Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change to Permanently Extend the Pilot Program for Preferenced Orders, 32378-32379 [E7-11268]

Download as PDF 32378 Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices standardized options in other significant respects. Credit default options have an underlying security and an expiration date. Like other standardized options, credit default options have standardized terms relating to exercise procedures, contract adjustments, time of issuance, effect of closing transactions, restrictions, and other matters pertaining to the rights and obligations of holders and writers. Further, credit default options are designed to provide market participants with the ability to hedge their exposure to an underlying security. The fact that credit default options lack a specified exercise price does not detract from this option-like benefit. The Commission believes that the fact that the OCC, the clearing agency for all standardized options, is willing to serve as issuer of credit default options supports the view that adding credit default options to the standardized option disclosure framework is reasonable. Therefore, the Commission hereby designates credit default options, such as those proposed by CBOE, as standardized options for purposes of Rule 9b–1 under the Act. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,55 that the proposed rule change (SR–CBOE–2006– 84) as modified by Amendment Nos. 3, 4, and 5, be, and hereby is approved on an accelerated basis. It is further ordered, pursuant to Rule 9b–1(a)(4) under the Act, the credit default options, as defined in proposed rule change (SR–OCC–2007–01) are designated as standardized options. By the Commission. Florence E. Harmon, Deputy Secretary. [FR Doc. E7–11273 Filed 6–11–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION cprice-sewell on PROD1PC67 with NOTICES [Release No. 34–55864; File No. SR–ISE– 2007–35] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change to Permanently Extend the Pilot Program for Preferenced Orders June 5, 2007. 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 May 9, 2007, the International Securities Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is approving the proposal on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to make permanent its pilot program for Preferenced Orders. The text of the proposed rule change is available on ISE’s Web site at http://www.ise.com, at the Exchange’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, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to make permanent the Exchange’s pilot program for preferenced orders as provided in paragraph .03 of the Supplementary Material to Rule 713. The proposal amends ISE’s procedure for allocating trades among market makers and noncustomer orders under Rule 713 to provide an enhanced allocation to a ‘‘Preferred Market Maker’’ when it is quoting at the national best bid or offer (‘‘NBBO’’). Specifically, an Electronic Access Member may designate any market maker appointed to an options class to be a Preferred Market Maker on orders it enters into the Exchange’s 1 15 55 15 U.S.C. 78s(b)(2). VerDate Aug<31>2005 11:38 Jun 11, 2007 2 17 Jkt 211001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00103 Fmt 4703 Sfmt 4703 system (‘‘Preferenced Orders’’). If the Preferred Market Maker is not quoting at the NBBO at the time the Preferenced Order is received, the Exchange’s existing allocation and execution procedures will be applied to the execution.3 The proposed rule is subject to a pilot program that is currently set to expire on June 10, 2007.4 Under the proposal, if a Preferred Market Maker is quoting at the NBBO at the time a Preferenced Order is received, the allocation procedure is modified so that the Preferred Market Maker will receive an enhanced allocation instead of the Primary Market Maker 5 equal to the greater of: (i) The proportion of the total size at the best price represented by the size of its quote; or (ii) sixty percent of the contracts to be allocated if there is only one other Non-Customer Order or market maker quotation at the best price and forty percent if there are two or more other Non-Customer Orders and/or market maker quotes at the best price.6 Unexecuted contracts remaining after the Preferred Market Maker’s allocation would be allocated pro-rata based on size as described above. Pursuant to this proposed rule change seeking permanent approval of the pilot program, the Exchange also proposes to delete from the Notes section in its Schedule of Fees a reference to the Preferenced Orders pilot program that was adopted when the Exchange initiated a payment for order flow program for Competitive Market Makers.7 The Exchange believes the proposed rule change is a necessary competitive response to the preferencing rules adopted by other options exchanges and will help the ISE attract and retain order flow. This order flow will add depth and liquidity to the Exchange’s markets and enable the Exchange to continue to compete effectively with other options exchanges. 3 Marketable customer orders are not automatically executed at prices inferior to the NBBO. If the ISE best bid or offer is inferior to the NBBO, it is handled by the Primary Market Maker according to Rule 803(c). 4 See Securities Exchange Act Release No. 53921 (June 1, 2006), 71 FR 33019 (June 7, 2006). 5 A Primary Market Maker may be the Preferenced Market Maker, in which case such market maker would receive the enhanced allocation for Preferenced Market Makers. 6 All allocations are automatically performed by the Exchange’s system. 7 See Securities Exchange Act Release No. 53127 (January 13, 2006), 71 FR 3582 (January 23, 2006) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Payment for Order Flow Fee Changes). E:\FR\FM\12JNN1.SGM 12JNN1 Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices 2. Statutory Basis The basis under the Act for this proposed rule change is found in Section 6(b)(5),8 in that the proposed rule change is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. 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: cprice-sewell on PROD1PC67 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–ISE–2007–35 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2007–35. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule 8 15.U.S.C. 78f(b)(5). VerDate Aug<31>2005 11:38 Jun 11, 2007 Jkt 211001 change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE–2007–35 and should be submitted on or before July 3, 2007. IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 9 and the rules and regulations thereunder applicable to a national securities exchange,10 and, in particular, the requirements of Section 6(b)(5) of the Act.11 Section 6(b)(5) requires, among other things, that the rules of a national securities exchange 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. The Commission notes that the Exchange’s program for Preferenced Orders was approved on a pilot basis approximately two years ago.12 The Exchange has asked the Commission to approve the U.S.C. 78f. approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 11 15.U.S.C. 78f(b)(5). 12 The Commission initially approved the Exchange’s preferenced order program on a six week pilot basis while the Commission sought comment on the proposed rule change. See Securities Exchange Act Release No. 51818 (June 10, 2005), 70 FR 35146 (June 16, 2005). The Commission subsequently extended to the pilot period until June 10, 2006, which was one year from the date the Commission first approved the Exchange’s Preferenced Order program on a pilot basis. See Securities Exchange Act Release No. 52066 (July 20, 2005), 70 FR 43479 (July 27, 2005). On June 1, 2006, the Commission further extended the pilot period until June 10, 2007. See Securities Exchange Act Release No. 53921 (June 1, 2006), 71 FR 33019 (June 7, 2006). 32379 Exchange’s program on a permanent basis. For the reasons noted by the Commission when it initially approved the Exchange’s program for Preferenced Orders on a pilot basis, the Commission continues to believe that the Exchange’s program does not jeopardize market integrity or the incentive for market participants to post competitive quotes.13 Accordingly, the Commission finds that the proposal is consistent with the Act. The Exchange has requested that the Commission find good cause for approving the proposed rule change prior to the thirtieth day after publication of notice thereof in the Federal Register. The Commission believes that granting accelerated approval of the proposed rule change would allow the Exchange’s program for Preferenced Orders to continue without disruption beyond the June 10, 2007 expiration date of the current pilot program. Accordingly, the Commission finds good cause, consistent with Section 19(b)(2) of the Act,14 for approving the proposed rule change prior to the thirtieth day after publication of notice thereof in the Federal Register. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,15 that the proposed rule change (SR–ISE–2007–35) is hereby approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.16 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–11268 Filed 6–11–07; 8:45 am] BILLING CODE 8010–01–P 9 15 10 In PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 13 See Securities Exchange Act Release No. 51818 (June 10, 2005), 70 FR 35146 (June 16, 2005). 14 15 U.S.C. 78s(b)(2). 15 15 U.S.C. 78s(b)(2). 16 17 CFR 200.30–3(a)(12). E:\FR\FM\12JNN1.SGM 12JNN1

