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###### Securities and Exchange Commission

          - [Release No. 34-49010; File No. 4-429] 

                    Pursuant to Section 11A of the Securities Exchange Act of 1934 (“Act”) [1]                                          and Rule 11Aa3-2 thereunder,[2]                                          notice is hereby given that on December 18, 2003, December 22, 2003, December 29, 2003, and December 30, 2003, the International Securities Exchange, Inc. (“ISE”), the Pacific Exchange, Inc. (“PCX”), the American Stock Exchange LLC (“Amex”), the Philadelphia Stock Exchange, Inc. (“Phlx”), and the Chicago Board Options Exchange, Inc. (“CBOE”) (collectively, the “Participants”), respectively, filed with the Securities and Exchange Commission (“SEC” or                           ( print page 707)                        “Commission”) an amendment (“Amendment No. 8”) to the Options Intermarket Linkage Plan (“Linkage Plan”).[3]                                          In proposed Joint Amendment No. 8, the Participants propose to extend the pilot provision limiting trade-through liability to 10 contracts for each Satisfaction Order (“S Order”) at the end of the day for an additional five months, until June 30, 2004. The Commission is publishing this notice to solicit comments from interested persons on the proposed Linkage Plan amendment.                 

## I. Description and Purpose of the Amendment 

                    The Participants are proposing to extend the pilot provision that limits “trade-through” [4]                                          liability to 10 contracts for each S Order at the end of the day for an additional five months, until June 30, 2004, in order to gain more experience with the effect of this limitation on trade-through liability. Pursuant to the pilot, an Participant member's trade-through liability is limited to 10 contracts per Satisfaction Order for the period between five minutes prior to the close of trading in the underlying security and the close of trading in the options class.                 

                    The Participants originally proposed this limitation on liability as a one-year pilot in Amendment No. 4 to the Plan.[5]                                          In Amendment No. 4, the Participants represented that members of various exchanges had raised concerns regarding their obligation to fill Satisfaction Orders (which they receive when an options exchange disseminating a better price complains about a trade-through) at the close of trading in the underlying security. Specifically, members expressed concern that they may not have time to hedge the positions they acquire.[6]                                          Thus, the Participants proposed to limit liability for trade-throughs for the last five minutes of the trading day in the underlying security to the filling of 10 contracts per Participant, per transaction. The Participants represented that they believed that the proposal would protect small customer orders, yet establish a reasonable limit for their members' liability. Further, the Participants represented that the proposal would not affect a member's potential liability under an exchange's disciplinary rule for engaging in a pattern or practice of trading through other markets under Section 8(c)(i)(C) of the Linkage Plan.                 

                    In the order approving the pilot, Commission stated that in the event the Participants chose to seek permanent approval of this limitation, the Participants must provide the Commission with a report (the “Report”) regarding data on the use of the exemption no later than 60 days before seeking permanent approval.[7]                                          In Amendment No. 8, the Participants represente that if they seek to make the limitations on trade-throughs permanent, they will submit the Report to the Commission no later than March 31, 2004.                 

                    With respect to the Report, the Participants represente in Amendment No. 8 that each Participant currently plans to submit individual Reports regarding the requested data as it pertains to their own exchange. They further represent that these Reports will detail the number of trade-throughs in the last seven minutes and the rest of the day, as well as the number and size of Satisfaction Orders that would have been filled absent the current exemption.[8]                                          In addition, the Participants represent that the Reports will provide information on the extent to which the exchange's members hedge their options trading during the day as part of their overall risk management. Finally, the Participants represent that they will make every effort to provide specific information regarding hedging at the end of the trading day.                 

## II. Implementation of the Plan Amendment 

The Participants propose to make the proposed amendment to the Linkage Plan reflected in this filing effective when the Commission approves the amendment. 

## III. Solicitation of Comments 

                    Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed Linkage Plan amendment 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. Comments may also be submitted electronically at the following e-mail address:                     *rule-comments@sec.gov*. All comment letters should refer to File No. 4-429. 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, comments should be sent in hardcopy or by e-mail but not by both methods. Copies of the submissions, all subsequent amendments, all written statements with respect to the proposed Linkage Plan amendment that are filed with the Commission, and all written communications relating to the proposed Linkage Plan amendment 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 at the Commission's Public Reference Room. Copies of such filings will also be available for inspection and copying at the principal offices of the Amex, CBOE, ISE, Phlx, and PCX. All submissions should refer to File No. 4-429 be submitted by January 21, 2004.                 

                        For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9] 

Margaret H. McFarland, 

Deputy Secretary.

# Footnotes

1.                             15 U.S.C. 78k-1.                    
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2.                             17 CFR 240.11Aa3-2.                    
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3.                             On July 28, 2000, the Commission approved a national market system plan for the purpose of creating and operating an intermarket options market linkage (“Linkage”) proposed by Amex, CBOE, and ISE.                         *See*                         Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). Subsequently, Phlx and PCX joined the Linkage Plan.                         *See*                         Securities Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70850 (November 28, 2000) and 43574 (November 16, 2000), 65 FR 70851 (November 28, 2000). On June 27, 2001 and May 30, 2002, respectively, the Commission approved amendments to the Linkage Plan.                         *See*                         Securities Exchange Act Release Nos. 44482 (June 27, 2001), 66 FR 35470 (July 5, 2001) and 46001 (May 30, 2002), 67 FR 38687 (June 5, 2002).                    
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4.                             A “Trade-Through” is defined as a transaction in an options series at a price that is inferior to the national best bid and offer in an options series calculated by a Participant.                    
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5.                             The Commission approved the pilot on a 120-day temporary basis on January 31, 2003.                         *See*                         Securities Exchange Act Release No. 47298 (January 31, 2003), 68 FR 6524 (February 7, 2003). On June 18, 2003, the Commission approved the pilot until January 31, 2004.                         *See*                         Securities Exchange Act Release No. 48055, 68 FR 37869 (June 25, 2003) (File No. 4-429).                    
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6.                                                     *See*                         letter from Michael Simon, Senior Vice President and General Counsel, ISE, to Annette Nazareth, Director, Division of Market Regulation, Commission, dated November 19, 2002.                    
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7.                                                     *See supra*                         note 4.                    
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8.                             The Participants explain that, for example, if an exchange receives a Satisfaction Order for 50 contracts and only fills 10, 40 contracts “would have been filled absent this exemption.” To the extent the Participants have the relevant information, the Report will compare the size of Satisfaction Orders they could have sent in the last seven minutes of the trading day with the size of the actual fills. However, the ability to provide this data will depend on whether a particular Participant has the data on the size of the trade-throughs underlying the Satisfaction Orders, and not just the data on the size of the Satisfaction Orders themselves.                    
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9.                                 17 CFR 200.30-3(a)(29).                        
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[FR Doc. 04-217 Filed 1-5-04; 8:45 am] 

BILLING CODE 8010-01-P