Order Granting Application for Extension of a Temporary Conditional Exemption Pursuant to Section 36(a) of the Exchange Act by the International Securities Exchange, LLC Relating to the Ownership Interest of International Securities Exchange Holdings, Inc. in an Electronic Communications Network, 30334-30337 [E9-14967]

Download as PDF 30334 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices Interested persons may submit comments on whether the instant contract is consistent with the policies of 39 U.S.C. 3632, 3633, or 3642 and 39 CFR part 3015 and 39 CFR 3020, subpart B, and whether it should be classified within the Priority Mail Contract Group or as a separate product. Comments in this case are due no later than June 26, 2009. The public portions of these filings can be accessed via the Commission’s Web site (https://www.prc.gov). The Commission appoints Paul L. Harrington to serve as Public Representative in this docket. III. Supplementary Information Pursuant to 39 CFR 3015.6, the Commission requests the Postal Service to provide the following supplemental information by June 23, 2009: 1. (a) Please explain the cost adjustments made to each contract; (b) Explain the mailer activities or characteristics that: (i) Yield cost savings to the Postal Service, (ii) Impose additional costs on the Postal Service; (c) Please address every instance where an NSA partner’s cost differs from the average cost. 2. (a) Please provide a timeframe of when NSA partner volumes and cubic feet measurements were collected for each contract. (b) Please provide a unit of analysis for volumes in each contract, e.g., whole numbers, thousands, etc. 3. In the Excel files accompanying the instant contract, unit transportation costs are hard coded (See tab: ‘‘Partner Unit Cost’’ rows 18 and 19). Please provide up-to-date sources and show all calculations. sroberts on PROD1PC70 with NOTICES IV. Ordering Paragraphs It is Ordered: 1. The Commission establishes Docket No. CP2009–38 for consideration of the issues raised in this docket. 2. As discussed in this order, the Postal Service shall file supplemental information, if necessary, within three days of the Commission’s order in Docket No. MC2009–25 addressing the scope of the proposed Priority Mail Contract Group product. 3. Comments by interested persons in these proceedings are due no later than June 26, 2009. 4. The Postal Service is to provide the information requested in section III of this order no later than June 23, 2009. 5. Pursuant to 39 U.S.C. 505, Paul L. Harrington is appointed to serve as officer of the Commission (Public Representative) to represent the VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 interests of the general public in these proceedings. 6. The Secretary shall arrange for publication of this order in the Federal Register. By the Commission. Steven W. Williams, Secretary. [FR Doc. E9–14926 Filed 6–24–09; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60152] Order Granting Application for Extension of a Temporary Conditional Exemption Pursuant to Section 36(a) of the Exchange Act by the International Securities Exchange, LLC Relating to the Ownership Interest of International Securities Exchange Holdings, Inc. in an Electronic Communications Network June 19, 2009. I. Introduction On December 22, 2008, the Securities and Exchange Commission (‘‘Commission’’) approved a proposal filed by the International Securities Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) in connection with corporate transactions (the ‘‘Transactions’’) in which, among other things, the parent company of ISE, International Securities Exchange Holdings, Inc. (‘‘ISE Holdings’’), purchased a 31.54% ownership interest in Direct Edge Holdings LLC (‘‘Direct Edge’’), the owner and operator of Direct Edge ECN (‘‘DECN’’), a registered broker-dealer and electronic communications network (‘‘ECN’’).1 Following the closing of the Transactions (the ‘‘Closing’’), Direct Edge’s wholly-owned subsidiary, Maple Merger Sub LLC (‘‘Merger Sub’’) began to operate a marketplace for the trading of U.S. cash equity securities by Equity Electronic Access Members of ISE (the ‘‘Facility’’), under ISE’s rules and as a ‘‘facility,’’ as defined in Section 3(a)(2) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’),2 of ISE.3 1 See Securities Exchange Act Release No. 59135 (December 22, 2008), 73 FR 79954 (December 30, 2008) (order approving File No. SR–ISE–2008–85). 2 15 U.S.C. 78c(a)(2). 3 Under Section 3(a)(2) of the Act, the term ‘‘facility,’’ when used with respect to an exchange, includes ‘‘its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 DECN, which operates as an ECN and submits its limit orders to the Facility for display and execution, is an affiliate of ISE through ISE Holdings’ equity interest in DE Holdings. DECN also is a facility, as defined in Section 3(a)(2) of the Exchange Act, of ISE because it is an affiliate of ISE used for the purpose of effecting and reporting securities transactions. Because DECN is a facility of ISE, ISE, absent exemptive relief, would be obligated under Section 19(b) of the Exchange Act to file with the Commission proposed rules governing the operation of DECN’s systems and subscriber fees. On December 22, 2008, the Commission exercised its authority under Section 36 of the Exchange Act to grant ISE a temporary exemption, subject to certain conditions, from the requirements under Section 19(b) of the Exchange Act with respect to DECN’s proposed rules.4 On June 15, 2009, ISE filed with the Commission, pursuant to Rule 0–12 5 under the Exchange Act, an application under Section 36(a)(1) of the Exchange Act 6 to extend the relief granted in the Exemption Order for an additional 180 days, subject to certain conditions.7 This order grants ISE’s request for a temporary extension of the relief provided in the Exemption Order, subject to the satisfaction of certain conditions, which are outlined below. II. Application for an Extension of the Temporary Conditional Exemption From the Section 19(b) Rule Filing Requirements On June 15, 2009, ISE requested that the Commission exercise its authority under Section 36 of the Exchange Act to temporarily extend, subject to certain conditions, the temporary conditional exemption granted in the Exemption Order from the rule filing procedures of Section 19(b) of the Exchange Act in connection with ISE Holdings’ equity ownership interest in DE Holdings and the continued operation of DECN as a facility of ISE.8 The Exemption Request notes that on May 7, 2009, EDGA Exchange, Inc., and EDGX Exchange, Inc. (together, the maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.’’ 4 See Securities Exchange Act Release No. 59133 (December 22, 2008), 73 FR 79940 (December 30, 2008) (‘‘Exemption Order’’). 5 17 CFR 240.0–12. 6 15 U.S.C. 78mm(a)(1). 7 See letter from Michael J. Simon, General Counsel and Secretary, ISE, to Elizabeth M. Murphy, Secretary, Commission, dated June 15, 2009 (‘‘Exemption Request’’). 