Agencies

[Federal Register Volume 72, Number 112 (Tuesday, June 12, 2007)]
[Notices]
[Pages 32378-32379]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-11268]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55864; File No. SR-ISE-2007-35]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval of a 
Proposed Rule Change to Permanently Extend the Pilot Program for 
Preferenced Orders

June 5, 2007.
    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 May 9, 2007, the International Securities Exchange, LLC (``ISE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposal on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to make permanent its pilot program for 
Preferenced Orders. The text of the proposed rule change is available 
on ISE's Web site at http://www.ise.com, at the Exchange'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, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The purpose of the proposed rule change is to make permanent the 
Exchange's pilot program for preferenced orders as provided in 
paragraph .03 of the Supplementary Material to Rule 713. The proposal 
amends ISE's procedure for allocating trades among market makers and 
non-customer orders under Rule 713 to provide an enhanced allocation to 
a ``Preferred Market Maker'' when it is quoting at the national best 
bid or offer (``NBBO''). Specifically, an Electronic Access Member may 
designate any market maker appointed to an options class to be a 
Preferred Market Maker on orders it enters into the Exchange's system 
(``Preferenced Orders''). If the Preferred Market Maker is not quoting 
at the NBBO at the time the Preferenced Order is received, the 
Exchange's existing allocation and execution procedures will be applied 
to the execution.\3\ The proposed rule is subject to a pilot program 
that is currently set to expire on June 10, 2007.\4\
---------------------------------------------------------------------------

