35686 Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices

28The change was intended to clarify when the

provisions of subparagraphs (a) and (b) of CBOE

Rule 6.74 apply, and when new paragraph (d)

applies. The language was subsequently modified

further to the same end by Amendment No. 2.

29See Securities Exchange Act Release No. 42455

(February 24, 2000), 65 FR 11388 (March 2, 2000).

30Although the ISE mechanism operates only for

facilitation crosses, the Commission’s grounds for

approving the ISE’s facilitation cross guarantee

apply equally to the CBOE’s proposal, which

applies to both customer-to-customer and

facilitation crosses.

31See text accompanying note 9, supra.

32 15 U.S.C. 78f(b)(5).

33 15 U.S.C. 78s(b)(2).

34 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

to limit the combined allocations

awarded to the originating firm and the

DPM an aggregate of no more than 40%

of the order.

The Commission finds good cause for

approving Amendment Nos. 1, 2, and 3

to the proposal prior to the thirtieth day

after the date of publication of notice of

filing thereof in the Federal Register.

Amendment No. 1 provides additional

representations concerning the

operation of the proposal and its

rationale, and responds to concerns

raised by the OMMA. Amendment No.

1 made only a minor change in the text

of the proposed rule change for

purposes of clarification.28

Amendment No. 2, among other

things, modifies the proposed rule

change by reducing the minimum size

of orders to which it will be applicable,

from 500 to 50 contracts. The

Commission has already approved the

facilitation mechanism of the ISE,

which guarantees 40% of orders to

facilitating firms for order sizes of 50 or

more contracts.29 Thus, the reduction in

the size requirement in the CBOE

proposal raises no new regulatory

issues. Further, it will benefit options

market participants by allowing for

substantially consistent treatment of

crossing mechanisms under the rules of

the ISE and the CBOE, and will allow

the CBOE to compete without

disadvantage for facilitation orders.30

Amendment No. 2 further adds the

stipulation that the combined

guarantees of the firm and the DPM may

not exceed 40% of the order, thus

limiting allocations to a percentage that

the Commission has previously found

consistent with the Act.

Amendment No. 2 also clarifies the

period that the market established by

the crowd in response to the floor

broker’s initial request will remain in

effect.31 It further established the

priority of crowd members who

responded to the initial request for a

quotation over orders that were not

represented in the crowd at the time the

market was established (unless those

orders improve the price), as well as the

priority of any unfilled portion of the

crossing order held by the floor broker.

These aspects of the amendment

constitute appropriate and necessary

clarifications of procedures and priority

rights under the proposed rule change.

Amendment No. 2 further adds

disclosure requirements for facilitation

crosses transacted under the proposed

rule change, consistent with disclosure

requirements for facilitation crosses

transacted under current rules. These

provisions strengthen the proposed rule

change and raise no new regulatory

issues.

Amendment Nos. 2 and 3 set forth

explicitly that the crossing guarantee

applies only after all public customer

orders on the limit order book and those

represented in the trading crowd at the

time the market was established have

been satisfied. This aspect of the

amendment thus limits the new

entitlement granted to floor brokers

under the proposed rule change,

preserving priority for public customer

orders.

Amendment No. 3 additionally adds

language to the proposed rule text to

clarify that public customer orders on

the limit order book will always have

priority over members of the trading

crowd who established the market; that

those members of the crowd will have

priority over non-customer orders as

well as public customer orders on the

floor that were not represented at the

time the market was established; and

that the crowd will not have priority

over any order—customer or noncustomer—that improves the market.

These changes were made for the

purposes of clarity and consistency and

thus strengthen the proposed rule

change.

Amendment No. 3 also provides that

the Floor Procedure Committee will

determine the size requirement for

orders to be subject to the crossing

guarantee on a class by class basis. In

the Commission’s view, this provision

will afford the Exchange greater

flexibility in determining when it is

appropriate to provide participation

rights to firms seeking to cross orders,

and thus strengthens the proposed rule

change.

Accordingly, the Commission finds

good cause, consistent with Sections

6(b)(5) 32 and 19(b)(2) 33 of the Act to

accelerate approval of Amendments No.

1, 2, and 3 to the proposed rule change.

V. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment Nos.

1, 2, and 3, including whether

Amendment Nos. 1, 2, and 3 are

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 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the CBOE. All

submissions should refer to File No.

SR–CBOE–99–10 and should be

submitted by June 26, 2000.

VI. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act and the rules

and regulations thereunder.

