Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to Quoting Obligations for Competitive Market Makers, 65432-65435 [E8-26107]

Download as PDF 65432 Federal Register / Vol. 73, No. 213 / Monday, November 3, 2008 / Notices impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, provided that the selfregulatory organization has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b–4(f)(6) thereunder.12 The Exchange has asked the Commission to waive the operative delay to permit the proposed rule change to become operative prior to the 30th day after filing. The Commission has determined that waiving the 30-day operative delay of the Exchange’s proposal is consistent with the protection of investors and the public interest because such waiver will enable CBOE to better meet customer demand in light of recent increased volatility in the marketplace.13 Therefore, the Commission designates the proposal operative upon filing. At any time within 60 days of the filing of such 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. No. SR–CBOE–2008–110 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. 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: All submissions should refer to File Number SR–CBOE–2008–110. 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, 100 F Street, NE., Washington, DC 20549, 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 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 No. SR–CBOE–2008–110 and should be submitted on or before November 24, 2008. 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 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Florence E. Harmon, Acting Secretary. [FR Doc. E8–26105 Filed 10–31–08; 8:45 am] 11 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has fulfilled this requirement. 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). BILLING CODE 8011–01–P sroberts on PROD1PC70 with NOTICES 12 17 VerDate Aug<31>2005 16:58 Oct 31, 2008 Jkt 217001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58778; File No. SR–CBOE– 2008–90] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of a Proposed Rule Change Related to Trades in Restricted Classes October 14, 2008. Correction In notice document E8–24971 beginning on page 62577 in the issue of Tuesday, October 21, 2008, the date is corrected to read as set forth above. [FR Doc. Z8–24971 Filed 10–31–08; 8:45 am] BILLING CODE 1505–01–D SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58861; File No. SR–ISE– 2008–78] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating to Quoting Obligations for Competitive Market Makers October 27, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 21, 2008, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission the proposed rule change, as described in Items I, II, and III below, which items have been prepared by the self-regulatory organization. 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 ISE proposes to amend ISE Rules 713, 804 and 805 to establish a new quoting obligation for the Exchange’s Competitive Market Makers (‘‘CMMs’’). The text of the proposed rule change is as follows, with deletions in [brackets] and additions italicized: Rule 713. Priority of Quotes and Orders (a) through (f) no change. 1 15 14 17 PO 00000 CFR 200.30–3(a)(12). Frm 00149 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\03NON1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 03NON1 Federal Register / Vol. 73, No. 213 / Monday, November 3, 2008 / Notices Supplementary Material to Rule 713 .01 and .02 no change. .03 Preferenced Orders. An Electronic Access Member may designate a ‘‘Preferred Market Maker’’ on orders it enters into the System (‘‘Preferenced Orders’’). (a) A Preferred Market Maker may be the Primary Market Maker appointed to the options class or any Competitive Market Maker appointed to the options class. (b) If the Preferred Market Maker is not quoting at a price equal to the NBBO at the time the Preferenced Order is received, the allocation procedure contained in paragraph .01 shall be applied to the execution of the Preferenced Order. (c) If the Preferred Market Maker is quoting at the NBBO at the time the Preferenced Order is received, the allocation procedure contained in paragraph .01 shall be applied to the execution of the Preferenced Order except that the Primary Market Maker will not receive the participation rights described in paragraphs .01(b) and (c), and instead the Preferred Market Maker shall have participation rights 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 (60%) of the contracts to be allocated if there is only one (1) other Non-Customer Order or market maker quotation at the best price and forty percent (40%) if there are two (2) or more other Non-Customer Orders and/or market maker quotes at the best price. (d) Preferred Competitive Market Makers are subject to enhanced quoting requirements as provided in Rule 804(e)(2)(ii). .04 No change. * * * * * sroberts on PROD1PC70 with NOTICES Rule 804. Market Maker Quotations (a) through (d) no change. (e) Continuous Quotes. A market maker must enter continuous quotations for the options classes to which it is appointed pursuant to the following: (1) Primary Market Makers. Primary Market Makers must enter continuous quotations and enter into any resulting transactions in all of the series listed on the Exchange of the options classes