8 See Section 3(a)(2) of the Exchange Act, 15 U.S.C. 78c3(a)(2) (definition of ‘‘facility’’). E:\FR\FM\25JNN1.SGM 25JNN1 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices ‘‘Exchange Subsidiaries’’), two whollyowned subsidiaries of DE Holdings, filed with the Commission Form 1 applications (the ‘‘Form 1 Applications’’) to register as national securities exchanges under Section 6 of the Exchange Act.9 According to the Exemption Request, DECN intends to file a ‘‘Cessation of Operations Report’’ with the Commission and to cease operations as an ECN shortly following any Commission approval of the Form 1 Applications and the Exchange Subsidiaries commencing operations as national securities exchanges.10 Because DECN will cease operations as an ECN if the Commission approves the Form 1 Applications, ISE expects that DECN will continue to operate as a facility of ISE for a relatively brief period.11 In addition, ISE believes that it would be unduly burdensome and inefficient to require DECN’s operating rules to be separately subject to the Section 19(b) rule filing process because DECN is only operating temporarily as a facility of ISE while the Commission considers the Form 1 Applications.12 ISE notes, further, that the Commission is reviewing the rules governing the operation of the Exchange Subsidiaries as part of its review of the Form 1 Applications.13 ISE has asked the Commission to exercise its authority under Section 36 of the Exchange Act to grant ISE a 180day extension of the Exemption Order’s relief, subject to certain conditions, from the Section 19(b) rule filing requirements that otherwise would apply to DECN as a facility of ISE.14 The extended temporary conditional exemption would commence immediately and would permit the continued operation of DECN while the Commission considers the Form 1 Applications that, if approved, would allow the Exchange Subsidiaries to operate in place of DECN.15 ISE believes that the extended temporary conditional exemption will help to ensure an orderly transition from DECN to the proposed Exchange Subsidiaries.16 ISE states, in addition, that the extended exemption will not diminish the Commission’s ability to monitor ISE and DECN.17 In this regard, ISE notes that to the extent that ISE makes 9 See Exemption Request at 2. 10 Id. 11 Id. sroberts on PROD1PC70 with NOTICES 12 Id. 13 Id. 14 Id. 15 According to ISE, it would be impracticable for DECN to display its limit orders other than on the Facility. See Exemption Request at 3. 16 See Exemption Request at 2. 17 Id. VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 changes to its systems, including the Facility, during the extended temporary exemption period, or thereafter, it remains subject to Section 19(b) and thus obligated to file proposed rule changes with the Commission.18 Further, in the Exemption Request, ISE commits to satisfying certain conditions, as outlined below, which are identical to the conditions in the Exemption Order.19 For example, as a condition to the extended temporary exemption, ISE will be required to submit proposed rule changes with respect to any material changes to DECN’s functions during the exemption period.20 ISE notes, however, that neither ISE nor DECN anticipates any material changes to DECN’s functionality during the extended temporary exemption period.21 III. Order Granting Extension of Temporary Conditional Section 36 Exemption In 1996, Congress gave the Commission greater flexibility to regulate trading systems, such as DECN, by granting the Commission broad authority to exempt any person from any of the provisions of the Exchange Act and to impose appropriate conditions on their operation.22 Specifically, NSMIA added Section 36(a)(1) to the Exchange Act, which provides that ‘‘the Commission, by rule, regulation, or order, may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of [the Exchange Act] or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.’’ 23 In enacting Section 36, Congress indicated that it expected that ‘‘the Commission will use this authority to promote efficiency, competition and capital formation.’’ 24 It particularly intended to give the Commission sufficient flexibility to respond to 18 See Exemption Request at 2–3. ISE also represents that it has complied with the conditions in the Exemption Order and that it will continue to comply with these conditions during any extension of the relief granted in the Exemption Order. See Exemption Request at 3. 20 See Exemption Request at note 5. 21 See Exemption Request at note 4. 22 15 U.S.C. 78mm(a). Section 36 of the Exchange Act was enacted as part of the National Securities Markets Improvements Act 1996, Pub. L. No. 104– 290 (‘‘NSMIA’’). 23 15 U.S.C. 78mm(a)(1). 24 H.R. Rep. No. 104–622, 104th Cong., 2d Sess. 38 (1996). 19 The PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 30335 changing market and competitive conditions: The Committee recognizes that the rapidly changing marketplace dictates that effective regulation requires a certain amount of flexibility. Accordingly, the bill grants the SEC general exemptive authority under both the Securities Act and the Securities Exchange Act. This exemptive authority will allow the Commission the flexibility to explore and adopt new approaches to registration and disclosure. It will also enable the Commission to address issues relating to the securities markets more generally. For example, the SEC could deal with the regulatory concerns raised by the recent proliferation of electronic trading systems, which do not fit neatly into the existing regulatory framework.25 As noted above, in December 2008 the Commission exercised its Section 36 exemptive authority to grant ISE a temporary exemption, subject to certain conditions, from the 19(b) rule filing requirements in connection with the Transaction.26 In 2004, the Commission granted similar exemptive relief in connection with the acquisition by The Nasdaq Stock Market, Inc. (‘‘Nasdaq’’) of Brut, LLC, the operator of the Brut ECN.27 Section 19(b)(1) of the Exchange Act requires a self-regulatory organization (‘‘self-regulatory organization’’ or ‘‘SRO’’), including ISE, to file with the Commission its proposed rule changes accompanied by a concise general statement of the basis and purpose of the proposed rule change. Once a proposed rule change has been filed with the Commission, the Commission is required to publish notice of it and provide an opportunity for public comment. The proposed rule change may not take effect unless approved by the Commission by order, unless the rule change is within the class of rule changes that are effective upon filing pursuant to Section 19(b)(3)(A) of the Act.28 Section 19(b)(1) of the Exchange Act defines the term ‘‘proposed rule change’’ to mean ‘‘any proposed rule or rule change in, addition to, or deletion from the rules of [a] self-regulatory organization.’’ Pursuant to Section 3(a)(27) and 3(a)(28) of the Exchange Act, the term ‘‘rules of a self-regulatory organization’’ means (1) the constitution, articles of incorporation, bylaws and rules, or instruments corresponding to the foregoing, of an SRO, and (2) such stated policies, 25 S. Rep. No. 104–293, 104th Cong., 2d Sess. 15 (1996). 