Self-Regulatory Organizations; International Securities Exchange, LLC; Order Granting Accelerated Approval of a Proposed Rule Change as Modified by Amendments No. 1 and 3 Thereto Relating to Reduction of Certain Order Handling and Exposure Periods From Three Seconds to One Second, 44303-44305 [E8-17440]
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Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices
is marketable against the then-current
NBBO, the PMM sends a Linkage Order
on the customer’s behalf for the balance
of the order as provided in Rule
803(c)(2)(ii). If the balance of the order
is not marketable against the thencurrent NBBO, it is placed on the ISE
book.
ISE currently charges a customer fee
in options on Premium Products 6 and
in Second Market 7 options; customer
fees on all other options are currently
waived by the Exchange. To encourage
ISE members to respond to the exposure
of these public customer orders, the
Exchange proposes to waive customer
fees in options on Premium Products
and in Second Market options incurred
by members who step up and match or
improve the NBBO during the exposure
period so these public customer orders
can be executed on the Exchange.8 With
this filing, the Exchange is also
proposing to clarify on its Schedule of
Fees that the fee waiver is applicable to
orders exposed pursuant to
Supplementary Material .02 to ISE Rule
803 rather than to Linkage Orders.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(4) 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, the
proposed rule change will allow ISE to
retain more flow by giving these
customer orders additional opportunity
to be executed at the NBBO at ISE and
will also reduce PMM costs by reducing
the number of Linkage orders they must
send to other exchanges.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
mstockstill on PROD1PC66 with NOTICES
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.
6 Premium Products is defined in the Schedule of
Fees as the products enumerated therein.
7 See ISE Rule 900.
8 ISE recently adopted fee waivers for Firm
Proprietary, ISE Market Maker and Payment for
Order Flow fees incurred by members who step up
and match or improve the NBBO during the
exposure period. See Securities Exchange Act
Release No. 58164 (July 15, 2008), 73 FR 42638
(July 22, 2008) (SR–ISE–2008–56). This filing
extends that waiver to apply to customer orders in
Premium Products and in Second Market options.
The Exchange represents that, since July 1, 2008,
the date SR–ISE–2008–56 was filed and became
operative, no customer orders have responded
during the exposure period and thus, no customer
orders were deprived of the proposed fee waiver.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
has been designated as a fee change
pursuant to Section 19(b)(3)(A) of the
Act 9 and Rule 19b-4(f)(2) thereunder,10
because it establishes or changes a due,
fee, or other charge imposed on
members by ISE. Accordingly, the
proposal is effective upon filing with
the Commission. At any time within 60
days of the filing of the proposed rule
change, the Commission may summarily
abrogate such rule change if it appears
to the Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–ISE–2008–57 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISE–2008–57. 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
PO 00000
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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
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 File
Number SR–ISE–2008–57 and should be
submitted on or before August 20, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–17411 Filed 7–29–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58224; File No. SR–ISE–
2007–94]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Order Granting Accelerated
Approval of a Proposed Rule Change
as Modified by Amendments No. 1 and
3 Thereto Relating to Reduction of
Certain Order Handling and Exposure
Periods From Three Seconds to One
Second
July 25, 2008.
I. Introduction
On October 5, 2007, the International
Securities Exchange, LLC (‘‘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
reduce certain order exposure times
from three seconds to one second. On
December 4, 2007, ISE filed Amendment
11 17
9 15
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b-4(f)(2).
Frm 00093
Fmt 4703
Sfmt 4703
44303
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(l).
2 17 CFR 240.19b–4.
1 15
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44304
Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices
No. 1 to the proposed rule change. On
May 22, 2008, ISE filed Amendment No.
2 to the proposed rule change and
withdrew this Amendment on May 29,
2008. On June 23, 2008, ISE filed
Amendment No. 3 to the proposed rule
change. The proposed rule change, as
modified by Amendments No. 1 and 3,
was published for comment in the
Federal Register on July 3, 2008.3 The
Commission received one comment on
the proposal.4 This order approves the
proposed rule change, as modified by
Amendments No. 1 and 3, on an
accelerated basis.
mstockstill on PROD1PC66 with NOTICES
II. Description of the Proposal
The Exchange proposes to reduce the
order handling and exposure periods
contained in Exchange Rules 716 (Block
Trades), 717 (Limitations on Orders),
723 (Price Improvement Mechanism for
Crossing Transactions), and 811
(Directed Orders) from three seconds to
one second.
