Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to the Price Improvement Mechanism, 50663-50664 [E8-19821]

Download as PDF Federal Register / Vol. 73, No. 167 / Wednesday, August 27, 2008 / Notices For the Commission by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Acting Secretary. [FR Doc. E8–19822 Filed 8–26–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58401; File No. SR–ISE– 2008–63] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to the Price Improvement Mechanism August 21, 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 31, 2008, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘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 the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. sroberts on PROD1PC70 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify its Price Improvement Mechanism (PIM) auction eligibility requirements to eliminate the requirement that there be at least three market makers quoting the relevant series. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.ise.com), at the principal office of the Exchange, 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 IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Aug<31>2005 18:52 Aug 26, 2008 Jkt 214001 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 In order to provide additional opportunities for price improvement, the Exchange proposes to expand the PIM auction process. The Exchange’s PIM permits Electronic Access Members (‘‘EAMs’’) to provide penny price improvement for agency orders.3 ISE’s current rules require, among other things, that an EAM enter an order into the PIM only when there are at least three market makers quoting in the options series. The Exchange is now proposing to eliminate this requirement. The Exchange does not believe that orders should be denied the benefits of the PIM auction simply because there may be less than three ISE market makers quoting in a particular series. The Exchange believes this is a reasonable modification designed to provide additional flexibility for members to obtain executions on behalf of their customers while continuing to provide a meaningful, competitive auction. In support of its proposal, the Exchange notes the ISE and other options exchanges already have provisions within their rules that permit price improvement in non-standard increments without a condition that there be a minimum number of market makers quoting in the particular series. For example, ISE has electronic auction mechanisms for crossing agency order with facilitation or solicited orders (referred to as the ‘‘Facilitation Mechanism’’ and ‘‘Solicited Order Mechanism’’) in ‘‘split price’’ increments (e.g., $1.025, $1.05 and $1.075 for series trading in $0.05 increments. The Facilitation and Solicited Order Mechanisms do not require that there be any minimum number of ISE market makers quoting in the particular series.4 Further, the Chicago Board Options Exchange (‘‘CBOE’’) has an electronic auction mechanism for crossing agency orders for 500 contracts or more with solicited orders (referred to as the ‘‘Solicitation Auction Mechanism’’) in increments as small as $0.01. This CBOE Solicitation Auction Mechanism does not require 3 A crossing transaction consists of an order the EAM represents as agent and a counter-side order. The counter-side order may represent interest for the EAM’s own account or interest the EAM may have solicited from one or more parties, or both. 4 See ISE Rule 716. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 50663 that there be any minimum number of CBOE market makers quoting in the particular series.5 Finally, the NASDAQ Options Market (‘‘NOM’’) has a procedure that permits a member who enters an agency order in penny increments (which is then rounded and displayed at the standard increment price) to enter a contra-side order in penny increments after the agency order has been exposed at the rounded price for three seconds. This NOM crossing procedure does not require that there be any minimum number of NOM market makers quoting in the particular series.6 Because these other mechanisms are currently able to offer price improvement in a non-standard increment without a minimum quoter requirement, the Exchange believes it is essential for competitive reasons to be able to offer the same opportunities for price improvement on ISE through the PIM. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act 7 in general and furthers the objectives of Section 6(b)(5) of the Act 8 in particular in that it is designed 5 See CBOE Rule 6.74B. using the NOM crossing procedure to achieve an execution in penny increments, there is no requirement that there be any NOM market makers quoting the particular series or that they even be aware that the initiating NOM member is attempting to cross an order in an undisplayed penny increment. For example, a NOM member could enter an agency limit order to buy at $1.03 that is rounded and displayed at $1.00, wait three seconds, then enter a principal or solicited order to sell at $1.03. Although the initiating member knows it has entered an agency order to buy at $1.03, other market participants would only see the size of the agency order displayed on the bid at $1.00. See NOM Chapter IV, Section 5, Chapter VI, Sections 7(b) and 10, and Chapter VII, Sections 6 and 12. The Exchange understands that NOM’s method of crossing orders in non-standard increments differs from ISE’s PIM in so much as PIM will allocate the initiating Member a certain minimum participation entitlement if certain conditions are met (e.g., after public customer orders, 40% of the order is allocated to the initiating Member if its single-price submission equals the best price), whereas NOM does not have any such participation entitlement. However, the Exchange does not believe this distinction is dispositive to our proposal to eliminate the requirement that there be a minimum number of quoters for a PIM auction. In this regard, we note that participation entitlements already apply to the ISE Facilitation and Solicited Order Mechanisms and the CBOE Solicitation Auction Mechanism. See ISE Rule 716 and CBOE Rule 6.74B. The Exchange also notes that an Agency Order displayed through ISE’s PIM process will receive the benefit of any price improvement received during the auction, whereas an agency order displayed on NOM generally will not get any price improvement beyond its limit price (using the example above, once displayed at the rounded price the agency order to buy will generally only execute at $1.03, not better). 