26 See Exemption Order, supra note 4. 27 See Securities Exchange Act Release No. 50311 (September 3, 2004), 69 FR 54818 (September 10, 2004). 28 15 U.S.C. 78s(b)(3)(A). E:\FR\FM\25JNN1.SGM 25JNN1 30336 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices sroberts on PROD1PC70 with NOTICES practices and interpretations of an SRO (other than the Municipal Securities Rulemaking Board) as the Commission, by rule, may determine to be necessary or appropriate in the public interest or for the protection of investors to be deemed to be rules. Rule 19b–4(b) under the Exchange Act,29 defines the term ‘‘stated policy, practice, or interpretation’’ to mean generally ‘‘any material aspect of the operation of the facilities of the self-regulatory organization or any statement made available to the membership, participants, or specified persons thereof that establishes or changes any standard, limit, or guideline with respect to rights and obligations of specified persons or the meaning, administration, or enforcement of an existing rule.’’ The term ‘‘facility’’ is defined in Section 3(a)(2) of the Exchange Act, with respect to an exchange, to include ‘‘its premises, tangible or intangible property whether on the premises or not, any right to use such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.’’ In its Exemption Request, ISE acknowledges that since the Closing, Merger Sub has operated the Facility as a facility of ISE.30 Absent an exemption, Section 19(b) of the Exchange Act and Rule 19b–4 thereunder would require ISE to file proposed rules with the Commission to allow ISE to operate DECN as a facility of ISE. In its Exemption Request, ISE notes that the Exchange Subsidiaries have filed Form 1 Applications and that DECN intends to cease operations as an ECN shortly after any Commission approval of the Form 1 Applications and the Exchange Subsidiaries’ commencement of operations as national securities exchanges.31 Accordingly, ISE expects that DECN will continue to operate as a facility of ISE for a relatively brief period of time.32 ISE notes, in addition, that the Commission is reviewing the rules governing the operation of the Exchange Subsidiaries as part of its review of the Form 1 Applications.33 ISE represents 29 17 CFR 240.19b–4(b). Exemption Request at 1. As discussed above, ISE owns a 31.54% ownership interest in DE Holdings, the sole owner of Merger Sub. 31 See Exemption Request at 2. 32 Id. 33 Id. 30 See VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 that it has complied with the conditions in the Exemption Order and that it will continue to comply with these conditions during an extension of the relief granted in the Exemption Order.34 The Commission believes that it is appropriate to grant a temporary extension of the relief provided in the Exemption Order, subject to the conditions described below, to allow DECN to continue to operate as a facility of ISE without being subject to the rule filing requirements of Section 19(b) of the Exchange Act for a temporary period.35 Accordingly, the Commission has determined to grant ISE’s request for an extension of the relief provided in the Exemption Order, subject to certain conditions, for a period not to exceed 180 days. The Commission finds that the temporary extended conditional exemption from the provisions of Section 19(b) of the Exchange Act is appropriate in the public interest and is consistent with the protection of investors. In particular, the Commission believes that the temporary extended exemption should help promote efficiency and competition in the market by allowing DECN to continue to operate as an ECN for a limited period of time while the Commission considers the Form 1 Applications. In this regard, the Commission notes ISE’s belief that it would be unduly burdensome and inefficient to require DECN’s operating rules to be separately subjected to the Section 19(b) rule filing and approval process because DECN will operate only temporarily as a facility of ISE while the Commission considers the Form 1 Applications.36 To provide the Commission with the opportunity to review and act upon any proposal to change DECN’s fees or to make material changes to DECN’s operations as an ECN during the period covered by the extended temporary exemption, as well as to ensure that the Commission’s ability to monitor ISE and DECN is not diminished by the extended temporary exemption, the Commission is imposing the following conditions while the extended temporary exemption is in effect.37 The Commission believes such conditions are necessary and appropriate in the public interest for the protection of investors. Therefore, the 34 See Exemption Request at 2. granting this relief, the Commission makes no finding regarding whether ISE’s operation of DECN as a facility would be consistent with the Exchange Act. 36 In addition, the Commission notes that the rules governing the operation of the Exchange Subsidiaries will be subjected to public comment and Commission review and approval as part of the exchange registration process. 37 See Exemption Request at note 5. 35 In PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 Commission is granting to ISE an extended temporary exemption, pursuant to Section 36 of the Exchange Act, from the rule filing requirements imposed by Section 19(b) of the Exchange Act as set forth above, provided that ISE and DECN comply with the following conditions: (1) DECN remains a registered brokerdealer under Section 15 of the Exchange Act 38 and continues to operate as an ECN; (2) DECN operates in compliance with the obligations set forth under Regulation ATS; (3) DECN and ISE continue to operate as separate legal entities; (4) ISE files a proposed rule change under Section 19 of the Exchange Act 39 if any material changes are sought to be made to DECN’s operations. A material change would include any changes to a stated policy, practice, or interpretation regarding the operation of DECN or any other event or action relating to DECN that would require the filing of a proposed rule change by an SRO or an SRO facility; 40 (5) ISE files a proposed rule change under Section 19 of the Exchange Act if DECN’s fee schedule is sought to be modified; and (6) ISE treats DECN the same as other ECNs that participate in the Facility, and, in particular, ISE does not accord DECN preferential treatment in how DECN submits orders to the Facility or in the way its orders are displayed or executed.41 In addition, the Commission notes that the Financial Industry Regulatory Authority is currently the Designated Examining Authority for DECN. For the reasons discussed above, the Commission finds that the extended temporary conditional exemptive relief requested by ISE is appropriate in the public interest and is consistent with the protection of investors. It is ordered, pursuant to Section 36 of the Exchange Act,42 that the application for an extended temporary conditional exemption is granted for a 38 15 U.S.C. 78o. U.S.C. 78s. 40 See Section 19(b) of the Exchange Act and Rule 19b–4 thereunder. The Commission notes that a material change would include, among other things, changes to DECN’s operating platform; the types of securities traded on DECN; DECN’s types of subscribers; or the reporting venue for trading that takes place on DECN. The Commission also notes that any rule filings must set forth the operation of the DECN facility sufficiently so that the Commission and the public are able to evaluate the proposed changes. 