Rule 716 contains the requirements
applicable to the execution of orders
using the Block Order Mechanism,
Facilitation Mechanism, and Solicited
Order Mechanism. The Block Order
Mechanism allows members to obtain
liquidity for the execution of a blocksize order, whereas the Facilitation and
Solicited Order Mechanisms allow
members to enter block-size cross
transactions. Rule 723 contains the
requirements applicable to the
execution of orders using the Price
Improvement Mechanism (‘‘PIM’’). The
PIM allows members to enter cross
transactions of any size. Orders entered
into any of these mechanisms currently
are exposed to all market participants
for three seconds, giving participants an
opportunity to enter additional trading
interest before the orders are
automatically executed.
Rule 717 requires members to expose
agency orders to the marketplace before
executing them as principal 5 or
executing them against orders solicited
from other members.6 Under Rule 717,
an order can be exposed either by
entering it onto the Exchange and
waiting at least three seconds before
3 See Securities Exchange Act Release No. 58041
(June 26, 2008), 73 FR 38263 (‘‘Notice’’).
4 See letter from Lisa J. Fall, General Counsel,
Boston Options Exchange (‘‘BOX’’), to Nancy M.
Morris, Secretary, Commission, dated May 14, 2008
(‘‘BOX Comment’’).
5 Rule 717(d).
6 Rule 717(e). The Exchange proposes to make a
non-substantive clean-up of Rule 717(e) to specify
that members can use the Facilitation Mechanism
to execute solicited crosses. The Facilitation
Mechanism rule was amended earlier this year to
allow members to enter solicited crosses, and Rule
717(e) should have been updated at that time. See
Securities Exchange Act Release No. 55557 (March
29, 2007), 72 FR 16838 (April 5, 2007).
VerDate Aug<31>2005
23:06 Jul 29, 2008
Jkt 214001
entering the contra-side proprietary or
solicited order, or by utilizing the
various mechanisms that have an
exposure period built into the
functionality.
Rule 811 contains the requirements
applicable to the handling and
execution of Directed Orders. A
Directed Market Maker is required to
enter Directed Orders into the PIM or
release the order to the Exchange’s limit
order book within three seconds of
receipt.7 Additionally, there are three
instances when a Directed Order is
exposed to all market participants for
three seconds after being released to the
Exchange’s limit order book: (i) Before
a Directed Order is matched against the
Directed Market Maker at the national
best bid or offer (‘‘NBBO’’); 8 (ii) before
executing a Directed Order against the
Directed Market Maker’s Guarantee; 9
and (iii) before being given to the
Primary Market Maker for handling
where the Directed Market Maker is also
the Primary Market Maker.10 Finally, if
a Directed Order is placed on the
Exchange’s limit order book, the
Directed Market Maker is not permitted
to enter a proprietary order to execute
against the Directed Order during the
three seconds following the release of
the Directed Order.
Under the proposal, all of the threesecond exposure periods referred to
above would be reduced to one second.
The Commission received one
comment letter regarding the proposed
rule change.11 The commenter expresses
concern that the combined effect of the
proposed rule change and another ISE
proposal 12 would lead to greater rates of
7 Rule 811(c)(3). If the Directed Market Maker
fails to do so within three seconds, the Exchange’s
system automatically releases the order. Rule
811(c)(3)(ii).
8 If a Directed Market Maker is quoting at the
NBBO at the time it releases a Directed Order, the
Directed Market Maker is last in priority, and the
order is exposed to all market participants before
the Directed Order is executed against the Directed
Market Maker’s quote.
9 If the Directed Market Maker is quoting at the
NBBO on the opposite side of the market from a
Directed Order at the time the Directed Order is
received by the Directed Market Maker, and the
Directed Order is marketable, the Exchange’s
system will automatically guarantee execution of
the Directed Order against the Directed Market
Maker at the price and the size of the Directed
Market Maker’s quote. Rule 811(d).