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). 6 When E:\FR\FM\27AUN1.SGM 27AUN1 50664 Federal Register / Vol. 73, No. 167 / Wednesday, August 27, 2008 / Notices to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating 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. In particular, the proposed rule change will allow members to guarantee executions and provide additional price improvement opportunities to their customer’s orders. The Exchange believes this is a reasonable modification designed to provide additional flexibility for members to obtain executions on behalf of their customers while continuing to provide a meaningful, competitive auction. 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. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (A) by order approve such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. sroberts on PROD1PC70 with NOTICES 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: VerDate Aug<31>2005 18:52 Aug 26, 2008 Jkt 214001 Electronic Comments SMALL BUSINESS ADMINISTRATION • 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–2008–63 on the subject line. [Disaster Declaration #11264 and #11265] Iowa Disaster Number IA–00015 U.S. Small Business Administration. ACTION: Amendment 12. AGENCY: SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of Iowa (FEMA– • Send paper comments in triplicate 1763–DR), dated 05/27/2008. to Secretary, Securities and Exchange Incident: Severe Storms, Tornadoes, Commission, Station Place, 100 F Street, and Flooding. NE., Washington, DC 20549–1090. Incident Period: 05/25/2008 and continuing through 08/13/2008. All submissions should refer to File Effective Date: 08/13/2008. Number SR–ISE–2008–63. This file Physical Loan Application Deadline number should be included on the subject line if e-mail is used. To help the Date: 09/29/2008. EIDL Loan Application Deadline Date: Commission process and review your 02/27/2009. comments more efficiently, please use only one method. The Commission will ADDRESSES: Submit completed loan post all comments on the Commission’s applications to: U.S. Small Business Administration, Processing and Internet Web site (https://www.sec.gov/ Disbursement Center, 14925 Kingsport rules/sro.shtml). Copies of the Road, Fort Worth, TX 76155. submission, all subsequent FOR FURTHER INFORMATION CONTACT: A. amendments, all written statements Escobar, Office of Disaster Assistance, with respect to the proposed rule U.S. Small Business Administration, change that are filed with the 409 3rd Street, SW., Suite 6050, Commission, and all written Washington, DC 20416. communications relating to the SUPPLEMENTARY INFORMATION: The notice proposed rule change between the Commission and any person, other than of the President’s major disaster declaration for the State of Iowa, dated those that may be withheld from the 05/27/2008 is hereby amended to public in accordance with the establish the incident period for this provisions of 5 U.S.C. 552, will be disaster as beginning 05/25/2008 and available for inspection and copying in continuing through 08/13/2008. the Commission’s Public Reference All other information in the original Room on official business days between declaration remains unchanged. the hours of 10 a.m. and 3 p.m. Copies (Catalog of Federal Domestic Assistance of such filing also will be available for Numbers 59002 and 59008) inspection and copying at the principal office of the ISE. All comments received Herbert L. Mitchell, will be posted without change; the Associate Administrator for Disaster Assistance. Commission does not edit personal [FR Doc. E8–19868 Filed 8–26–08; 8:45 am] identifying information from submissions. You should submit only BILLING CODE 8025–01–P information that you wish to make available publicly. All submissions SMALL BUSINESS ADMINISTRATION should refer to File Number SR–ISE– 2008–63 and should be submitted on or [Disaster Declaration #11370] before September 17, 2008. New Hampshire Disaster #NH–00006 For the Commission, by the Division of Paper Comments Trading and Markets, pursuant to delegated authority.9 Florence E. Harmon, Acting Secretary. [FR Doc. E8–19821 Filed 8–26–08; 8:45 am] BILLING CODE 8010–01–P 9 17 PO 00000 CFR 200.30–3(a)(12). Frm 00078 Fmt 4703 Sfmt 4703 U.S. Small Business Administration. ACTION: Correction. AGENCY: SUMMARY: This is a notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of New Hampshire (FEMA– 1782–DR), dated 08/11/2008. Incident: Severe Storms, Tornado, and Flooding. Incident Period: 07/24/2008. E:\FR\FM\27AUN1.SGM 27AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 167 (Wednesday, August 27, 2008)]
[Notices]
[Pages 50663-50664]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-19821]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58401; File No. SR-ISE-2008-63]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the Price 
Improvement Mechanism

