46280 Federal Register / Vol. 74, No. 172 / Tuesday, September 8, 2009 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 60382 (July 

24, 2009), 74 FR 38068 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange made 

technical corrections to the filing. Specifically, in 

Amendment No. 1, ISE removed text that is not 

relevant. As originally proposed, ISE Rule 312(c)(4) 

would require the Exchange and Ballista Securities 

LLC to ‘‘establish and maintain procedures and 

internal control reasonably designed to ensure that 

Ballista Securities LLC and its affiliates do not have 

access to nonpublic information relating to the 

Exchange obtained as a result of ISE Holdings’ 

ownership interest in Ballista Securities LLC, until 

such information is available generally to similarly 

situated members of the Exchange in connection 

with the provision of inbound routing to the 

Exchange.’’ Amendment No. 1 deletes the clause 

‘‘in connection with the provision of inbound 

routing to the Exchange’’ from proposed ISE Rule 

312(c)(4) and from the related discussion in the 

filing, as Ballista Securities’ services are not limited 

to inbound routing to the Exchange. 

In Amendment No. 1, ISE also clarified that the 

proposal is for a one year pilot period. 

5 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

6 15 U.S.C. 78f(b)(5). 

7See, e.g., Securities Exchange Act Release Nos. 

54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) 

(SR–NASDAQ–2006–006) (order approving 

Nasdaq’s proposal to adopt Nasdaq Rule 2140, 

restricting affiliations between Nasdaq and its 

members); 53382 (February 27, 2006), 71 FR 11251 

(March 6, 2006) (SR–NYSE–2005–77) (order 

approving combination of NYSE and Archipelago 

Holdings, Inc.); 58673 (September 29, 2008), 73 FR 

57707 (October 3, 2008) (SR–Amex–2008–62) (order 

approving acquisition of the American Stock 

Exchange by NYSE Euronext); 59135 (December 22, 

2008), 73 FR 79954 (December 30, 2008) (SR–ISE– 

2009–85) (order approving the purchase by ISE 

Holdings of an ownership interest in DirectEdge 

Holdings LLC); and 59281 (January 22, 2009), 74 FR 

5014 (January 28, 2009) (SR–NYSE–2008–120) 

(order approving a joint venture between NYSE and 

BIDS Holdings L.P.). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60598; File No. SR–ISE– 

2009–45] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Order Approving a Proposed 

Rule Change, as Modified by 

Amendment No. 1, Relating to 

Changes to Rule 312 in Connection 

With the Purchase by International 

Securities Exchange Holdings, Inc. of 

Equity Interests in Optifreeze, LLC 

September 1, 2009. 

I. Introduction 

On July 23, 2009, the International 

Securities Exchange, LLC (‘‘ISE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change, pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 to amend ISE Rule 312 

(Limitation on Affiliation between the 

Exchange and Members) in connection 

with the capital contribution by its 

parent company, International 

Securities Exchange Holdings, Inc. (‘‘ISE 

Holdings’’), in Optifreeze LLC, a 

Delaware Limited Liability Company 

(‘‘Optifreeze’’). The proposed rule 

change was published for comment in 

the Federal Register on July 30, 2009.3

The Commission received no comments 

on the proposal. On August 28, 2009, 

ISE filed Amendment No. 1 to the 

proposed rule change.4 Because 

Amendment No. 1 is technical in 

nature, the Commission is not 

publishing it for comment. This order 

approves the proposed rule change, as 

modified by Amendment No. 1. 

II. Overview 

On June 5, 2009, ISE Holdings entered 

into a Membership Purchase Agreement 

(‘‘Purchase Agreement’’) with 

Optifreeze. Ballista Securities LLC 

(‘‘Ballista Securities’’), a wholly-owned 

subsidiary of Optifreeze, is a member of 

the Exchange. Pursuant to the Purchase 

Agreement, ISE Holdings contributed 

cash to the capital of Optifreeze in 

exchange for membership interests 

representing 8.57% of the aggregate 

membership interests in Optifreeze. As 

a result of the purchase, ISE Holdings 

became a member of Optifreeze and is 

entitled to appoint one representative to 

the Optifreeze Board of Directors, but 

does not have any voting or other 

control arrangements with any other 

members of Optifreeze relating to its 

investment in Optifreeze. 