10 As provided in Rule 714, when the Exchange’s
best bid or offer is inferior to another exchange,
incoming marketable customer orders are handled
by the Primary Market Maker pursuant to Rule
803(c), which requires the Primary Market Maker to
either execute the order at a price that matches the
NBBO or attempt to obtain the better price for the
customer according to the Linkage rules contained
in Chapter 19.
11 See BOX Comment, supra note 4.
12 The BOX Comment, supra note 4, was
submitted in connection with SR–ISE–2008–29. In
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
internalization and reduced amounts of
price improvement being made
available to public customers on ISE,
especially to small orders under 50
contracts.13
III. Discussion and Commission
Findings
After carefully reviewing the
proposed rule change and the comment
submitted, the Commission finds that
the proposal is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.14 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,15 which,
among other things, requires that the
rules of a national securities exchange
be designed to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating
transactions in securities, 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 also
finds that the proposed rule change is
consistent with Section 6(b)(8) of the
Act,16 which requires that the rules of
an exchange not impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
The Commission believes that, given
the electronic environment on ISE,
reducing each of the exposure periods
from three seconds to one second as
proposed could facilitate the prompt
execution of orders, while continuing to
provide market participants with an
opportunity to compete for exposed bids
and offers. To substantiate that ISE
members could receive, process, and
communicate a response back to the
Exchange within one second, the
Exchange stated that it distributed a
survey to ISE members that regularly
participate in orders executed through
the mechanisms that would be affected
by the proposal. ISE stated that the
survey results indicated that it typically
takes, at most, 110 milliseconds, for
members to receive, process, and
SR–ISE–2008–29, the ISE proposed to allow
members to enter orders into the PIM at a price that
matches the NBBO when the ISE market is inferior
to the NBBO. The Commission approved SR–ISE–
2008–29. See Securities Exchange Act Release No.
57847 (May 21, 2008), 73 FR 30987 (May 29, 2008).
13 See BOX Comment, supra note 4.
14 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).
15 15 U.S.C. 78f(b)(5).
16 15 U.S.C. 78f(b)(8).
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Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices
respond to broadcast messages related to
the various mechanisms. According to
the ISE, members who responded to the
survey also indicated that reducing the
exposure period to one second would
not impair their ability to participate in
orders executed through the
mechanisms.17 Accordingly, the
Commission believes that it is
consistent with the Act for ISE to reduce
the order handling and exposure times
discussed herein from three seconds to
one second.
The Commission does not agree with
the concerns raised by the commenter.
Based on the ISE’s statements regarding
the survey results, the Commission
believes that market participants should
continue to have opportunities to
compete for exposed bids and offers
within a one second exposure period.
The Commission finds good cause to
approve the proposed rule change prior
to the thirtieth day after publication for
comment in the Federal Register. The
Commission notes that the proposed
rule change was noticed for the full
comment period and no additional
comments were received.18 The
Commission also notes that the
proposed rule change is substantially
similar to a recently approved proposal
submitted by the Chicago Board Options
Exchange, Incorporated 19 and the
Commission believes that ISE has
provided reasonable support for ISE’s
belief that ISE market participants
would continue to have an opportunity
to compete for exposed bids and offers
if exposure periods were reduced to one
second. Therefore, the Commission
finds good cause, consistent with
Section 19(b)(2) of the Act,20 to approve
the proposed rule change on an
accelerated basis.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,21 that the
proposed rule change (SR–ISE–2007–
94), as modified by Amendments No. 1
and 3, be, and hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–17440 Filed 7–29–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58217; File No. SR–NSX–
2008–12]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Provide
for a Post Intermarket Sweep Order
July 24, 2008.
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 July 18,
2008, National Stock Exchange, Inc.
(‘‘NSX’’ 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
substantially prepared by the Exchange.