to which he is appointed on a daily basis. (2) Competitive Market Makers. (i) On any given day, a Competitive Market Maker must participate in the opening rotation and make markets and enter into any resulting transactions on a continuous basis in [all] at least 60% of the series listed on the Exchange of at VerDate Aug<31>2005 16:58 Oct 31, 2008 Jkt 217001 least sixty percent (60%) of the options classes for the Group to which the Competitive Market Maker is appointed or [60] 40 options classes in the Group, whichever is lesser. (ii) Whenever a Competitive Market Maker enters a quote in an options class to which it is appointed, it must maintain continuous quotations for [all] that series and at least 60% of the series of the options class listed on the Exchange until the close of trading that day[.]; provided, however, that a Competitive Market Maker shall be required to maintain continuous quotations for that series and at least 90% of the series of any options class in which it receives Preferenced Orders (see Supplementary Material .03 to Rule 713 regarding Preferenced Orders). (iii) A Competitive Market Maker may be called upon by an Exchange official designated by the Board to submit a single quote or maintain continuous quotes in one or more of the series of an options class to which the Competitive Market Maker is appointed whenever, in the judgment of such official, it is necessary to do so in the interest of fair and orderly markets. (f) and (g) no change. Supplementary Material to Rule 804 [.01 Notwithstanding ISE Rules 804(e)(2)(i)–(ii), for a pilot period that commences on September 20, 2007 and expires on September 19, 2008, and limited to options classes overlying no more than twenty (20) individual stocks as specifically designated by the Exchange (‘‘Pilot Program Securities’’), a Competitive Market Maker must participate in the opening rotation and make markets and enter into any resulting transactions on a continuous basis in only sixty percent (60%) of the series of the options classes overlying the Pilot Program Securities. Whenever a Competitive Market Maker enters a quote in a series of the options classes of the Pilot Program Securities, it must maintain continuous quotations in that series until the close of trading that day.] Rule 805. Market Maker Orders (a) no change. (b) Options Classes Other Than Those to Which Appointed. (1) A market maker may enter all order types permitted to be entered by non-customer participants under the Rules to buy or sell options in classes of options listed on the Exchange to which the market maker is not appointed under Rule 802, provided that: (i) the spread between a limit order to buy and a limit order to sell the same PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 65433 options contract complies with the parameters contained in Rule 803(b)(4); and (ii) the market maker does not enter orders in options classes to which it is otherwise appointed, either as a Competitive or Primary Market Maker. (2) Competitive Market Makers. The total number of contracts executed during a quarter by a Competitive Market Maker in options classes to which it is not appointed may not exceed twenty-five percent (25%) of the total number of contracts traded [per each] by such Competitive Market Maker [Membership] in classes to which it is appointed and with respect to which it was quoting pursuant to Rule 804(e)(2). (3) 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 self-regulatory organization 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 self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend ISE Rules 713, 804 and 805 to establish a new quoting obligation for the Exchange’s CMMs. ISE currently requires CMMs to participate in the opening and maintain continuous quotations in all of the series of at least 60 per cent of the options classes in the bin or 60 classes, whichever is lesser. Additionally, if a CMM chooses to quote any series of an options class above and beyond this minimum requirement, it must then maintain continuous quotations in all of the series of the class throughout that trading day. Last September, the Exchange initiated a pilot to relax the continuous quoting obligations for CMMs in 20 options classes.3 Under the Pilot, CMMs were 3 See Securities Exchange Act Release No. 56444 (September 14, 2007), 72 FR 54089 (September 21, 2007) (Order Granting Approval of SR–ISE–2007–45 E:\FR\FM\03NON1.SGM Continued 03NON1 sroberts on PROD1PC70 with NOTICES 65434 Federal Register / Vol. 73, No. 213 / Monday, November 3, 2008 / Notices required to maintain continuous quotations in only 60 per cent of the series of an options class overlying the pilot program securities. The Pilot recently expired and the Exchange now proposes to establish relaxed quoting requirements for CMMs on a permanent basis. With the explosion of quotation traffic—exacerbated by the penny pilot—we continue to seek ways to mitigate the generation of quotations. Our experience with the Pilot indicates that relaxing the continuous quoting obligation has had no negative effect on the quality of our markets. In practice, market makers simply widen their quotations when they do not want to trade in a particular series, so requiring them to maintain continuous quotations in all series merely increases capacity requirements for the market makers. Therefore, ISE