Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Cancellation Fee Changes, 45457-45458 [E5-4247]

Download as PDF Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices the Commission’s Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the ISE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE–2005–33 and should be submitted on or before August 26, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.7 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–4226 Filed 8–4–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52177; File No. SR–ISE– 2005–31] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Cancellation Fee Changes July 29, 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 29, 2005, the International Securities Exchange, Inc. (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change concerning its cancellation fee as described in items I, II, and II below, which items have been prepared by the ISE. The ISE has filed the proposed rule change as one establishing or changing a due, fee, or other charge imposed by the ISE under section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.5 7 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2) 5 The Commission received eleven comment letters on the proposal as of the date of this notice. The ISE subsequently filed a proposed rule change under Section 19(b)(3)(A) of the Act (File No. SR– ISE–2005–36) to reinstate the Exchange’s cancellation fee as in effect prior to the filing of the instant proposed rule change. In addition, the ISE 1 15 VerDate jul<14>2003 15:34 Aug 04, 2005 Jkt 205001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The purpose of the proposed rule change is to amend the ISE’s cancellation fee. The text of the proposed rule change is available on the Exchange’s Internet Web site (https:// www.iseoptions.com/legal/ proposed_rule_changes.asp), at the principal office of the ISE, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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. The 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 ISE proposes to amend its Schedule of Fees regarding its cancellation fee. Since the inception of the cancellation fee, the Exchange has charged Electronic Access Members (‘‘EAMs’’) $1 per order canceled in excess of the number of orders executed.6 Recognizing that order cancellations often happen in large numbers, the purpose of the fee was to ease congestion in the ISE Order Routing System (‘‘IORS’’) and to fairly allocate costs among members according to system use. The Exchange states that experience shows that two limitations are preventing the fee from fully achieving its intended effect. First, the ISE applies the fee to the aggregate number of orders a clearing EAM cancels on behalf of itself and its customers, which tends to mask the activity of the EAM’s particular customers who are responsible for the cancellations. Second, because the Exchange applies the fee on a per order basis, firms have adjusted trading filed a proposed rule change pursuant to Section 19(b)(2) under the Act (File No. SR–ISE–2005–37) that would base its cancellation fee on canceled contracts and that responds to the comment letters submitted on the instant proposed rule change. 6 See Securities Exchange Act Release No. 46189 (July 11, 2002), 67 FR 47587 (July 19, 2002) (SR– ISE–2002–16). PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 45457 activity solely to avoid this fee by executing small orders to offset the cancellation of larger orders. The ISE states that, if anything, this increases message traffic as firms enter more small orders to mask their order cancellations. To address these concerns, the ISE first proposes to charge a clearing EAM based on the cancellation activity of each of its customers (including itself when it self-clears). The Exchange has enhanced its systems so that it now can identify the specific broker-dealer customers of a clearing EAM who enters and cancels orders. This will allow the Exchange to identify and charge for cancellation activity beyond aggregate numbers. The ISE similarly will be able to provide clearing EAMs with the information necessary for them to pass through resulting cancellation charges to their customers.7 The ISE further proposes to apply the fee to contracts canceled, not orders canceled. Specifically, the Exchange would charge $.10 for a canceled contract, compared to the current $1.00 fee for each canceled order. Similarly, the Exchange proposes to charge the fee only if the member or customer canceled at least 5,000 contracts in a month, compared to the current rule’s allowance of 500 canceled orders. The Exchange believes that this will help address the problem of firms executing multiple small orders to avoid the perorder fee. The Exchange also believes that this will result in an effective fee increase since its current average order size is approximately 