NSX filed the proposal pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(6) 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to amend
NSX Rule 11.11(c)(8) to allow ETP
Holders the option of designating an
intermarket sweep order (‘‘ISO’’) as a
‘‘Post Intermarket Sweep Order’’ (‘‘Post
ISO’’). The text of the proposed rule
change is below. Proposed new
language is in italics, and the proposed
deletions are enclosed in brackets:
Rules of National Stock Exchange, Inc.
mstockstill on PROD1PC66 with NOTICES
17 The
ISE stated that all of the eight members
that responded to the specific timing questions, and
two of the three members that did not answer the
specific timing questions, indicated that reducing
the crossing exposure timer to one second would
not impair their ability to participate in ISE crossing
orders. The ISE stated that one member responded
that it could not measure the specific times and
indicated that it would prefer to keep the exposure
periods at three seconds. See Notice.
18 The BOX Letter was received prior to the
publication of the Notice. See BOX Comment, supra
note 4.
19 See Securities Exchange Act Release No. 58088
(July 2, 2008), 73 FR 39747 (July 10, 2008).
20 15 U.S.C. 78s(b)(2).
21 15 U.S.C. 78s(b)(2).
VerDate Aug<31>2005
23:06 Jul 29, 2008
Jkt 214001
Chapter XI. Trading Rules
*
*
*
*
*
Rule 11.11. Orders and Modifiers
Users may enter into the System the
types of orders listed in this Rule 11.11,
subject to the limitations set forth in this
Rule or elsewhere in these Rules.
PO 00000
22 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).
4 17 CFR 240.19b–4(f)(6).
1 15
Frm 00095
Fmt 4703
Sfmt 4703
44305
(a)–(b) No change.
(c) Other Types of Orders and Order
Modifiers.
(1)–(7) No change.
(8) [Incoming] Intermarket Sweep
Order (‘‘ISO’’).
(i) Incoming ISO. The System will
accept incoming intermarket sweep
orders (as such term is defined in
Regulation NMS) from other trading
centers. In order to be eligible for
treatment as an intermarket sweep
order, the order must be marked ‘‘ISO,’’
and the User entering the order must
simultaneously route one or more
additional limit orders marked ‘‘ISO,’’
as necessary, to away markets to execute
against the full displayed size of any
protected quotation for the security with
a price that is superior to the limit price
of the intermarket sweep order entered
in the System. Such orders, if they meet
the requirements of the foregoing
sentence, will be considered immediateor-cancel (IOC) and will be executed
without regard to protected quotations
at away markets consistent with
Regulation NMS.
(ii) Post ISO. A User may designate an
ISO as a ‘‘Post ISO.’’ In order to be
eligible for treatment as a Post ISO, the
order must be marked ‘‘Post ISO,’’ and
in submitting such an order the User
entering the order represents that such
User has simultaneously routed one or
more additional limit orders marked
‘‘ISO,’’ as necessary, to away markets to
execute against the full displayed size of
any protected quotation for the security
with a price that is superior or equal to
the limit price of the Post ISO entered
in the System. Such order, if it meets the
requirements of the foregoing sentence
and is not a Post Only Order pursuant
to Rule 11.11(c)(5), will be executed
without regard to protected quotations
at away markets consistent with
Regulation NMS by sweeping the NSX
Book up to and including its limit price.
A Post ISO which is designated by the
User as a Post Only Order pursuant to
Rule 11.11(c)(5) will be rejected without
execution if, when entered, it is
immediately marketable against
displayed orders in the NSX Book. Any
unfilled portion of a Post ISO that meets
the requirements of Rule 11.22(d)(3) will
be posted at the entered limit price.
(9) No change.
(d) No change.
*
*
*
*
*
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,
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]]>Agencies
[Federal Register Volume 73, Number 147 (Wednesday, July 30, 2008)]
[Notices]
[Pages 44303-44305]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-17440]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58224; File No. SR-ISE-2007-94]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Order Granting Accelerated Approval of a Proposed Rule Change as
Modified by Amendments No. 1 and 3 Thereto Relating to Reduction of
Certain Order Handling and Exposure Periods From Three Seconds to One
Second
July 25, 2008.
I. Introduction
On October 5, 2007, the International Securities Exchange, LLC
(``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 reduce certain order exposure
times from three seconds to one second. On December 4, 2007, ISE filed
Amendment
[[Page 44304]]
No. 1 to the proposed rule change. On May 22, 2008, ISE filed Amendment
No. 2 to the proposed rule change and withdrew this Amendment on May
29, 2008. On June 23, 2008, ISE filed Amendment No. 3 to the proposed
rule change. The proposed rule change, as modified by Amendments No. 1
and 3, was published for comment in the Federal Register on July 3,
2008.\3\ The Commission received one comment on the proposal.\4\ This
order approves the proposed rule change, as modified by Amendments No.