41 See Exemption Request at note 5. 42 15 U.S.C. 78mm. 39 15 E:\FR\FM\25JNN1.SGM 25JNN1 Federal Register / Vol. 74, No. 121 / Thursday, June 25, 2009 / Notices period of 180 days, effective immediately. By the Commission. Elizabeth M. Murphy, Secretary. [FR Doc. E9–14967 Filed 6–24–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60138; File No. SR–NYSE– 2009–45] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Amending NYSE Rule 124 To Clarify the Pricing Methodology for the Odd-Lot Portion of a Part of a Round-Lot Order; Clarify the Systems Capable of Accepting PRL Orders; and Clarify the Systems Capable of Accepting a Good ’Til Cancelled Order During the Implementation of Exchange System Enhancements June 18, 2009. sroberts on PROD1PC70 with NOTICES Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on June 8, 2009, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. NYSE filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 4 and Rule 19b– 4(f)(6) thereunder,5 which renders it 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 proposes to: (i) Amend NYSE Rule 124 (Odd-Lot Orders) to clarify the pricing methodology for the odd-lot portion of a part of a round-lot (‘‘PRL’’) order; (ii) clarify the systems capable of accepting PRL orders; and (iii) clarify the systems capable of accepting a Good ’Til Cancelled Order (‘‘GTC’’) during the implementation of Exchange system enhancements. The 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 240.19b–4(f)(6). 2 15 VerDate Nov<24>2008 16:25 Jun 24, 2009 Jkt 217001 text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and https://www.nyse.com. 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 those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) proposes to amend Exchange Rule 124 (Odd-Lot Orders) to clarify the: (i) Pricing methodology for the odd-lot portion of a part of a round-lot (‘‘PRL’’) 6 order; and (ii) systems capable of accepting PRL orders during the implementation of Exchange system enhancements. Background Currently, odd-lot orders on the Exchange are processed and executed systemically by an Exchange system designated solely for odd-lot orders (the ‘‘Odd-lot System’’).7 The Odd-lot System executes all odd-lot orders against the Designated Marker Maker (‘‘DMM’’) as the contra party.8 Pursuant to NYSE Rule 124(c), after odd-lot market orders and marketable odd-lot limit orders are received by the Odd-lot System, they are automatically executed at the price of the next roundlot transaction in the subject security on the Exchange. Specifically, marketable odd-lot orders and marketable odd-lot 6 PRL orders are for a size within the standard unit (round-lot) of trading, which is 100 shares for most stocks, but contains a portion that is smaller than the standard unit of trading, e.g. 199 shares. It should be noted that for certain securities trading on the NYSE the standard unit of trading is 10 shares. 7 See NYSE Rule 124(a). 8 Id. Odd-lot orders are in effect netted against one another and executed; however, since the DMM is buying the same amount that he or she is selling, there is no economic consequence to the DMM in this type of pairing-off of orders. Any imbalance of buy or sell odd-lot market orders are executed against the DMM, up to the size of the round-lot transaction or the bid/offer size which ever is less. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 30337 limit orders are executed in time priority of receipt at the price of the next round-lot transaction, pursuant to the netting provision described in footnote 8. The imbalance of marketable odd-lot orders that do not receive an execution as a result of the netting provision are executed in time priority of receipt at the price of the National Best Bid or Offer (‘‘NBBO’’), subject to a volume limitation.9 Any imbalances of odd-lot limit orders that were nonmarketable upon receipt that subsequently become marketable receive an execution at their limit price.10 Marketable odd-lot orders, which would otherwise receive a partial execution pursuant to the volume limitation, are executed in full.11 Any marketable odd-lot orders that do not receive an execution because of the volume limitation are executed, in time priority of receipt at the price of the next round-lot transaction, following pricing and execution procedures described above. Marketable odd-lot orders (including odd-lot limit orders that were non-marketable upon receipt and subsequently become marketable) that remain unexecuted within 30 seconds of receipt will be executed, in time priority of receipt, at the price of the NBBO (or at its limit price if the order is a non-marketable odd-lot limit order upon receipt that has become marketable). These orders are also subject to the volume limitation. Marketable odd-lot orders and nonmarketable odd-lot limit orders that have become marketable and remain unexecuted prior to the close of trading shall be executed, in time priority of receipt at the price of the closing transaction, subject to the netting provision and a volume restriction which is not to exceed the size of the closing transaction. 9 The volume limitation in section (c) of the rule is defined as the lesser of either the number of shares in the last round-lot transaction or the number of shares available at the national best bid (in the case of an odd-lot order to sell), or the national best offer (in the case of an odd-lot order to buy). 10 Pursuant to NYSE Rule 124(d) odd-lot limit orders that are non-marketable upon receipt that become marketable are eligible to be netted and executed at the price of the next round-lot transaction. If an odd-lot limit order does not receive an execution pursuant to the netting provision, then the order is eligible to be executed, at its limit price, subject to the volume limitation of section (c) of the rule. 11 As with marketable odd-lot orders, nonmarketable odd-lot limit orders which would otherwise receive a partial execution will be executed in full. A non-marketable odd-lot limit order that becomes marketable, that remains unexecuted within 30 seconds of receipt will be executed, in time priority of receipt, except that the order will be executed at its limit price. E:\FR\FM\25JNN1.SGM 25JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 121 (Thursday, June 25, 2009)]
[Notices]
[Pages 30334-30337]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-14967]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60152]


