9364 Federal Register / Vol. 72, No. 40 / Thursday, March 1, 2007 / Notices 

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

2 17 CFR 240.19b–4. 

3 In Amendment No. 1, the Exchange: (1) Reduced 

the number of currencies on which the Exchange 

proposes to list and trade cash-settled FCOs; (2) 

amended the position limit amounts for the 

currencies that are proposed in this Amendment 

No.1; (3) removed the listing and trading of foreign 

currency options that expire in weekly intervals 

from the proposed rule text; (4) made certain nonsubstantive changes to the proposed rule text; and 

(5) adopted a margin rule similar to Commentary 

.16 of the Philadelphia Stock Exchange’s Rule 722. 

Amendment No. 1 replaced and superseded the 

original filing in its entirety. 

4The Exchange is proposing to trade cash-settled 

FCOs only on those currencies whose futures 

contracts, and options on such futures contracts, are 

currently traded on the Chicago Mercantile 

Exchange (‘‘CME’’). 5Unlike cash-settled FCOs, a physically-settled 

FCO gives its owner the right to receive physical 

paid by applicant and the acquiring 

fund. 

Filing Date: The application was filed 

on January 16, 2007. 

Applicant’s Address: Federated 

Investors Tower, 5800 Corporate Dr., 

Pittsburgh, PA 15237–7010. 

Pioneer Tax Qualified Dividend Fund 

[File No. 811–21459] 

Pioneer International Income and 

Growth Trust [File No. 811–21535] 

Pioneer Municipal High Yield Trust 

[File No. 811–21717] 

Summary: Each applicant, a closedend investment company, seeks an 

order declaring that it has ceased to be 

an investment company. Applicants 

have never made a public offering of 

their securities and do not propose to 

make a public offering or engage in 

business of any kind. 

Filing Date: The applications were 

filed on February 6, 2007. 

Applicants’ Address: 60 State St., 

Boston, MA 02109. 

Liberty All-Star Mid-Cap Fund [File No. 

811–21733] 

Summary: Applicant, a closed-end 

investment company, seeks an order 

declaring that it has ceased to be an 

investment company. Applicant has 

never made a public offering of its 

securities and does not propose to make 

a public offering or engage in business 

of any kind. 

Filing Dates: The application was 

filed on December 29, 2006, and 

amended on February 2, 2007. 

Applicant’s Address: 100 Federal St., 

Boston, MA 02110. 

Ameritrade Automatic Common 

Exchange Security Trust [File No. 811–

9319] 

Summary: Applicant, a closed-end 

investment company, seeks an order 

declaring that it has ceased to be an 

investment company. Applicant has 

never made a public offering of its 

securities and does not propose to make 

a public offering or engage in business 

of any kind. 

Filing Dates: The application was 

filed on December 5, 2006, and 

amended January 31, 2007. 

Applicant’s Address: Attn: Heather 

Sahrbeck, Goldman, Sachs & Co., 85 

Broad St., New York, NY 10004. 

Pioneer AllWeather Fund LLC [File No. 

811–21408] 

Summary: Applicant, a closed-end 

investment company, seeks an order 

declaring that it has ceased to be an 

investment company. Applicant has 

never made a public offering of its 

securities and does not propose to make 

a public offering or engage in business 

of any kind. 

Filing Dates: The application was 

filed on October 27, 2004, and amended 

on February 6, 2007. 

Applicant’s Address: 60 State St., 

Boston, MA 02109. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3555 Filed 2–28–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55336; File No. SR–ISE–

2006–59] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Proposed Rule 

Change and Amendment No. 1 Thereto 

Relating to Foreign Currency Options 

February 23, 2007. 

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 

September 29, 2006, the International 

Securities Exchange, LLC (‘‘ISE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

substantially prepared by the ISE. On 

February 23, 2007, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as amended, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The ISE is proposing to adopt rules 

for the listing and trading of cash-settled 

foreign currency options (‘‘FCOs’’) on 

the following currencies: the euro, the 

British pound, the Australian dollar, the 

New Zealand dollar, the Japanese yen, 

the Canadian dollar, the Swiss franc, the 

Chinese renminbi, the Mexican peso, 

the Swedish krona, the Russian ruble, 

the South African rand, the Brazilian 

real, the Israeli shekel, the Norwegian 

krone, the Polish zloty, the Hungarian 

forint, the Czech koruna, and the Korean 

won (individually, a ‘‘Currency’’ and 

collectively, the ‘‘Currencies’’). The text 

of the proposed rule change is available 

on the Exchange’s Web site (http:// 

www.iseoptions.com), at the Exchange, 

and at the Commission’s Public 

Reference Room. 