1 and 3, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(l).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 58041 (June 26,
2008), 73 FR 38263 (``Notice'').
\4\ See letter from Lisa J. Fall, General Counsel, Boston
Options Exchange (``BOX''), to Nancy M. Morris, Secretary,
Commission, dated May 14, 2008 (``BOX Comment'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to reduce the order handling and exposure
periods contained in Exchange Rules 716 (Block Trades), 717
(Limitations on Orders), 723 (Price Improvement Mechanism for Crossing
Transactions), and 811 (Directed Orders) from three seconds to one
second.
Rule 716 contains the requirements applicable to the execution of
orders using the Block Order Mechanism, Facilitation Mechanism, and
Solicited Order Mechanism. The Block Order Mechanism allows members to
obtain liquidity for the execution of a block-size order, whereas the
Facilitation and Solicited Order Mechanisms allow members to enter
block-size cross transactions. Rule 723 contains the requirements
applicable to the execution of orders using the Price Improvement
Mechanism (``PIM''). The PIM allows members to enter cross transactions
of any size. Orders entered into any of these mechanisms currently are
exposed to all market participants for three seconds, giving
participants an opportunity to enter additional trading interest before
the orders are automatically executed.
Rule 717 requires members to expose agency orders to the
marketplace before executing them as principal \5\ or executing them
against orders solicited from other members.\6\ Under Rule 717, an
order can be exposed either by entering it onto the Exchange and
waiting at least three seconds before entering the contra-side
proprietary or solicited order, or by utilizing the various mechanisms
that have an exposure period built into the functionality.
---------------------------------------------------------------------------
\5\ Rule 717(d).
\6\ Rule 717(e). The Exchange proposes to make a non-substantive
clean-up of Rule 717(e) to specify that members can use the
Facilitation Mechanism to execute solicited crosses. The
Facilitation Mechanism rule was amended earlier this year to allow
members to enter solicited crosses, and Rule 717(e) should have been
updated at that time. See Securities Exchange Act Release No. 55557
(March 29, 2007), 72 FR 16838 (April 5, 2007).
---------------------------------------------------------------------------
Rule 811 contains the requirements applicable to the handling and
execution of Directed Orders. A Directed Market Maker is required to
enter Directed Orders into the PIM or release the order to the
Exchange's limit order book within three seconds of receipt.\7\
Additionally, there are three instances when a Directed Order is
exposed to all market participants for three seconds after being
released to the Exchange's limit order book: (i) Before a Directed
Order is matched against the Directed Market Maker at the national best
bid or offer (``NBBO''); \8\ (ii) before executing a Directed Order
against the Directed Market Maker's Guarantee; \9\ and (iii) before
being given to the Primary Market Maker for handling where the Directed
Market Maker is also the Primary Market Maker.\10\ Finally, if a
Directed Order is placed on the Exchange's limit order book, the
Directed Market Maker is not permitted to enter a proprietary order to
execute against the Directed Order during the three seconds following
the release of the Directed Order.
---------------------------------------------------------------------------
\7\ Rule 811(c)(3). If the Directed Market Maker fails to do so
within three seconds, the Exchange's system automatically releases
the order. Rule 811(c)(3)(ii).
\8\ If a Directed Market Maker is quoting at the NBBO at the
time it releases a Directed Order, the Directed Market Maker is last
in priority, and the order is exposed to all market participants
before the Directed Order is executed against the Directed Market
Maker's quote.
\9\ If the Directed Market Maker is quoting at the NBBO on the
opposite side of the market from a Directed Order at the time the
Directed Order is received by the Directed Market Maker, and the
Directed Order is marketable, the Exchange's system will
automatically guarantee execution of the Directed Order against the
Directed Market Maker at the price and the size of the Directed
Market Maker's quote. Rule 811(d).