It is therefore ordered, pursuant to

section 19(b)(2) of the Act, that the

proposed rule change (SR–CBOE–99–

10), as amended, be and hereby is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.34

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13955 Filed 6–2–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42823; File No. SR–ISE–

00–05]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the International

Securities Exchange LLC Relating to

Authority to Grant Exemptions From

ISE Rule 805

May 25, 2000.

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 May 24,

2000, the International Securities

Exchange LLC (‘‘ISE’’ or ‘‘Exchange’’)

Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices 35687

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 ISE. The

Commission is publishing this notice

and order to solicit comments on the

proposed rule change from interested

persons, and to grant accelerated

approval of the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is proposing to amend

ISE Rule 805 to authorize the Exchange

to grant exemptions from certain

restrictions on market makers placing

orders in other than their assigned

options. This exemptive authority

would be in place only until the

Exchange opens all ten of its options

groups for trading, or for one year from

the date the Exchange commences

operations, whichever should occur

first. The text of the proposed rule

change is below. Proposed additions are

in italics.

Rule 805. Market Maker Orders

(a) and (b) No changes.

(c) Exemptive Authority. Until the

earlier of (1) one year from the date on

which the Exchange commences

operations or (2) the date on which the

Exchange opens all options Groups for

trading, an Exchange official designated

by the Board may grant market makers

exemptions from the requirements of

subparagraphs (b)(2) and (3) of this rule,

subject to the following:

(i) If a market maker has only one

membership, and thus is assigned to

only one Group, any exemption would

end when the assigned Group is open

for trading, regardless of the number of

options classes that begin trading in the

assigned Group;

(ii) If a market maker has multiple

memberships, and thus is assigned to

trading in more than one Group, the

exemption would end when all the

market maker’s Groups are open for

trading, again regardless of the number

of options classes that begin trading in

the assigned Groups; as the market

maker’s assigned Groups open for

trading, the amount of trading the

market maker would be permitted to

execute outside of its assigned Groups

would be reduced;

(iii) Any exemption would be

conditioned on the member performing

market maker functions in the classes

they trade;

(iv) An exemption could be revoked

by the Exchange at any time if the

market maker is not acting in

accordance with the terms of the

exemption; and

(v) No exemption would have a term

of more than one month, but would be

renewable on a monthly basis until the

market maker’s group(s) was open for

trading.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

It is filing with the Commission, the

ISE 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 III below. The ISE 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

Subparagraphs (b)(2) and (3) of ISE

Rule 805 contain the following ‘‘Volume

Limitation’’: Primary Market Makers

(‘‘PMMs’’) can execute no more than 10

percent of their aggregate volume

outside of their assigned options; and

Competitive Market Makers (‘‘CMMs’’)

can execute no more than 25 percent of

their aggregate volume outside of their

assigned options. The Exchange assigns

market makers to specific option

‘‘Groups’’ and will ‘‘roll out’’ its trading

in stages, beginning with a limited

number of Groups, and with a limited

number of options in each Group.

During the ‘‘roll out,’’ the Exchange will

open additional Groups for trading,

while also commencing trading in

additional securities in open Groups.

The Exchange anticipates having all

options open for trading within one year

from the date it commences operations.

Due to this roll out schedule, it is

likely that some ISE market makers will

be fully connected to the ISE and

prepared to begin trading before the

Exchange opens their assigned

Groups(s) for trading. As currently in

effect, ISE Rule 805 would prohibit

these market makers from doing any

trading, since, by definition, 100 percent

of their trading would be in options to

which they are not assigned. The

Exchange believes that prohibiting these

firms from conducting any trading is

inappropriate and would unnecessarily

restrict liquidity on the Exchange.

To address this concern, the proposed

rule change would authorize an

Exchange official with delegated

authority by the board to grant market

makers exemptions from the Volume

Limitations during the roll out period.

The Exchange’s authority to grant

exemptions would terminate when all

groups are open for trading (even if the

Groups are not fully populated with the

full complement of options) or one year

from the date on which the Exchange

commences operations, whichever

should occur first. The Exchange will

grant these exemptions on a case-bycase basis, tailored to the individual

situation of each market maker applying

for an exemption. The proposed rule

includes the following guidelines in

granting exemptions pursuant to this

authority:

• If a market maker has only one

membership, and thus is assigned to

only one Group, any exemption would

end when the assigned Group is open

for trading, regardless of the number of

options classes that begin trading in the

assigned Group;

• If a market maker has multiple

memberships, and thus is assigned to

trading in more than one Group, the

exemption would end when all the

market maker’s Groups are open for

trading, again regardless of the number

of options classes that begin trading in

the assigned Groups; as the market

maker’s assigned Groups open for

trading, the amount of trading the

market maker would be permitted to

execute outside of its assigned Groups

would be reduced;

• Any exemption would be

conditioned on the member performing

market maker functions in the classes

they trade;

• An exemption could be revoked by

the Exchange at any time if the market

maker is not acting in accordance with

the terms of the exemption; and

• No exemption would have a term of

more than one month, but would be

renewable on a monthly basis until the

market maker’s group(s) was open for

trading.