17 contracts, resulting in an average fee of $1.70 per canceled order. The ISE believes this increase is justified due to a continued increase in cancellation activity and its effect on IORS congestion. To ensure that the Exchange covers only activity that is truly excessive and inappropriately uses bandwidth and system capacity, it proposes to charge the fee only if canceled contracts are in excess of five times the total number of contracts executed. If this five-to-one ratio is exceeded, as is the case today with orders, the Exchange will impose the fee only on the excess cancellations over executions. The following example shows how the ISE proposes to apply this fee: Assume that Firm A, a customer of Clearing EAM, cancels orders representing an aggregate of 13,000 contracts in a month. Further assume that Firm A executed orders representing 2,500 contracts. Because 7 The ISE notes that this feature is similar to how the Pacific Exchange now imposes its cancellation fee. See Securities Exchange Act Release No. 49802 (June 3, 2004), 69 FR 32391 (June 9, 2004) (SR– PCX–2004–31). E:\FR\FM\05AUN1.SGM 05AUN1 45458 Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices the 13,000 contracts canceled is both (1) greater than the base level of 5,000 contracts and (2) more than five times in excess of the 2,500 contracts executed (which would be 12,500 contracts), the ISE would impose the fee on an aggregate of 10,500 contracts (13,000 contracts canceled minus the 2,500 contracts executed). The fee on Clearing EAM would be $1,050, which would have the information necessary to pass the charge to its customer, Firm A. 2. Statutory Basis The ISE states that the basis for the proposed rule change is the requirement under section 6(b)(4) of the Act,8 that an exchange have an equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. In particular, these fees would permit the Exchange to recover capacity costs more equitably among its members. B. Self-Regulatory Organization’s Statement on Burden on Competition The ISE states that the proposed rule change does not impose in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change establishes or changes a due, fee, or other charged imposed by the Exchange, it has become effective pursuant to section 19(b)(3) of the Act 9 and Rule 19b–4(f)(2) 10 thereunder. At any time within 60 days of the filing of the proposed rule change the Commission may summarily abrogate such proposed rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include SR– ISE–2005–31 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 SR– ISE–2005–31. 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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to SR–ISE– 2005–31 and should be submitted on or before August 26, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–4247 Filed 8–4–05; 8:45 am] BILLING CODE 8010–01–P 8 15 U.S.C. 78f(b)(4). U.S.C. 78s(b)(3)(A). 10 17 CFR 19b–4(f)(2). 9 15 VerDate jul<14>2003 15:34 Aug 04, 2005 11 17 Jkt 205001 PO 00000 CFR 200.30–3(a)(12). Frm 00106 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52182; File No. SR–NYSE– 2005–16] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change to Rescind the ‘‘Nine-Bond Rule’’ August 1, 2005 On February 11, 2005, the New York Stock Exchange, Inc. (‘‘NYSE’’) 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 rescind NYSE Rule 396, commonly known as the ‘‘Nine-Bond Rule.’’ The proposed rule change was published for comment in the Federal Register on June 29, 2005.3 The Commission received no comments on the proposal. This order approves the proposed rule change. NYSE Rule 396 prohibits a member, member organization, or affiliated person or firm from effecting any transaction in any NYSE-listed bond in the over-the-counter market, either as principal or agent, without first satisfying all public bids and offers on the NYSE at prices equal to, or better than, the price at which such portion of the order is executed over-the-counter. The rule contains a number of exceptions, including one for any order submitted for ten bonds or more. The Commission finds that the NYSE’s proposal to rescind Rule 396 is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.4 In particular, the Commission believes that the proposal is consistent with section 6(b)(5) of the Act,5 which requires that the rules of the exchange be designed to prevent fraudulent and manipulative acts, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market, and in general, to protect investors and the public interest. Eliminating NYSE Rule 396 should facilitate the efficient execution of bond transactions on the NYSE without compromising smaller customer orders. The Commission notes that the approval 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 51899 (June 22, 2005), 70 FR 37461. 4 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). 2 17 E:\FR\FM\05AUN1.SGM 05AUN1