Order Granting Application for Extension of a Temporary 
Conditional Exemption Pursuant to Section 36(a) of the Exchange Act by 
the International Securities Exchange, LLC Relating to the Ownership 
Interest of International Securities Exchange Holdings, Inc. in an 
Electronic Communications Network

June 19, 2009.

I. Introduction

    On December 22, 2008, the Securities and Exchange Commission 
(``Commission'') approved a proposal filed by the International 
Securities Exchange, LLC (``ISE'' or ``Exchange'') in connection with 
corporate transactions (the ``Transactions'') in which, among other 
things, the parent company of ISE, International Securities Exchange 
Holdings, Inc. (``ISE Holdings''), purchased a 31.54% ownership 
interest in Direct Edge Holdings LLC (``Direct Edge''), the owner and 
operator of Direct Edge ECN (``DECN''), a registered broker-dealer and 
electronic communications network (``ECN'').\1\ Following the closing 
of the Transactions (the ``Closing''), Direct Edge's wholly-owned 
subsidiary, Maple Merger Sub LLC (``Merger Sub'') began to operate a 
marketplace for the trading of U.S. cash equity securities by Equity 
Electronic Access Members of ISE (the ``Facility''), under ISE's rules 
and as a ``facility,'' as defined in Section 3(a)(2) of the Securities 
Exchange Act of 1934 (``Exchange Act''),\2\ of ISE.\3\
---------------------------------------------------------------------------

    \1\ See Securities Exchange Act Release No. 59135 (December 22, 
2008), 73 FR 79954 (December 30, 2008) (order approving File No. SR-
ISE-2008-85).
    \2\ 15 U.S.C. 78c(a)(2).
    \3\ Under Section 3(a)(2) of the Act, the term ``facility,'' 
when used with respect to an exchange, includes ``its premises, 
tangible or intangible property whether on the premises or not, any 
right to the use of such premises or property or any service thereof 
for the purpose of effecting or reporting a transaction on an 
exchange (including, among other things, any system of communication 
to or from the exchange, by ticker or otherwise, maintained by or 
with the consent of the exchange), and any right of the exchange to 
the use of any property or service.''
---------------------------------------------------------------------------