proposes to adopt the 60 per cent standard for all options series on a permanent basis, with one exception related to CMMs that receive preferenced order flow. In this circumstance, a CMM receives the benefit of enhanced allocation rights similar to, and instead of, a Primary Market Maker. Therefore, it is appropriate to apply a higher continuous quotation standard on such CMMs, which we propose to be 90 per cent of the series.4 Additionally, ISE proposes to lower the minimum number of options classes that a CMM is required to quote from 60 to 40. While as stated above there is little benefit to the quality of our markets when CMMs are forced to maintain continuous quotations in options classes in which they do not want to trade, this requirement discourages some potential market participants because it requires too much systems capacity relative to the number of classes they are actually interested in trading on the ISE. Thus, the Exchange believes lowering the requirement would attract additional market making participants on the ISE. Finally, the Exchange proposes to amend Rule 805 (Market Maker Orders) to restrict the percentage of volume a CMM may execute in options to which it is not appointed. Specifically, the rule currently provides that a CMM may execute up to 25% of its volume in options classes to which it is not appointed. Since the Exchange is lowering the number of appointed class in which a CMM is required to quote, Relating to a Quote Mitigation Plan for Competitive Market Makers) (the ‘‘Pilot’’). 4 See CBOE Rule 8.13. The Chicago Board Options Exchange has a similar quotation standard for its preferred market makers. VerDate Aug<31>2005 16:58 Oct 31, 2008 Jkt 217001 the Exchange believes it is appropriate to base the 25% allowance on volume that is executed while a CMM is actually fulfilling its market maker quotation obligations. Overall, the Exchange believes the proposed rule change is a step towards adopting an internal quote mitigation plan that is beneficial both to the Exchange and to its members without adversely affecting ISE’s quality of markets. (B) institute proceedings to determine whether the proposed rule change should be disapproved. 2. Statutory Basis Electronic Comments The basis under the Securities Exchange Act of 1934 (the ‘‘Act’’) for this proposed rule change is the requirement under Section 6(b)(5) that an exchange have rules that are 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 for a free and open market and a national market system, and, in general, to protect investors and the public interest, by relaxing the quoting requirements thereby reducing the number of options quotations required to be submitted, which should enable the Exchange to mitigate quote traffic and use of capacity without adversely affecting the Exchange’s quality of markets. • 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–2008–78 on the subject line. 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 PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 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: 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–2008–78. 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, 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 will also be available for inspection and copying at the principal office of the self-regulatory organization. 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– 2008–78 and should be submitted on or before November 24, 2008. E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 73, No. 213 / Monday, November 3, 2008 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.5 Florence E. Harmon, Acting Secretary. [FR Doc. E8–26107 Filed 10–31–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58857; File No. SR–NYSE– 2008–52] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change, as Modified by Amendment Nos. 1, 2 and 3 Thereto, To Modify the Method by Which Securities Are Allocated and Reallocated to Designated Market Maker Units and To Establish an Allocation System Based on a Single Objective Measure To Determine a Designated Market Maker Unit’s Eligibility To Participate in the Allocation Process October 24, 2008. I. Introduction On August 11, 2008, the New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to modify its process for allocating and reallocating securities to DMM units. On August 13, 2008, NYSE filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on August 21, 2008.3 The Commission received no comments on the proposed rule change, as modified by Amendment No. 1. On October 8, 2008, NYSE filed Amendment No. 2 to the proposed rule change.4 On October 24, 2008, NYSE filed Amendment No. 3 to the proposed rule change.5 This order 5 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 58363 (August 14, 2008), 73 FR 49514 (‘‘Notice’’). 4 Amendment No. 2 corrects a minor bracketing error in Section IX of the rule text of the proposed rule change. Because Amendment No. 2 is technical in nature, the Commission is not publishing it for comment. 