposed rule change.\4\ The Commission is publishing this notice and 
order to solicit comments on the proposed rule change, as amended, from 
interested persons and to approve the proposal on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange amended the proposed rule 
change such that under proposed ISE Rule 1614(d)(1)(B): (1) fines 
for member accounts would be based on the number of violations in 
any 12-month rolling period and not within one calendar year; and 
(2) the $5,000 fine proposed by the Exchange would be for the fourth 
and each subsequent offense and not just for the fourth offense.
    \4\ In Amendment No. 2, the Exchange added a footnote to ISE 
Rules 1614(d)(1)(A) and (B) providing that (i) a one-trade date 
overage, (ii) a consecutive string of trade date overage violations 
where the position does not change or where a steady reduction in 
the overage occurs, or (iii) a consecutive string of trade 
violations resulting from other mitigating circumstances, may be 
deemed to constitute one offense, provided that the violations are 
inadvertent.

---------------------------------------------------------------------------

[[Page 40763]]

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

    ISE proposes to amend its summary fine schedule for position 
limits. The text of the rule change is available on ISE's Web site 
(https://www.iseoptions.com), at ISE's principal office, 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, ISE 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. ISE 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's disciplinary rules authorize the imposition of fines 
for minor rule violations, which are set forth in ISE Rule 1614. With 
respect to option position limit violations, current ISE Rule 
1614(d)(1) sets forth a graduated fine schedule that increases the 
dollar amount of the fine as the number of cumulative violations 
increase. The dollar amount of the fines ranges from $1.00 to $5.00 per 
contract for every contract exceeding the applicable position limit. 
Pursuant to ISE Rule 1614(a), a violation where the fine amount exceeds 
$5,000 is subject to disciplinary procedures under ISE Rules 1601 et 
seq.\5\
---------------------------------------------------------------------------

    \5\ ISE Rule 1614(a) provides in relevant part: ``In lieu of 
commencing a disciplinary proceeding, the Exchange may, subject to 
the requirements set forth herein, impose a fine, not to exceed 
$5,000, on any Member, or person associated or employed by a Member, 
with respect to any Rule violation listed in section (d) of this 
Rule.''
---------------------------------------------------------------------------

    Based on its experience with processing position limit violations, 
the Exchange has found that most position limit violations are 
technical in nature. Accordingly, the Exchange believes that position 
limit violations should be processed under a summary fine schedule. For 
example, the Exchange often encounters situations that involve 
inadvertent calculation errors or computer systems problems which 
result in sizable position limit overages and a consecutive string of 
single trade date violations. Because the ISE member is unaware of the 
problem that caused the violation, the violation can be sizeable and 
occur over a string of days. In these situations, once the Exchange has 
identified the overage and notified the ISE member, the ISE member 
takes appropriate action to bring the position into compliance and, if 
the overage was based on a computer systems problem, implements 
appropriate procedures to prevent a recurrence.
    Notwithstanding the unintentional nature of the violations, the 
Exchange's current rules provide for the imposition of fines for 
position limit violations in accordance with the fine schedule set 
forth in ISE Rule 1614(d)(1). For violations occurring in customer and 
member accounts, ISE Rule 1614(d)(1) deems one violation to equal a 
single date overage. Therefore, a single position limit overage that 
continues over a string of consecutive days would significantly 
increase the probability that the fine would exceed the $5,000 
threshold set forth in ISE Rule 1614 as a result of reaching the next 
level in the graduated fine schedule. In these situations, the Exchange 
rules require the Exchange to remove the violation from the summary 
fine process of ISE Rule 1614(d) and place it under the disciplinary 
process set forth in ISE Rules 1601 et seq.
    The Exchange believes that removal of these types of violations 
from the summary fine process is incongruous with what it believes is 
the unintentional nature of the majority of the position limit 
violations that the Exchange comes across. To realign ISE Rule 1614(d) 
with the current landscape, the Exchange proposes to establish a fixed 
dollar fine amount per each offense, with the fine amount equaling 
$2,500 for violations occurring in the accounts of non-member customers 
and $5,000 for violations occurring in all other accounts. ISE believes 
that the cap on the fine amount would permit the Exchange to process 
the majority of position limit violations under the summary fine 
process without having to subject the violation to the disciplinary 
procedures provided in ISE Rules 1601 et seq. In addition to 
restructuring the fine amounts, the proposal would add a footnote to 
ISE Rules 1614(d)(1)(A) and (B) that the following may be deemed to 
constitute one offense, provided that the violations are inadvertent: 
(i) A one-trade-date overage, (ii) a consecutive string of trade-date 
overage violations where the position does not change or where a steady 
reduction in the overage occurs, or (iii) a consecutive string of trade 
violations where there are other mitigating circumstances. 
Contemporaneous with the imposition of a fine, the Exchange's 
regulatory staff would work with the subject ISE member to correct the 
problem that caused the position limit violation.
    Pursuant to ISE Rule 1614, the Exchange has the authority to remove 
the position limit violation from the summary fine process of ISE Rule 
1614(d)(1). Under ISE Rule 1614, ``the Exchange is not required to 
impose a fine pursuant to this Rule with respect to the violation of 
any Rule included herein, and the Exchange may, whenever it determines 
that any violation is not minor in nature, proceed under Exchange Rules 
1603 or 1604, rather than under this Rule.'' Therefore, the Exchange 
may remove the violation from the summary fine process whenever it 
determines that the violation is not minor in nature.
2. Statutory Basis
    The Exchange believes the proposed rule change, as amended, would 
enable the Exchange to deal more efficiently with the majority of 
position limit violations and to provide the Exchange with a more 
equitable method of dealing with inadvertent position limit violations. 
Therefore, ISE believes the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\6\ in general, and Section 
6(b)(5),\7\ in particular, in that it is designed to promote just and 
equitable principles of trade and to remove impediments to and perfect 
the mechanism for a free and open market and a national market system.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change, as amended, 
would 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 its members or other interested 
parties.