    \3\ Marketable customer orders are not automatically executed at 
prices inferior to the NBBO. If the ISE best bid or offer is 
inferior to the NBBO, it is handled by the Primary Market Maker 
according to Rule 803(c).
    \4\ See Securities Exchange Act Release No. 53921 (June 1, 
2006), 71 FR 33019 (June 7, 2006).
---------------------------------------------------------------------------

    Under the proposal, if a Preferred Market Maker is quoting at the 
NBBO at the time a Preferenced Order is received, the allocation 
procedure is modified so that the Preferred Market Maker will receive 
an enhanced allocation instead of the Primary Market Maker \5\ equal to 
the greater of: (i) The proportion of the total size at the best price 
represented by the size of its quote; or (ii) sixty percent of the 
contracts to be allocated if there is only one other Non-Customer Order 
or market maker quotation at the best price and forty percent if there 
are two or more other Non-Customer Orders and/or market maker quotes at 
the best price.\6\ Unexecuted contracts remaining after the Preferred 
Market Maker's allocation would be allocated pro-rata based on size as 
described above.
---------------------------------------------------------------------------

    \5\ A Primary Market Maker may be the Preferenced Market Maker, 
in which case such market maker would receive the enhanced 
allocation for Preferenced Market Makers.
    \6\ All allocations are automatically performed by the 
Exchange's system.
---------------------------------------------------------------------------

    Pursuant to this proposed rule change seeking permanent approval of 
the pilot program, the Exchange also proposes to delete from the Notes 
section in its Schedule of Fees a reference to the Preferenced Orders 
pilot program that was adopted when the Exchange initiated a payment 
for order flow program for Competitive Market Makers.\7\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 53127 (January 13, 
2006), 71 FR 3582 (January 23, 2006) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Relating to Payment for Order 
Flow Fee Changes).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change is a necessary 
competitive response to the preferencing rules adopted by other options 
exchanges and will help the ISE attract and retain order flow. This 
order flow will add depth and liquidity to the Exchange's markets and 
enable the Exchange to continue to compete effectively with other 
options exchanges.

[[Page 32379]]

2. Statutory Basis
    The basis under the Act for this proposed rule change is found in 
Section 6(b)(5),\8\ in that the proposed rule change is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \8\ 15.U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

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

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

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2007-35 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-ISE-2007-35. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-ISE-2007-35 and should be submitted on or before July 3, 
2007.

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

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6 of the Act 
\9\ and the rules and regulations thereunder applicable to a national 
securities exchange,\10\ and, in particular, the requirements of 
Section 6(b)(5) of the Act.\11\ Section 6(b)(5) requires, among other 
things, that the rules of a national securities exchange 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. The 
Commission notes that the Exchange's program for Preferenced Orders was 
approved on a pilot basis approximately two years ago.\12\ The Exchange 
has asked the Commission to approve the Exchange's program on a 
permanent basis. For the reasons noted by the Commission when it 
initially approved the Exchange's program for Preferenced Orders on a 
pilot basis, the Commission continues to believe that the Exchange's 
program does not jeopardize market integrity or the incentive for 
market participants to post competitive quotes.\13\ Accordingly, the 
Commission finds that the proposal is consistent with the Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \11\ 15.U.S.C. 78f(b)(5).
    \12\ The Commission initially approved the Exchange's 
preferenced order program on a six week pilot basis while the 
Commission sought comment on the proposed rule change. See 
Securities Exchange Act Release No. 51818 (June 10, 2005), 70 FR 
35146 (June 16, 2005). The Commission subsequently extended to the 
pilot period until June 10, 2006, which was one year from the date 
the Commission first approved the Exchange's Preferenced Order 
program on a pilot basis. See Securities Exchange Act Release No. 
52066 (July 20, 2005), 70 FR 43479 (July 27, 2005). On June 1, 2006, 
the Commission further extended the pilot period until June 10, 
2007. See Securities Exchange Act Release No. 53921 (June 1, 2006), 
71 FR 33019 (June 7, 2006).
    \13\ See Securities Exchange Act Release No. 51818 (June 10, 
2005), 70 FR 35146 (June 16, 2005).
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    The Exchange has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register. The Commission 
believes that granting accelerated approval of the proposed rule change 
would allow the Exchange's program for Preferenced Orders to continue 
without disruption beyond the June 10, 2007 expiration date of the 
current pilot program. Accordingly, the Commission finds good cause, 
consistent with Section 19(b)(2) of the Act,\14\ for approving the 
proposed rule change prior to the thirtieth day after publication of 
notice thereof in the Federal Register.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-ISE-2007-35) is hereby 
approved on an accelerated basis.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-11268 Filed 6-11-07; 8:45 am]
BILLING CODE 8010-01-P