    DECN, which operates as an ECN and submits its limit orders to the 
Facility for display and execution, is an affiliate of ISE through ISE 
Holdings' equity interest in DE Holdings. DECN also is a facility, as 
defined in Section 3(a)(2) of the Exchange Act, of ISE because it is an 
affiliate of ISE used for the purpose of effecting and reporting 
securities transactions. Because DECN is a facility of ISE, ISE, absent 
exemptive relief, would be obligated under Section 19(b) of the 
Exchange Act to file with the Commission proposed rules governing the 
operation of DECN's systems and subscriber fees.
    On December 22, 2008, the Commission exercised its authority under 
Section 36 of the Exchange Act to grant ISE a temporary exemption, 
subject to certain conditions, from the requirements under Section 
19(b) of the Exchange Act with respect to DECN's proposed rules.\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 59133 (December 22, 
2008), 73 FR 79940 (December 30, 2008) (``Exemption Order'').
---------------------------------------------------------------------------

    On June 15, 2009, ISE filed with the Commission, pursuant to Rule 
0-12 \5\ under the Exchange Act, an application under Section 36(a)(1) 
of the Exchange Act \6\ to extend the relief granted in the Exemption 
Order for an additional 180 days, subject to certain conditions.\7\ 
This order grants ISE's request for a temporary extension of the relief 
provided in the Exemption Order, subject to the satisfaction of certain 
conditions, which are outlined below.
---------------------------------------------------------------------------

    \5\ 17 CFR 240.0-12.
    \6\ 15 U.S.C. 78mm(a)(1).
    \7\ See letter from Michael J. Simon, General Counsel and 
Secretary, ISE, to Elizabeth M. Murphy, Secretary, Commission, dated 
June 15, 2009 (``Exemption Request'').
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II. Application for an Extension of the Temporary Conditional Exemption 
From the Section 19(b) Rule Filing Requirements

    On June 15, 2009, ISE requested that the Commission exercise its 
authority under Section 36 of the Exchange Act to temporarily extend, 
subject to certain conditions, the temporary conditional exemption 
granted in the Exemption Order from the rule filing procedures of 
Section 19(b) of the Exchange Act in connection with ISE Holdings' 
equity ownership interest in DE Holdings and the continued operation of 
DECN as a facility of ISE.\8\
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    \8\ See Section 3(a)(2) of the Exchange Act, 15 U.S.C. 
78c3(a)(2) (definition of ``facility'').
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    The Exemption Request notes that on May 7, 2009, EDGA Exchange, 
Inc., and EDGX Exchange, Inc. (together, the

[[Page 30335]]

``Exchange Subsidiaries''), two wholly-owned subsidiaries of DE 
Holdings, filed with the Commission Form 1 applications (the ``Form 1 
Applications'') to register as national securities exchanges under 
Section 6 of the Exchange Act.\9\ According to the Exemption Request, 
DECN intends to file a ``Cessation of Operations Report'' with the 
Commission and to cease operations as an ECN shortly following any 
Commission approval of the Form 1 Applications and the Exchange 
Subsidiaries commencing operations as national securities 
exchanges.\10\
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    \9\ See Exemption Request at 2.
    \10\ Id.
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    Because DECN will cease operations as an ECN if the Commission 
approves the Form 1 Applications, ISE expects that DECN will continue 
to operate as a facility of ISE for a relatively brief period.\11\ In 
addition, ISE believes that it would be unduly burdensome and 
inefficient to require DECN's operating rules to be separately subject 
to the Section 19(b) rule filing process because DECN is only operating 
temporarily as a facility of ISE while the Commission considers the 
Form 1 Applications.\12\ ISE notes, further, that the Commission is 
reviewing the rules governing the operation of the Exchange 
Subsidiaries as part of its review of the Form 1 Applications.\13\
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    \11\ Id.
    \12\ Id.
    \13\ Id.
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    ISE has asked the Commission to exercise its authority under 
Section 36 of the Exchange Act to grant ISE a 180-day extension of the 
Exemption Order's relief, subject to certain conditions, from the 
Section 19(b) rule filing requirements that otherwise would apply to 
DECN as a facility of ISE.\14\ The extended temporary conditional 
exemption would commence immediately and would permit the continued 
operation of DECN while the Commission considers the Form 1 
Applications that, if approved, would allow the Exchange Subsidiaries 
to operate in place of DECN.\15\ ISE believes that the extended 
temporary conditional exemption will help to ensure an orderly 
transition from DECN to the proposed Exchange Subsidiaries.\16\
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    \14\ Id.
    \15\ According to ISE, it would be impracticable for DECN to 
display its limit orders other than on the Facility. See Exemption 
Request at 3.
    \16\ See Exemption Request at 2.
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    ISE states, in addition, that the extended exemption will not 
diminish the Commission's ability to monitor ISE and DECN.\17\ In this 
regard, ISE notes that to the extent that ISE makes changes to its 
systems, including the Facility, during the extended temporary 
exemption period, or thereafter, it remains subject to Section 19(b) 
and thus obligated to file proposed rule changes with the 
Commission.\18\ Further, in the Exemption Request, ISE commits to 
satisfying certain conditions, as outlined below, which are identical 
to the conditions in the Exemption Order.\19\ For example, as a 
condition to the extended temporary exemption, ISE will be required to 
submit proposed rule changes with respect to any material changes to 
DECN's functions during the exemption period.\20\ ISE notes, however, 
that neither ISE nor DECN anticipates any material changes to DECN's 
functionality during the extended temporary exemption period.\21\
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    \17\ Id.
    \18\ See Exemption Request at 2-3.
    \19\ The ISE also represents that it has complied with the 
conditions in the Exemption Order and that it will continue to 
comply with these conditions during any extension of the relief 
granted in the Exemption Order. See Exemption Request at 3.
    \20\ See Exemption Request at note 5.
    \21\ See Exemption Request at note 4.
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III. Order Granting Extension of Temporary Conditional Section 36 
Exemption

