[Federal Register Volume 66, Number 206 (Wednesday, October 24, 2001)]
[Notices]
[Pages 53819-53820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26755]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44955; File No. SR-ISE-2001-18]
Self-Regulatory Organizations; Order Granting Approval of
Proposed Rule Change, and Notice of Filing and Order Granting
Accelerated Approval of Amendment No. 4 to Proposed Rule Change, by the
International Securities Exchange LLC, Relating to Priority Principles
on Complex Orders
October 18, 2001.
I. Introduction
On May 25, 2001, the International Securities Exchange LLC (``ISE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to establish priority and order
handling principles for complex orders. Notice of the proposed rule
change and Amendment Nos. 1, 2 and 3 thereto was published for comment
in the Federal Register on August 13, 2001.\3\ No comments were
received.
---------------------------------------------------------------------------
\1\ 15 USC 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 44659 (August 6,
2001), 66 FR 42575 (August 13, 2001) (``Notice'').
---------------------------------------------------------------------------
On October 16, 2001, the ISE filed Amendment No. 4 to the proposed
rule change. In Amendment No. 4, the Exchange added text to proposed
new Rule 722(b)(5) to provide that the right to facilitate or cross up
to 40% of a customer's complex order without exposing the order for 30
seconds, as is otherwise required by ISE rules, would be limited to
those complex orders where at least one leg of the order was for at
least 50 contracts.\4\
---------------------------------------------------------------------------
\4\ See letter from Jennifer Lamie, Assistant General Counsel,
ISE, to Nancy Sanow, Assistant Director, Division of Market
Regulation, Commission, dated October 15, 2001 (``Amendment No.
4'').
---------------------------------------------------------------------------
This order approves the proposed rule change as amended,
accelerates approval of Amendment No. 4, and solicits comment from
interested persons on that amendment.
II. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\5\ In
particular, the Commission believes that the proposal is consistent
with Section 6(b)(5) of the Act,\6\ which requires, among other things,
that the rules of an exchange be designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market, and to protect investors and the public
interest.
---------------------------------------------------------------------------
\5\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 USC 78(c)(f).
\6\ 15 USC 78f(b)(5).
---------------------------------------------------------------------------
The Commission notes that the rules of other options exchanges
allow similar procedures for the execution of complex orders.\7\ In
general, such rules serve to reduce the risk of incomplete or
inadequate executions, while increasing efficiency and competitive
pricing. At the same time, they protect the priority of orders of
public customers by permitting the legs of complex orders to trade
ahead of bids and offers established in the marketplace only under
restrictions such as those proposed here. Although the ISE's proposal
would apply to more types of orders than the rules of other options
exchanges, such as box spread and collar orders, the Commission
believes that these types of orders are of a similar degree of
complexity to those approved in the past for special priority rules,
and it is therefore appropriate to accord them the same treatment.
---------------------------------------------------------------------------
\7\ See Chicago Board Options Exchange Rule 6.45; American Stock
Exchange Rule 950(d), Commentary .01; Philadelphia Stock Exchange
Rule 1033; Pacific Exchange Rule 6.75.
---------------------------------------------------------------------------
As originally proposed, the new rule would have allowed a firm to
execute immediately up to 40% of a complex order, either as principal
(``facilitation'') or against an order it has solicited (``crossing''),
as opposed to first exposing the order to the market for 30 seconds, as
is otherwise required by paragraphs (d) and (e) of ISE Rule 717. In
Amendment No. 4 to the proposed rule change, the ISE limited this
allowance to orders where at least one leg of the transaction was for
at least 50 contracts.\8\
---------------------------------------------------------------------------
\8\ See fn. 4, supra.
---------------------------------------------------------------------------
The Commission finds that Amendment No. 4 is consistent with the
Act, and finds good cause to approve it prior to the thirtieth day
after the date of publication of notice of its filing in the Federal
Register. Amendment No. 4 conforms the proposed rules to existing ISE
Rules 716 and 717, which permit similar execution procedures for other
orders, provided that they are for 50 contracts or more. The Commission
believes that limiting such facilitation or crossing rights to orders
of this size should help to adequately protect competitive pricing for
smaller orders. Finally, the Commission notes that a broker who accepts
a customer's order has a fiduciary duty toward that order.
Therefore, the Commission finds good cause to approve Amendment No.
4 to the proposed rule change on an accelerated basis.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 4, including whether Amendment No. 4
is consistent with the Act. Persons making written submissions should
file six copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 USC
552, will be available for inspection and copying at the Commission's
Public Reference Room. Copies of such filing will also be available for
inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-ISE-2001-18 and should be
submitted by November 14, 2001.
IV. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-ISE-2001-18), as
amended, be, and it hereby is, approved.
---------------------------------------------------------------------------
\9\ 15 USC 78s(b)(2).
[[Page 53820]]
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26755 Filed 10-23-01; 8:45 am]
BILLING CODE 8010-01-M