\10\ As provided in Rule 714, when the Exchange's best bid or
offer is inferior to another exchange, incoming marketable customer
orders are handled by the Primary Market Maker pursuant to Rule
803(c), which requires the Primary Market Maker to either execute
the order at a price that matches the NBBO or attempt to obtain the
better price for the customer according to the Linkage rules
contained in Chapter 19.
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Under the proposal, all of the three-second exposure periods
referred to above would be reduced to one second.
The Commission received one comment letter regarding the proposed
rule change.\11\ The commenter expresses concern that the combined
effect of the proposed rule change and another ISE proposal \12\ would
lead to greater rates of internalization and reduced amounts of price
improvement being made available to public customers on ISE, especially
to small orders under 50 contracts.\13\
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\11\ See BOX Comment, supra note 4.
\12\ The BOX Comment, supra note 4, was submitted in connection
with SR-ISE-2008-29. In SR-ISE-2008-29, the ISE proposed to allow
members to enter orders into the PIM at a price that matches the
NBBO when the ISE market is inferior to the NBBO. The Commission
approved SR-ISE-2008-29. See Securities Exchange Act Release No.
57847 (May 21, 2008), 73 FR 30987 (May 29, 2008).
\13\ See BOX Comment, supra note 4.
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III. Discussion and Commission Findings
After carefully reviewing the proposed rule change and the comment
submitted, the Commission finds that the proposal is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\14\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\15\ which, among other things, requires
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating transactions in
securities, 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 also finds
that the proposed rule change is consistent with Section 6(b)(8) of the
Act,\16\ which requires that the rules of an exchange not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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\14\ 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).
\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(8).
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The Commission believes that, given the electronic environment on
ISE, reducing each of the exposure periods from three seconds to one
second as proposed could facilitate the prompt execution of orders,
while continuing to provide market participants with an opportunity to
compete for exposed bids and offers. To substantiate that ISE members
could receive, process, and communicate a response back to the Exchange
within one second, the Exchange stated that it distributed a survey to
ISE members that regularly participate in orders executed through the
mechanisms that would be affected by the proposal. ISE stated that the
survey results indicated that it typically takes, at most, 110
milliseconds, for members to receive, process, and
[[Page 44305]]
respond to broadcast messages related to the various mechanisms.
According to the ISE, members who responded to the survey also
indicated that reducing the exposure period to one second would not
impair their ability to participate in orders executed through the
mechanisms.\17\ Accordingly, the Commission believes that it is
consistent with the Act for ISE to reduce the order handling and
exposure times discussed herein from three seconds to one second.
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\17\ The ISE stated that all of the eight members that responded
to the specific timing questions, and two of the three members that
did not answer the specific timing questions, indicated that
reducing the crossing exposure timer to one second would not impair
their ability to participate in ISE crossing orders. The ISE stated
that one member responded that it could not measure the specific
times and indicated that it would prefer to keep the exposure
periods at three seconds. See Notice.
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The Commission does not agree with the concerns raised by the
commenter. Based on the ISE's statements regarding the survey results,
the Commission believes that market participants should continue to
have opportunities to compete for exposed bids and offers within a one
second exposure period.
The Commission finds good cause to approve the proposed rule change
prior to the thirtieth day after publication for comment in the Federal
Register. The Commission notes that the proposed rule change was
noticed for the full comment period and no additional comments were
received.\18\ The Commission also notes that the proposed rule change
is substantially similar to a recently approved proposal submitted by
the Chicago Board Options Exchange, Incorporated \19\ and the
Commission believes that ISE has provided reasonable support for ISE's
belief that ISE market participants would continue to have an
opportunity to compete for exposed bids and offers if exposure periods
were reduced to one second. Therefore, the Commission finds good cause,
consistent with Section 19(b)(2) of the Act,\20\ to approve the
proposed rule change on an accelerated basis.
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\18\ The BOX Letter was received prior to the publication of the
Notice. See BOX Comment, supra note 4.
\19\ See Securities Exchange Act Release No. 58088 (July 2,
2008), 73 FR 39747 (July 10, 2008).
\20\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-ISE-2007-94), as modified by
Amendments No. 1 and 3, be, and hereby is, approved on an accelerated
basis.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-17440 Filed 7-29-08; 8:45 am]
BILLING CODE 8010-01-P