August 21, 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 31, 2008, the International Securities Exchange, LLC (the 
``Exchange'' or the ``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 the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to modify its Price Improvement Mechanism 
(PIM) auction eligibility requirements to eliminate the requirement 
that there be at least three market makers quoting the relevant series. 
The text of the proposed rule change is available on the Exchange's Web 
site (https://www.ise.com), at the principal office of the Exchange, 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 IV 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
    In order to provide additional opportunities for price improvement, 
the Exchange proposes to expand the PIM auction process. The Exchange's 
PIM permits Electronic Access Members (``EAMs'') to provide penny price 
improvement for agency orders.\3\ ISE's current rules require, among 
other things, that an EAM enter an order into the PIM only when there 
are at least three market makers quoting in the options series. The 
Exchange is now proposing to eliminate this requirement.
---------------------------------------------------------------------------

    \3\ A crossing transaction consists of an order the EAM 
represents as agent and a counter-side order. The counter-side order 
may represent interest for the EAM's own account or interest the EAM 
may have solicited from one or more parties, or both.
---------------------------------------------------------------------------

    The Exchange does not believe that orders should be denied the 
benefits of the PIM auction simply because there may be less than three 
ISE market makers quoting in a particular series. The Exchange believes 
this is a reasonable modification designed to provide additional 
flexibility for members to obtain executions on behalf of their 
customers while continuing to provide a meaningful, competitive 
auction.
    In support of its proposal, the Exchange notes the ISE and other 
options exchanges already have provisions within their rules that 
permit price improvement in non-standard increments without a condition 
that there be a minimum number of market makers quoting in the 
particular series. For example, ISE has electronic auction mechanisms 
for crossing agency order with facilitation or solicited orders 
(referred to as the ``Facilitation Mechanism'' and ``Solicited Order 
Mechanism'') in ``split price'' increments (e.g., $1.025, $1.05 and 
$1.075 for series trading in $0.05 increments. The Facilitation and 
Solicited Order Mechanisms do not require that there be any minimum 
number of ISE market makers quoting in the particular series.\4\ 
Further, the Chicago Board Options Exchange (``CBOE'') has an 
electronic auction mechanism for crossing agency orders for 500 
contracts or more with solicited orders (referred to as the 
``Solicitation Auction Mechanism'') in increments as small as $0.01. 
This CBOE Solicitation Auction Mechanism does not require that there be 
any minimum number of CBOE market makers quoting in the particular 
series.\5\ Finally, the NASDAQ Options Market (``NOM'') has a procedure 
that permits a member who enters an agency order in penny increments 
(which is then rounded and displayed at the standard increment price) 
to enter a contra-side order in penny increments after the agency order 
has been exposed at the rounded price for three seconds. This NOM 
crossing procedure does not require that there be any minimum number of 
NOM market makers quoting in the particular series.\6\
---------------------------------------------------------------------------

    \4\ See ISE Rule 716.
    \5\ See CBOE Rule 6.74B.
    \6\ When using the NOM crossing procedure to achieve an 
execution in penny increments, there is no requirement that there be 
any NOM market makers quoting the particular series or that they 
even be aware that the initiating NOM member is attempting to cross 
an order in an undisplayed penny increment. For example, a NOM 
member could enter an agency limit order to buy at $1.03 that is 
rounded and displayed at $1.00, wait three seconds, then enter a 
principal or solicited order to sell at $1.03. Although the 
initiating member knows it has entered an agency order to buy at 
$1.03, other market participants would only see the size of the 
agency order displayed on the bid at $1.00. See NOM Chapter IV, 
Section 5, Chapter VI, Sections 7(b) and 10, and Chapter VII, 
Sections 6 and 12. The Exchange understands that NOM's method of 
crossing orders in non-standard increments differs from ISE's PIM in 
so much as PIM will allocate the initiating Member a certain minimum 
participation entitlement if certain conditions are met (e.g., after 
public customer orders, 40% of the order is allocated to the 
initiating Member if its single-price submission equals the best 
price), whereas NOM does not have any such participation 
entitlement. However, the Exchange does not believe this distinction 
is dispositive to our proposal to eliminate the requirement that 
there be a minimum number of quoters for a PIM auction. In this 
regard, we note that participation entitlements already apply to the 
ISE Facilitation and Solicited Order Mechanisms and the CBOE 
Solicitation Auction Mechanism. See ISE Rule 716 and CBOE Rule 
6.74B. The Exchange also notes that an Agency Order displayed 
through ISE's PIM process will receive the benefit of any price 
improvement received during the auction, whereas an agency order 
displayed on NOM generally will not get any price improvement beyond 
its limit price (using the example above, once displayed at the 
rounded price the agency order to buy will generally only execute at 
$1.03, not better).
---------------------------------------------------------------------------

    Because these other mechanisms are currently able to offer price 
improvement in a non-standard increment without a minimum quoter 
requirement, the Exchange believes it is essential for competitive 
reasons to be able to offer the same opportunities for price 
improvement on ISE through the PIM.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \8\ in particular in that it is designed

[[Page 50664]]

to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating 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. In particular, the proposed rule change will allow members to 
guarantee executions and provide additional price improvement 
opportunities to their customer's orders. The Exchange believes this is 
a reasonable modification designed to provide additional flexibility 
for members to obtain executions on behalf of their customers while 
continuing to provide a meaningful, competitive auction.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) by order approve such 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 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-2008-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.

All submissions should refer to File Number SR-ISE-2008-63. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal office of 
the ISE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-ISE-
2008-63 and should be submitted on or before September 17, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Acting Secretary.
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-19821 Filed 8-26-08; 8:45 am]
BILLING CODE 8010-01-P

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