5 Amendment No. 3 updates the rule text to replace references to specialist and specialist units with references to designated market makers (‘‘DMMs’’) and DMM units respectively, which is consistent with changes recently approved by the Commission relating to the Exchange’s new market model. See Securities Exchange Act Release No. sroberts on PROD1PC70 with NOTICES 1 15 VerDate Aug<31>2005 16:58 Oct 31, 2008 Jkt 217001 approves the proposed rule change, as amended. II. Description of the Proposed Rule Change The Exchange proposes amending NYSE Rules 103A (Specialist Stock Reallocation and Member Education and Performance) and 103B (Specialist Stock Allocation) to be more closely reflective of the Exchange’s increased electronic trading environment.6 Generally, the Exchange proposes modifying the current Allocation Policy to establish a single quantifiable objective measure to determine a DMM unit’s eligibility to participate in the allocation process and provide issuers with more choice in the selection of its DMM unit. The Exchange further proposes to allow the issuer to select the DMM units it chooses to interview directly. The Exchange therefore seeks to eliminate the Allocation Committee as the overseer of the allocation process and the Allocation Panel from which the Allocation Committee members are selected. The Exchange also proposes to eliminate the allocation decision criteria that are, in part, based on subjective measures of DMM performance by discontinuing the use of the Specialist Performance Evaluation Questionnaire (‘‘SPEQ’’). In doing so, the Exchange seeks to replace the SPEQ with an objective measure designed to set a minimum standard that would be used to determine a DMM unit’s eligibility to participate in the new security allocation process. In connection with the amendment of NYSE Rule 103A, the Exchange also proposes to eliminate the Market Performance Committee as the entity that is responsible for reallocating securities, as well as eliminate performance improvement actions. NYSE Regulation, Inc. (‘‘NYSER’’) would replace the Market Performance Committee as the entity responsible for developing procedures and standards with respect to the qualification and performance of members active on the Floor of the Exchange. Current sections of NYSE Rule 103A that address DMM security reallocation are amended and incorporated into NYSE Rule 103B. A. Amendments to NYSE Rule 103A The Exchange seeks to amend NYSE Rule 103A to eliminate the concept of 58845 (October 24, 2008) (order approving SR– NYSE–2008–46). Because Amendment No. 3 is technical in nature, the Commission is not publishing it for comment. 6 The Exchange has indicated that the proposed rule change will become operative concurrently with the implementation of its new market model. See supra note 5. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 65435 a performance improvement action. Instead, the Exchange recently has amended its system of variable payments to DMM units to create a liquidity provision payment (‘‘LPP’’) to incentivize DMM unit performance. The payment is based, in part, on the DMM unit’s trading performance by measuring its liquidity enhancing behavior. LPPs are based on two revenue sources in NYSE-listed securities: (1) The Exchange’s share of market data revenue derived from quoting shares; and (2) the Exchange’s transaction fee revenue.7 The payments derived from transaction revenue are based on Exchange reviews of the DMM unit’s executed volume in four categories: (1) Price improvement; (2) size improvement; (3) providing liquidity from posting bids or offers on the book; and (4) matching better bids or offers published by other market centers to reduce client routing cost.8 Moreover, the Exchange proposes to amend NYSE Rule 103A to vest the overview of member education programs with NYSER 9 since the day to day administration of member education is currently performed by the Market Surveillance Division staff of NYSER. B. Amendments to NYSE Rule 103B 1. Proposed Objective Measure for Eligibility for Allocation Process The Exchange proposes establishing a single objective measure to determine a DMM unit’s eligibility to participate in the allocation process.10 A DMM unit would be eligible to participate in the allocation process of a listed security when the DMM unit meets the quoting requirements for ‘‘Less Active’’ and ‘‘More Active’’ securities.11 A ‘‘Less Active Security’’ is defined as any listed security that has a consolidated average daily volume of less than one million shares per calendar month.12 A ‘‘More Active Security’’ is defined as any listed security that has a consolidated average daily volume equal to or greater than one million shares per calendar month.13 For Less Active Securities, a DMM unit must maintain a bid and an offer at the National Best Bid (‘‘NBB’’) and National Best Offer (‘‘NBO’’) (collectively herein ‘‘NBBO’’) for an 7 See Securities Exchange Act Release No. 56591 (October 1, 2007), 72 FR 57371 (October 9, 2007) (SR–NYSE–2007–89). 8 NYSE Rule 104 sets forth quoting messages that DMM are permitted to send as part of their quoting functionality. 9 NYSE Rule 103A, Section I. 10 Proposed NYSE Rule 103B, Section II(A). 11 Id. 12 Proposed NYSE Rule 103B, Section II(B). 13 Proposed NYSE Rule 103B, Section II(C). E:\FR\FM\03NON1.SGM 03NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 213 (Monday, November 3, 2008)]
[Notices]
[Pages 65432-65435]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26107]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58861; File No. SR-ISE-2008-78]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to Quoting 
Obligations for Competitive Market Makers