    In 1996, Congress gave the Commission greater flexibility to 
regulate trading systems, such as DECN, by granting the Commission 
broad authority to exempt any person from any of the provisions of the 
Exchange Act and to impose appropriate conditions on their 
operation.\22\ Specifically, NSMIA added Section 36(a)(1) to the 
Exchange Act, which provides that ``the Commission, by rule, 
regulation, or order, may conditionally or unconditionally exempt any 
person, security, or transaction, or any class or classes of persons, 
securities, or transactions, from any provision or provisions of [the 
Exchange Act] or of any rule or regulation thereunder, to the extent 
that such exemption is necessary or appropriate in the public interest, 
and is consistent with the protection of investors.'' \23\ In enacting 
Section 36, Congress indicated that it expected that ``the Commission 
will use this authority to promote efficiency, competition and capital 
formation.'' \24\ It particularly intended to give the Commission 
sufficient flexibility to respond to changing market and competitive 
conditions:
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    \22\ 15 U.S.C. 78mm(a). Section 36 of the Exchange Act was 
enacted as part of the National Securities Markets Improvements Act 
1996, Pub. L. No. 104-290 (``NSMIA'').
    \23\ 15 U.S.C. 78mm(a)(1).
    \24\ H.R. Rep. No. 104-622, 104th Cong., 2d Sess. 38 (1996).

    The Committee recognizes that the rapidly changing marketplace 
dictates that effective regulation requires a certain amount of 
flexibility. Accordingly, the bill grants the SEC general exemptive 
authority under both the Securities Act and the Securities Exchange 
Act. This exemptive authority will allow the Commission the 
flexibility to explore and adopt new approaches to registration and 
disclosure. It will also enable the Commission to address issues 
relating to the securities markets more generally. For example, the 
SEC could deal with the regulatory concerns raised by the recent 
proliferation of electronic trading systems, which do not fit neatly 
into the existing regulatory framework.\25\
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    \25\ S. Rep. No. 104-293, 104th Cong., 2d Sess. 15 (1996).

    As noted above, in December 2008 the Commission exercised its 
Section 36 exemptive authority to grant ISE a temporary exemption, 
subject to certain conditions, from the 19(b) rule filing requirements 
in connection with the Transaction.\26\ In 2004, the Commission granted 
similar exemptive relief in connection with the acquisition by The 
Nasdaq Stock Market, Inc. (``Nasdaq'') of Brut, LLC, the operator of 
the Brut ECN.\27\
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    \26\ See Exemption Order, supra note 4.
    \27\ See Securities Exchange Act Release No. 50311 (September 3, 
2004), 69 FR 54818 (September 10, 2004).
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    Section 19(b)(1) of the Exchange Act requires a self-regulatory 
organization (``self-regulatory organization'' or ``SRO''), including 
ISE, to file with the Commission its proposed rule changes accompanied 
by a concise general statement of the basis and purpose of the proposed 
rule change. Once a proposed rule change has been filed with the 
Commission, the Commission is required to publish notice of it and 
provide an opportunity for public comment. The proposed rule change may 
not take effect unless approved by the Commission by order, unless the 
rule change is within the class of rule changes that are effective upon 
filing pursuant to Section 19(b)(3)(A) of the Act.\28\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

    Section 19(b)(1) of the Exchange Act defines the term ``proposed 
rule change'' to mean ``any proposed rule or rule change in, addition 
to, or deletion from the rules of [a] self-regulatory organization.'' 
Pursuant to Section 3(a)(27) and 3(a)(28) of the Exchange Act, the term 
``rules of a self-regulatory organization'' means (1) the constitution, 
articles of incorporation, bylaws and rules, or instruments 
corresponding to the foregoing, of an SRO, and (2) such stated 
policies,

[[Page 30336]]

practices and interpretations of an SRO (other than the Municipal 
Securities Rulemaking Board) as the Commission, by rule, may determine 
to be necessary or appropriate in the public interest or for the 
protection of investors to be deemed to be rules. Rule 19b-4(b) under 
the Exchange Act,\29\ defines the term ``stated policy, practice, or 
interpretation'' to mean generally ``any material aspect of the 
operation of the facilities of the self-regulatory organization or any 
statement made available to the membership, participants, or specified 
persons thereof that establishes or changes any standard, limit, or 
guideline with respect to rights and obligations of specified persons 
or the meaning, administration, or enforcement of an existing rule.''
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    \29\ 17 CFR 240.19b-4(b).
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    The term ``facility'' is defined in Section 3(a)(2) of the Exchange 
Act, with respect to an exchange, to include ``its premises, tangible 
or intangible property whether on the premises or not, any right to use 
such premises or property or any service thereof for the purpose of 
effecting or reporting a transaction on an exchange (including, among 
other things, any system of communication to or from the exchange, by 
ticker or otherwise, maintained by or with the consent of the 
exchange), and any right of the exchange to the use of any property or 
service.''
    In its Exemption Request, ISE acknowledges that since the Closing, 
Merger Sub has operated the Facility as a facility of ISE.\30\ Absent 
an exemption, Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder would require ISE to file proposed rules with the Commission 
to allow ISE to operate DECN as a facility of ISE.
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    \30\ See Exemption Request at 1. As discussed above, ISE owns a 
31.54% ownership interest in DE Holdings, the sole owner of Merger 
Sub.
---------------------------------------------------------------------------