In connection with the capital 

contribution by ISE Holdings in 

Optifreeze, the Exchange proposes to 

amend ISE Rule 312 (Limitation on 

Affiliation between the Exchange and 

Members) to allow for ISE Holdings’ 

ownership interest in Ballista Securities 

on a one year pilot basis, and to set forth 

certain limitations and obligations 

regarding that relationship. ISE Rule 312 

provides, in part, that, without prior 

Commission approval, the Exchange, or 

any entity with which the Exchange is 

affiliated shall not, directly or 

indirectly, acquire or maintain an 

ownership interest in a member or nonmember owner. As a result of the 

transaction, an affiliate of the Exchange, 

ISE Holdings, maintains an indirect 

ownership interest in an ISE member, 

Ballista Securities, which, without 

Commission approval, would violate 

ISE Rule 312. 

III. Discussion and Commission 

Findings 

After careful consideration, 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 finds that 

the proposed rule change is consistent 

with Section 6(b)(5) of the Act,6 which 

requires, among other things, that the 

rules of a national securities exchange 

be designed to prevent fraudulent and 

manipulative acts and practices; to 

promote just and equitable principles of 

trade; to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, and 

processing information with respect to, 

and facilitating transactions in 

securities; to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system; and, in general, to protect 

investors and the public interest. 

In the past, the Commission has 

expressed concern that the affiliation of 

an exchange, or an affiliate of the 

exchange, with one of its members 

raises potential conflicts of interest and 

the potential for unfair competitive 

advantage.7 The proposed relationship 

raises similar concerns. ISE Rule 312 

provides, in relevant part, that: 

‘‘Without prior SEC approval, the 

Exchange, or any facility of the 

Exchange, or any entity with which the 

Exchange or any facility of the Exchange 

is affiliated shall not, directly or 

indirectly through one or more 

intermediaries, acquire or maintain an 

ownership interest in a Member or nonmember owner.’’ As discussed above, 

the Exchange’s parent, ISE Holdings, 

now owns 8.57% of the aggregate 

membership interests in Optifreeze, and 

thereby maintains an indirect 

ownership interest in Ballista Securities, 

an Exchange member. Thus, because of 

its affiliation with the Exchange, ISE 

Holdings’ ownership interest in Ballista 

would violate ISE Rule 312, absent 

Commission approval. 

ISE has requested that the 

Commission approve the proposed 

relationship described above on a 

temporary basis for a period of one year, 

subject to certain limitations and 

conditions set forth in proposed ISE 

Rule 312(c). Specifically, proposed ISE 

Rule 312(c) provides that (1) so long as 

ISE Holdings, or another affiliate of the 

Exchange, maintains an ownership 

interest in Ballista Securities; and (2) 

Ballista Securities remains a member of 

ISE: 

• FINRA, a self-regulatory 

organization unaffiliated with the 

Exchange or any of its affiliates (a ‘‘nonVerDate Nov<24>2008 17:32 Sep 04, 2009 Jkt 217001 PO 00000 Frm 00201 Fmt 4703 Sfmt 4703 E:\FR\FM\08SEN1.SGM 08SEN1

jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 172 / Tuesday, September 8, 2009 / Notices 46281 

8 17 CFR 240.17d–1. 

9 17 CFR 240.17d–2. 

10Common rules are ISE rules that are 

substantially similar to the rules of the nonaffiliated SRO. 

11See Notice, 74 FR at 38069. 

12 15 U.S.C. 78f(b)(5). 

13This oversight will be accomplished through a 

17d–2 agreement and a regulatory services contract 

between ISE and a non-affiliated SRO. The 

Commission notes that ISE has not yet entered into 

such agreements. 

14 15 U.S.C. 78s(b)(2). 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

affiliated SRO’’), will carry out oversight 

and enforcement responsibilities as the 

designated examining authority 

designated by the Commission pursuant 

to Rule 17d–1 under the Act 8 with the 

responsibility for examining Ballista 

Securities for compliance with 

applicable financial responsibility rules; 

• The Exchange shall enter into a 

plan pursuant to Rule 17d–2 under the 

Act 9 with a non-affiliated SRO to 

relieve the Exchange of regulatory 

responsibilities for Ballista Securities 

with respect to rules that are common 

rules between the Exchange and the 

SRO; 10

• With respect to unique ISE rules, 

ISE shall enter into a regulatory services 

contract with a non-affiliated SRO to 

perform certain regulatory 

responsibilities for Ballista Securities; 