October 27, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 21, 2008, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission the proposed rule change, as described in Items I, 
II, and III below, which items have been prepared by the self-
regulatory organization. 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 ISE proposes to amend ISE Rules 713, 804 and 805 to establish a 
new quoting obligation for the Exchange's Competitive Market Makers 
(``CMMs''). The text of the proposed rule change is as follows, with 
deletions in [brackets] and additions italicized:

Rule 713. Priority of Quotes and Orders

    (a) through (f) no change.

[[Page 65433]]

Supplementary Material to Rule 713

    .01 and .02 no change.
    .03 Preferenced Orders. An Electronic Access Member may designate a 
``Preferred Market Maker'' on orders it enters into the System 
(``Preferenced Orders'').
    (a) A Preferred Market Maker may be the Primary Market Maker 
appointed to the options class or any Competitive Market Maker 
appointed to the options class.
    (b) If the Preferred Market Maker is not quoting at a price equal 
to the NBBO at the time the Preferenced Order is received, the 
allocation procedure contained in paragraph .01 shall be applied to the 
execution of the Preferenced Order.
    (c) If the Preferred Market Maker is quoting at the NBBO at the 
time the Preferenced Order is received, the allocation procedure 
contained in paragraph .01 shall be applied to the execution of the 
Preferenced Order except that the Primary Market Maker will not receive 
the participation rights described in paragraphs .01(b) and (c), and 
instead the Preferred Market Maker shall have participation rights 
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 (60%) of the contracts to be allocated if there 
is only one (1) other Non-Customer Order or market maker quotation at 
the best price and forty percent (40%) if there are two (2) or more 
other Non-Customer Orders and/or market maker quotes at the best price.
    (d) Preferred Competitive Market Makers are subject to enhanced 
quoting requirements as provided in Rule 804(e)(2)(ii).
    .04 No change.
* * * * *

Rule 804. Market Maker Quotations

    (a) through (d) no change.
    (e) Continuous Quotes. A market maker must enter continuous 
quotations for the options classes to which it is appointed pursuant to 
the following:
    (1) Primary Market Makers. Primary Market Makers must enter 
continuous quotations and enter into any resulting transactions in all 
of the series listed on the Exchange of the options classes to which he 
is appointed on a daily basis.
    (2) Competitive Market Makers. (i) On any given day, a Competitive 
Market Maker must participate in the opening rotation and make markets 
and enter into any resulting transactions on a continuous basis in 
[all] at least 60% of the series listed on the Exchange of at least 
sixty percent (60%) of the options classes for the Group to which the 
Competitive Market Maker is appointed or [60] 40 options classes in the 
Group, whichever is lesser.
    (ii) Whenever a Competitive Market Maker enters a quote in an 
options class to which it is appointed, it must maintain continuous 
quotations for [all] that series and at least 60% of the series of the 
options class listed on the Exchange until the close of trading that 
day[.]; provided, however, that a Competitive Market Maker shall be 
required to maintain continuous quotations for that series and at least 
90% of the series of any options class in which it receives Preferenced 
Orders (see Supplementary Material .03 to Rule 713 regarding 
Preferenced Orders).
    (iii) A Competitive Market Maker may be called upon by an Exchange 
official designated by the Board to submit a single quote or maintain 
continuous quotes in one or more of the series of an options class to 
which the Competitive Market Maker is appointed whenever, in the 
judgment of such official, it is necessary to do so in the interest of 
fair and orderly markets.
    (f) and (g) no change.

Supplementary Material to Rule 804

    [.01 Notwithstanding ISE Rules 804(e)(2)(i)-(ii), for a pilot 
period that commences on September 20, 2007 and expires on September 
19, 2008, and limited to options classes overlying no more than twenty 
(20) individual stocks as specifically designated by the Exchange 
(``Pilot Program Securities''), a Competitive Market Maker must 
participate in the opening rotation and make markets and enter into any 
resulting transactions on a continuous basis in only sixty percent 
(60%) of the series of the options classes overlying the Pilot Program 
Securities. Whenever a Competitive Market Maker enters a quote in a 
series of the options classes of the Pilot Program Securities, it must 
maintain continuous quotations in that series until the close of 
trading that day.]