    In its Exemption Request, ISE notes that the Exchange Subsidiaries 
have filed Form 1 Applications and that DECN intends to cease 
operations as an ECN shortly after any Commission approval of the Form 
1 Applications and the Exchange Subsidiaries' commencement of 
operations as national securities exchanges.\31\ Accordingly, ISE 
expects that DECN will continue to operate as a facility of ISE for a 
relatively brief period of time.\32\ ISE notes, in addition, that the 
Commission is reviewing the rules governing the operation of the 
Exchange Subsidiaries as part of its review of the Form 1 
Applications.\33\ ISE represents that it has complied with the 
conditions in the Exemption Order and that it will continue to comply 
with these conditions during an extension of the relief granted in the 
Exemption Order.\34\
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    \31\ See Exemption Request at 2.
    \32\ Id.
    \33\ Id.
    \34\ See Exemption Request at 2.
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    The Commission believes that it is appropriate to grant a temporary 
extension of the relief provided in the Exemption Order, subject to the 
conditions described below, to allow DECN to continue to operate as a 
facility of ISE without being subject to the rule filing requirements 
of Section 19(b) of the Exchange Act for a temporary period.\35\ 
Accordingly, the Commission has determined to grant ISE's request for 
an extension of the relief provided in the Exemption Order, subject to 
certain conditions, for a period not to exceed 180 days. The Commission 
finds that the temporary extended conditional exemption from the 
provisions of Section 19(b) of the Exchange Act is appropriate in the 
public interest and is consistent with the protection of investors. In 
particular, the Commission believes that the temporary extended 
exemption should help promote efficiency and competition in the market 
by allowing DECN to continue to operate as an ECN for a limited period 
of time while the Commission considers the Form 1 Applications. In this 
regard, the Commission notes ISE's belief that it would be unduly 
burdensome and inefficient to require DECN's operating rules to be 
separately subjected to the Section 19(b) rule filing and approval 
process because DECN will operate only temporarily as a facility of ISE 
while the Commission considers the Form 1 Applications.\36\ To provide 
the Commission with the opportunity to review and act upon any proposal 
to change DECN's fees or to make material changes to DECN's operations 
as an ECN during the period covered by the extended temporary 
exemption, as well as to ensure that the Commission's ability to 
monitor ISE and DECN is not diminished by the extended temporary 
exemption, the Commission is imposing the following conditions while 
the extended temporary exemption is in effect.\37\ The Commission 
believes such conditions are necessary and appropriate in the public 
interest for the protection of investors. Therefore, the Commission is 
granting to ISE an extended temporary exemption, pursuant to Section 36 
of the Exchange Act, from the rule filing requirements imposed by 
Section 19(b) of the Exchange Act as set forth above, provided that ISE 
and DECN comply with the following conditions:
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    \35\ In granting this relief, the Commission makes no finding 
regarding whether ISE's operation of DECN as a facility would be 
consistent with the Exchange Act.
    \36\ In addition, the Commission notes that the rules governing 
the operation of the Exchange Subsidiaries will be subjected to 
public comment and Commission review and approval as part of the 
exchange registration process.
    \37\ See Exemption Request at note 5.
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    (1) DECN remains a registered broker-dealer under Section 15 of the 
Exchange Act \38\ and continues to operate as an ECN;
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78o.
---------------------------------------------------------------------------

    (2) DECN operates in compliance with the obligations set forth 
under Regulation ATS;
    (3) DECN and ISE continue to operate as separate legal entities;
    (4) ISE files a proposed rule change under Section 19 of the 
Exchange Act \39\ if any material changes are sought to be made to 
DECN's operations. A material change would include any changes to a 
stated policy, practice, or interpretation regarding the operation of 
DECN or any other event or action relating to DECN that would require 
the filing of a proposed rule change by an SRO or an SRO facility; \40\
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    \39\ 15 U.S.C. 78s.
    \40\ See Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder. The Commission notes that a material change would 
include, among other things, changes to DECN's operating platform; 
the types of securities traded on DECN; DECN's types of subscribers; 
or the reporting venue for trading that takes place on DECN. The 
Commission also notes that any rule filings must set forth the 
operation of the DECN facility sufficiently so that the Commission 
and the public are able to evaluate the proposed changes.
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    (5) ISE files a proposed rule change under Section 19 of the 
Exchange Act if DECN's fee schedule is sought to be modified; and
    (6) ISE treats DECN the same as other ECNs that participate in the 
Facility, and, in particular, ISE does not accord DECN preferential 
treatment in how DECN submits orders to the Facility or in the way its 
orders are displayed or executed.\41\
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    \41\ See Exemption Request at note 5.
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    In addition, the Commission notes that the Financial Industry 
Regulatory Authority is currently the Designated Examining Authority 
for DECN.
    For the reasons discussed above, the Commission finds that the 
extended temporary conditional exemptive relief requested by ISE is 
appropriate in the public interest and is consistent with the 
protection of investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\42\ that 
the application for an extended temporary conditional exemption is 
granted for a

[[Page 30337]]

period of 180 days, effective immediately.
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    \42\ 15 U.S.C. 78mm.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-14967 Filed 6-24-09; 8:45 am]
BILLING CODE 8010-01-P

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