[[Page 40764]]

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-ISE-2005-21. 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 will also be available for inspection and copying at the 
principal office of ISE. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-ISE-2005-21 and should be submitted on or before August 4, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
In particular, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act,\9\ which requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to remove impediments and to perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Commission also believes that 
the proposal is consistent with Sections 6(b)(1) and 6(b)(6) of the Act 
\10\ which require that the rules of an exchange enforce compliance 
with, and provide appropriate discipline for, violations of Commission 
and Exchange rules. In addition, because the existing ISE Rule 1614(c) 
offers procedural rights to a person fined under the ISE Rule 1614, the 
Commission believes ISE Rule 1614, as amended by this proposal, 
provides a fair procedure for the disciplining of members and persons 
associated with members, consistent with Sections 6(b)(7) and 6(d)(1) 
of the Act.\11\
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \11\ 15 U.S.C. 78f(b)(7) and 78f(d)(1).
---------------------------------------------------------------------------

    Finally, the Commission finds that the proposal, as amended, is 
consistent with the public interest, the protection of investors, or 
otherwise in furtherance of the purposes of the Act, as required by 
Rule 19d-1(c)(2) under the Act \12\ which governs minor rule violation 
plans. The Commission believes that the change to ISE Rule 1614 would 
strengthen its ability to carry out its oversight and enforcement 
responsibilities as a self-regulatory organization in cases where full 
disciplinary proceedings are unsuitable in view of the minor nature of 
the particular violation. The Commission also notes that ISE's proposal 
is similar to a proposal by the Chicago Board Options Exchange 
(``CBOE'') that was previously approved by the Commission.\13\
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    \12\ 17 CFR 240.19d-1(c)(2).
    \13\ See Securities Exchange Act Release No. 47959 (May 30, 
2003), 68 FR 34441 (June 9, 2003) (SR-CBOE-2002-05).
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    In approving this proposed rule change, the Commission in no way 
minimizes the importance of compliance with Exchange rules and all 
other rules subject to the imposition of fines under ISE Rule 1614. The 
Commission believes that the violation of any self-regulatory 
organization's rules, as well as Commission rules, is a serious matter. 
However, ISE Rule 1614 provides a reasonable means of addressing rule 
violations that do not rise to the level of requiring formal 
disciplinary proceedings, while providing greater flexibility in 
handling certain violations. The Commission expects that ISE will 
continue to conduct surveillance with due diligence and make a 
determination based on its findings, on a case-by-case basis, whether a 
fine of more or less than the recommended amount is appropriate under 
ISE Rule 1614 or whether a violation requires formal disciplinary 
action.
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\14\ for approving the proposed rule change, as amended, prior 
to the thirtieth day after the date of publication of the notice of the 
filing thereof in the Federal Register. Because the Commission recently 
approved a substantively similar proposal by CBOE after a full notice-
and-comment period and this proposal does not raise any new regulatory 
issues, the Commission believes that accelerated approval is 
appropriate.
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    \14\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\15\ and Rule 19d-1(c)(2) thereunder,\16\ that the proposed rule 
change, as amended, (SR-ISE-2005-21) be, and hereby is, approved and 
declared effective.
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-3747 Filed 7-13-05; 8:45 am]
BILLING CODE 8010-01-P

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