Rule 805. Market Maker Orders

    (a) no change.
    (b) Options Classes Other Than Those to Which Appointed.
    (1) A market maker may enter all order types permitted to be 
entered by non-customer participants under the Rules to buy or sell 
options in classes of options listed on the Exchange to which the 
market maker is not appointed under Rule 802, provided that:
    (i) the spread between a limit order to buy and a limit order to 
sell the same options contract complies with the parameters contained 
in Rule 803(b)(4); and
    (ii) the market maker does not enter orders in options classes to 
which it is otherwise appointed, either as a Competitive or Primary 
Market Maker.
    (2) Competitive Market Makers. The total number of contracts 
executed during a quarter by a Competitive Market Maker in options 
classes to which it is not appointed may not exceed twenty-five percent 
(25%) of the total number of contracts traded [per each] by such 
Competitive Market Maker [Membership] in classes to which it is 
appointed and with respect to which it was quoting pursuant to Rule 
804(e)(2).
    (3) 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 self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to amend ISE Rules 713, 804 and 805 to 
establish a new quoting obligation for the Exchange's CMMs. ISE 
currently requires CMMs to participate in the opening and maintain 
continuous quotations in all of the series of at least 60 per cent of 
the options classes in the bin or 60 classes, whichever is lesser. 
Additionally, if a CMM chooses to quote any series of an options class 
above and beyond this minimum requirement, it must then maintain 
continuous quotations in all of the series of the class throughout that 
trading day. Last September, the Exchange initiated a pilot to relax 
the continuous quoting obligations for CMMs in 20 options classes.\3\ 
Under the Pilot, CMMs were

[[Page 65434]]

required to maintain continuous quotations in only 60 per cent of the 
series of an options class overlying the pilot program securities. The 
Pilot recently expired and the Exchange now proposes to establish 
relaxed quoting requirements for CMMs on a permanent basis.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 56444 (September 14, 
2007), 72 FR 54089 (September 21, 2007) (Order Granting Approval of 
SR-ISE-2007-45 Relating to a Quote Mitigation Plan for Competitive 
Market Makers) (the ``Pilot'').
---------------------------------------------------------------------------

    With the explosion of quotation traffic--exacerbated by the penny 
pilot--we continue to seek ways to mitigate the generation of 
quotations. Our experience with the Pilot indicates that relaxing the 
continuous quoting obligation has had no negative effect on the quality 
of our markets. In practice, market makers simply widen their 
quotations when they do not want to trade in a particular series, so 
requiring them to maintain continuous quotations in all series merely 
increases capacity requirements for the market makers. Therefore, ISE 
proposes to adopt the 60 per cent standard for all options series on a 
permanent basis, with one exception related to CMMs that receive 
preferenced order flow. In this circumstance, a CMM receives the 
benefit of enhanced allocation rights similar to, and instead of, a 
Primary Market Maker. Therefore, it is appropriate to apply a higher 
continuous quotation standard on such CMMs, which we propose to be 90 
per cent of the series.\4\
---------------------------------------------------------------------------

    \4\ See CBOE Rule 8.13. The Chicago Board Options Exchange has a 
similar quotation standard for its preferred market makers.
---------------------------------------------------------------------------

    Additionally, ISE proposes to lower the minimum number of options 
classes that a CMM is required to quote from 60 to 40. While as stated 
above there is little benefit to the quality of our markets when CMMs 
are forced to maintain continuous quotations in options classes in 
which they do not want to trade, this requirement discourages some 
potential market participants because it requires too much systems 
capacity relative to the number of classes they are actually interested 
in trading on the ISE. Thus, the Exchange believes lowering the 
requirement would attract additional market making participants on the 
ISE.
    Finally, the Exchange proposes to amend Rule 805 (Market Maker 
Orders) to restrict the percentage of volume a CMM may execute in 
options to which it is not appointed. Specifically, the rule currently 
provides that a CMM may execute up to 25% of its volume in options 
classes to which it is not appointed. Since the Exchange is lowering 
the number of appointed class in which a CMM is required to quote, the 
Exchange believes it is appropriate to base the 25% allowance on volume 
that is executed while a CMM is actually fulfilling its market maker 
quotation obligations.
    Overall, the Exchange believes the proposed rule change is a step 
towards adopting an internal quote mitigation plan that is beneficial 
both to the Exchange and to its members without adversely affecting 
ISE's quality of markets.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Act'') 
for this proposed rule change is the requirement under Section 6(b)(5) 
that an exchange have rules that are 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 
for a free and open market and a national market system, and, in 
general, to protect investors and the public interest, by relaxing the 
quoting requirements thereby reducing the number of options quotations 
required to be submitted, which should enable the Exchange to mitigate 
quote traffic and use of capacity without adversely affecting the 
Exchange's quality of markets.

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-2008-78 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-2008-78. 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, 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 will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-
2008-78 and should be submitted on or before November 24, 2008.


[[Page 65435]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-26107 Filed 10-31-08; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.