Agencies

[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45457-45458]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4247]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52177; File No. SR-ISE-2005-31]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Cancellation Fee Changes

July 29, 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 29, 2005, the International Securities Exchange, Inc. (``ISE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change concerning its cancellation 
fee as described in items I, II, and II below, which items have been 
prepared by the ISE. The ISE has filed the proposed rule change as one 
establishing or changing a due, fee, or other charge imposed by the ISE 
under section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2)
    \5\ The Commission received eleven comment letters on the 
proposal as of the date of this notice. The ISE subsequently filed a 
proposed rule change under Section 19(b)(3)(A) of the Act (File No. 
SR-ISE-2005-36) to reinstate the Exchange's cancellation fee as in 
effect prior to the filing of the instant proposed rule change. In 
addition, the ISE filed a proposed rule change pursuant to Section 
19(b)(2) under the Act (File No. SR-ISE-2005-37) that would base its 
cancellation fee on canceled contracts and that responds to the 
comment letters submitted on the instant proposed rule change.
---------------------------------------------------------------------------

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

    The purpose of the proposed rule change is to amend the ISE's 
cancellation fee. The text of the proposed rule change is available on 
the Exchange's Internet Web site (https://www.iseoptions.com/legal/
proposed_rule_changes.asp), at the principal office of the ISE, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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. The 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 ISE proposes to amend its Schedule of Fees regarding its 
cancellation fee. Since the inception of the cancellation fee, the 
Exchange has charged Electronic Access Members (``EAMs'') $1 per order 
canceled in excess of the number of orders executed.\6\ Recognizing 
that order cancellations often happen in large numbers, the purpose of 
the fee was to ease congestion in the ISE Order Routing System 
(``IORS'') and to fairly allocate costs among members according to 
system use. The Exchange states that experience shows that two 
limitations are preventing the fee from fully achieving its intended 
effect. First, the ISE applies the fee to the aggregate number of 
orders a clearing EAM cancels on behalf of itself and its customers, 
which tends to mask the activity of the EAM's particular customers who 
are responsible for the cancellations. Second, because the Exchange 
applies the fee on a per order basis, firms have adjusted trading 
activity solely to avoid this fee by executing small orders to offset 
the cancellation of larger orders. The ISE states that, if anything, 
this increases message traffic as firms enter more small orders to mask 
their order cancellations.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 46189 (July 11, 
2002), 67 FR 47587 (July 19, 2002) (SR-ISE-2002-16).
---------------------------------------------------------------------------

    To address these concerns, the ISE first proposes to charge a 
clearing EAM based on the cancellation activity of each of its 
customers (including itself when it self-clears). The Exchange has 
enhanced its systems so that it now can identify the specific broker-
dealer customers of a clearing EAM who enters and cancels orders. This 
will allow the Exchange to identify and charge for cancellation 
activity beyond aggregate numbers. The ISE similarly will be able to 
provide clearing EAMs with the information necessary for them to pass 
through resulting cancellation charges to their customers.\7\
---------------------------------------------------------------------------

    \7\ The ISE notes that this feature is similar to how the 
Pacific Exchange now imposes its cancellation fee. See Securities 
Exchange Act Release No. 49802 (June 3, 2004), 69 FR 32391 (June 9, 
2004) (SR-PCX-2004-31).
---------------------------------------------------------------------------

    The ISE further proposes to apply the fee to contracts canceled, 
not orders canceled. Specifically, the Exchange would charge $.10 for a 
canceled contract, compared to the current $1.00 fee for each canceled 
order. Similarly, the Exchange proposes to charge the fee only if the 
member or customer canceled at least 5,000 contracts in a month, 
compared to the current rule's allowance of 500 canceled orders. The 
Exchange believes that this will help address the problem of firms 
executing multiple small orders to avoid the per-order fee. The 
Exchange also believes that this will result in an effective fee 
increase since its current average order size is approximately 17 
contracts, resulting in an average fee of $1.70 per canceled order. The 
ISE believes this increase is justified due to a continued increase in 
cancellation activity and its effect on IORS congestion.
    To ensure that the Exchange covers only activity that is truly 
excessive and inappropriately uses bandwidth and system capacity, it 
proposes to charge the fee only if canceled contracts are in excess of 
five times the total number of contracts executed. If this five-to-one 
ratio is exceeded, as is the case today with orders, the Exchange will 
impose the fee only on the excess cancellations over executions.
    The following example shows how the ISE proposes to apply this fee: 
Assume that Firm A, a customer of Clearing EAM, cancels orders 
representing an aggregate of 13,000 contracts in a month. Further 
assume that Firm A executed orders representing 2,500 contracts. 
Because

[[Page 45458]]

the 13,000 contracts canceled is both (1) greater than the base level 
of 5,000 contracts and (2) more than five times in excess of the 2,500 
contracts executed (which would be 12,500 contracts), the ISE would 
impose the fee on an aggregate of 10,500 contracts (13,000 contracts 
canceled minus the 2,500 contracts executed). The fee on Clearing EAM 
would be $1,050, which would have the information necessary to pass the 
charge to its customer, Firm A.
2. Statutory Basis
    The ISE states that the basis for the proposed rule change is the 
requirement under section 6(b)(4) of the Act,\8\ that an exchange have 
an equitable allocation of reasonable dues, fees, and other charges 
among its members and other persons using its facilities. In 
particular, these fees would permit the Exchange to recover capacity 
costs more equitably among its members.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

    The ISE states that the proposed rule change does not impose in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change establishes or changes a 
due, fee, or other charged imposed by the Exchange, it has become 
effective pursuant to section 19(b)(3) of the Act \9\ and Rule 19b-
4(f)(2) \10\ thereunder. At any time within 60 days of the filing of 
the proposed rule change the Commission may summarily abrogate such 
proposed rule change if it appears to the Commission that such action 
is necessary or appropriate in the public interest, for the protection 
of investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
SR-ISE-2005-31 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 SR-ISE-2005-31. 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 the filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to SR-ISE-2005-31 and 
should be submitted on or before August 26, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4247 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P
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