• The regulatory services contract 

with the non-affiliated SRO shall 

require the Exchange to provide the 

non-affiliated SRO with information, in 

an easily accessible manner, regarding 

all exception reports, alerts, complaints, 

trading errors, cancellations, 

investigations, and enforcement matters 

(collectively, ‘‘exceptions’’) in which 

Ballista Securities is identified as a 

participant that has potentially violated 

ISE or Commission rules, and shall 

require that the non-affiliated SRO 

provide a report to the Exchange 

quantifying exceptions on not less than 

a quarterly basis; 

• ISE shall establish and maintain 

procedures and internal controls 

reasonably designed to ensure that 

Ballista Securities and its affiliates do 

not develop or implement changes to its 

systems on the basis of nonpublic 

information obtained as a result of ISE 

Holdings’ ownership interest in Ballista 

Securities, until such information is 

available generally to similarly situated 

members of the Exchange; and 

• The ownership interest of ISE 

Holdings in Ballista Securities is subject 

to the foregoing conditions and is 

approved on a temporary basis, for a 

period not to exceed one year. 

Additionally, ISE Holdings currently 

owns less than a 9% equity interest in 

Optifreeze and does not own a 

controlling interest in Optifreeze or 

otherwise have any veto or other special 

voting rights with respect to the 

management or operation of Optifreeze. 

The Exchange has acknowledged that 

neither it, nor any of its affiliates, may 

directly or indirectly increase its equity 

ownership in Optifreeze without prior 

Commission approval.11

The Commission finds the proposed 

limitations and conditions of Rule 

312(c) to be consistent with the Act, 

particularly Section 6(b)(5) 

thereunder.12 Although the Commission 

continues to be concerned about 

potential unfair competition and 

conflicts of interest between an 

exchange’s self-regulatory obligations 

and its commercial interest when the 

exchange, or one of its affiliates, holds 

an ownership interest in a member, the 

proposed conditions appear reasonably 

designed to mitigate concerns about 

potential conflicts of interest and unfair 

competitive advantage. The Commission 

believes that the oversight of Ballista 

Securities by a non-affiliated SRO,13

combined with the requirement that ISE 

provide the non-affiliated SRO with 

information regarding exceptions 

relating to Ballista Securities on not less 

than a quarterly basis, promote robust 

and independent regulation of Ballista 

Securities. ISE and Ballista Securities 

must also establish and maintain 

procedures and internal controls that 

are reasonably designed to prevent 

Ballista Securities and its affiliates from 

deriving any unfair informational 

advantage resulting from its relationship 

with ISE. Finally, the Commission 

believes that ISE’s proposal on a pilot 

basis will provide ISE and the 

Commission an opportunity to assess 

whether there might be any adverse 

consequences of the exception and 

whether a permanent exception is 

warranted. The Commission believes 

that, taken together, these limitations 

and conditions are reasonably designed 

to mitigate potential conflicts between 

the commercial interests of the 

Exchange or its parent company in 

Ballista Securities and the Exchange’s 

regulatory responsibilities with respect 

to Ballista Securities. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,14 that the 

proposed rule change (File No. SR–ISE– 

2009–45) is hereby approved on a pilot 

basis through September 1, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–21637 Filed 9–4–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60597; File No. SR–NYSE– 

2009–92] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by New York 

Stock Exchange LLC Extending Until 

September 8, 2009, the Operation of 

Interim NYSE Rule 128 Which Permits 

the Exchange To Cancel or Adjust 

Clearly Erroneous Executions if They 

Arise Out of the Use or Operation of 

Any Quotation, Execution or 

Communication System Owned or 

Operated by the Exchange, Including 

Those Executions That Occur in the 

Event of a System Disruption or 

System Malfunction 

August 31, 2009. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’)1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 

31, 2009, New York Stock Exchange 

LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. NYSE 

has designated the proposed rule change 

as constituting a rule change under Rule 

19b–4(f)(6) under the Act,3 which 

renders the proposal 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 extend 

until September 8, 2009, the operation 

of interim NYSE Rule 128 (‘‘Clearly 

Erroneous Executions for NYSE 

Equities’’) which permits the Exchange 

to cancel or adjust clearly erroneous 

executions if they arise out of the use or 

operation of any quotation, execution or 

communication system owned or 

operated by the Exchange, including 

those executions that occur in the event 


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