The Exchange believes that this

narrowly-crafted exemptive authority

will help provide additional liquidity to

the Exchange during the roll out period.

It also will encourage market makers to

begin trading on the exchange as soon

as they are connected and authorized to

trade, even if their assigned Group(s) is

not yet open to trading.

2. Statutory Basis

The Exchange believes that the basis

under the Act for this proposed rule

change is the requirement under Section

35688 Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices

3 15 U.S.C. 78f(b)(5).

4 15 U.S.C. 78f.

5 In approving this rule, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(5).

7 Id.

8 Id.

9 15 U.S.C. 78f(b)(5).

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

6(b)(5) 3 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.

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 purpose 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. 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 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 U.S.C. 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–00–05, and should be submitted

by June 26, 2000.

IV. Commissions’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission has reviewed

carefully the ISE’s proposed rule change

and finds, for the reasons set forth

below, the proposal is consistent with

the requirements of Section 6 of the

Act 4 and the rules and regulations

thereunder applicable to a national

securities exchange. 5 Specifically, the

Commission finds the proposal is

consistent with Section 6(b)(5) of the

Act. 6

Section 6(b)(5) of the Act 7 requires an

exchange to promulgate rules designed

to prevent fraudulent and manipulative

acts and practice, to promote just and

equitable principles of trade, to remove

impediments to and perfect the

mechanism for a free and open market

and national market system, and, in

general, to protect investors and the

public interest. The Commission finds

that the proposal is consistent with

Section 6(b)(5) of the Act, 8 because the

proposal is designed to enhance

liquidity on the Exchange during its

start-up phase.

The Commission finds that the

proposal is narrowly-tailored, and

provides reasonable standards and

guidelines to be applied in granting

exemptions pursuant to this authority.

In particular, the Commission notes that

the Exchange’s decisions to grant

exemptions would be made on a caseby-case basis, and any exemption

granted would be limited to a term of no

longer than one month. In addition, the

guidelines require that a market maker’s

exemption from the Volume Limitations

would end as soon as the Group to

which the market maker is assigned is

opened for trading, even if only one

options class in that Group has been

listed at that time. Similarly, the

exemption granted to a market maker

holding more than one ISE membership

would be reduced when one or more of

its assigned Groups are opened for

trading.

The Commission also believes that the

proposal may encourage market makers

to begin trading on the Exchange as

soon as they are authorized and able to

do so, which in turn, may benefit

investors by providing liquidity to the

market. The Commission notes that the

proposed standards require market

makers receiving an exemption to

perform market making functions in the

classes in which they trade, which

should also enhance the liquidity of the

market. Because of these potential

improvements to the market, the

Exchange’s authority to grant

exemptions on a case-by-case basis

tailored to the individual situation of

each market maker applying for an

exemption, and the limited duration of

the grant of exemptive authority, the

Commission finds that the proposal is

both reasonable and consistent with the

Act.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. Having found that the

proposal is both reasonable and

consistent with the Act, and that it

should result in enhancements to the

marketplace during the Exchange’s startup phase, the Commission believes it

would be counterproductive to delay

the implementation of the proposal.

Specifically, the Commission notes that

the ISE intends to commence trading on

May 26, 2000, in a limited number of

options classes. The proposal will

permit ISE PMMs and CMMs that are

ready to begin trading, but have been

assigned to Groups that are not yet open

for trading, to participate in ISE’s

market, thereby increasing liquidity in

the market. The Commission finds,

therefore, that granting accelerated

approval of the proposed rule change is

consistent with Section 6(b)(5) of the

Act.9

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (SR–ISE–00–05) is

hereby approved on an accelerated

basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13958 Filed 6–2–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42825; File No. SR–ISE–

00–04]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Amendment No. 1 by the International

Securities Exchange LLC Relating to

the Exposure of Orders on the

Exchange

May 25, 2000.

I. Introduction

On February 25, 2000, the

International Securities Exchange LLC

(‘‘ISE’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to