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 

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 IV 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 

The purpose of the proposed rule 

change is to adopt rules enabling the 

Exchange to list and trade FCOs. The 

Exchange proposes to adopt rules for the 

listing and trading of cash-settled FCOs 

on the following currencies: the euro, 

the British pound, the Australian dollar, 

the New Zealand dollar, the Japanese 

yen, the Canadian dollar, the Swiss 

franc, the Chinese renminbi, the 

Mexican peso, the Swedish krona, the 

Russian ruble, the South African rand, 

the Brazilian real, the Israeli shekel, the 

Norwegian krone, the Polish zloty, the 

Hungarian forint, the Czech koruna and 

the Korean won.4 FCOs would, in all 

other respects, be traded pursuant to the 

Exchange’s trading rules and procedures 

and be covered under the Exchange’s 

existing surveillance program. The 

Exchange notes that the Philadelphia 

Stock Exchange (‘‘PHLX’’) currently has 

rules that permit the listing and trading 

of both physically-settled FCOs 5 and 


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delivery (if it is a call) or to make physical delivery 

(if it is a put), of the underlying foreign currency 

when the option is exercised. 

6See Securities Exchange Act Release No. 54989 

(December 21, 2006), 71 FR 78506 (December 29, 

2006) (SR–PHLX–2006–34). See also PHLX Rules 

1000–1093. 

7The Exchange notes that there are many major 

trading platforms for spot market currencies 

including single bank portals (Deutsche Bank, 

Citigroup, UBS, Barclays, etc.), multi-bank portals 

(FXall, Currenex, FXConnect, etc.), broker-neutral 

portals (Reuters Dealing and EBS), portal 

aggregators (Bloomberg, LavaFX, FlexTrade), as 

well as many online broker portals. Additionally, 

several major ISE members, including 

OptionsXpress and Interactive Brokers, provide 

access to CME futures products. ISE therefore 

believes that sufficient market access is available to 

both institutional as well as retail investors. Foreign 

exchange prices are also widely available via public 

websites, broker websites, as well as in print 

publications. Additionally, websites such as 

Bloomberg.com, Reuters.com, Yahoo! Finance, 

CNBC.com, OANDA.com, Nasdaq.com, and many 

others provide free currency data. Investors 

Business Daily, Wall Street Journal, and the New 

York Times also provide currency data as part of 

their daily coverage. Furthermore, ISE will 

disseminate real-time underlying data on OPRA for 

all the currency rates it intends to list options on. 

8See Exhibit 3 to the proposed rule change 

(listing the modifiers for each Currency pair). 

Modifiers used for creating underlying values will 

also be posted on the Exchange’s website no later 

than the first day on which FCOs begin trading on 

ISE. Once a modifier has been assigned to a 

currency pair, it can only be changed upon a filing 

of a proposed rule change with the Commission. 

9A ‘‘modified exchange rate’’ is defined in 

proposed ISE Rule 2201(8). 

10The Exchange notes that consecutive month 

and cycle month expirations of a given series will 

never overlap. 

U.S. Dollar-settled FCOs on a number of 

foreign currencies.6 FCOs listed and 

traded by the Exchange pursuant to this 

proposed rule change will not be 

fungible with those listed and traded by 

PHLX. 

The Exchange proposes to list and 

trade cash-settled FCOs using the 

Reuters Composite Currency Rate,7 an 

industry benchmark, and modify that 

rate to create an underlying value that 

represents the prevailing rate of a 

currency pair in an index-like format. 

ISE proposes to use modifiers of 1, 10, 

or 100 depending on the exchange rate 

level of the underlying foreign 

currency.8 For example, if one U.S. 

Dollar buys .84177 euros, a modifier of 

100 would be used so that the modified 

exchange rate would become 84.18. 

Modified exchange rates are rounded to 

two decimal places (i.e., to the nearest 

one one-hundredth). Modified exchange 

rates are rounded up if they end in 

values greater than or equal to five onethousandths, and rounded down if less 

than five one-thousandths. In the 

example above, if one U.S. Dollar buys 

.84174 euros, the modified exchange 

rate, using the same 100 modifier, 

would become 84.17. The Reuters data 

is based on an amalgamation of 

midpoint dealer quotes on its foreign 

exchange dealing system. 

Under the proposed rule change, 

FCOs listed by the Exchange will be 

cleared by The Options Clearing 

Corporation (‘‘OCC’’), and will enable 

holders of options contracts to receive 

U.S. Dollars representing the difference 

between the modified exchange rate 9

and the exercise price of the option. 

Specifically, upon exercise of an in-themoney cash-settled FCO call option, the 

holder will receive, from OCC, U.S. 

Dollars representing the difference 

between the exercise strike price and 

the closing settlement value of the cashsettled FCO contract multiplied by 100. 

Upon exercise of an in-the-money cashsettled FCO put option, the holder will 

receive, from OCC, U.S. Dollars 

representing the excess of the exercise 

price over the closing settlement value 

of the cash-settled FCO contract 

multiplied by 100. Additionally, cashsettled FCOs that are in-the-money by 

any amount on expiration date will be 

exercised automatically by OCC, while 

cash-settled FCOs that are out-of-themoney on expiration date will expire 

worthless. 

The Exchange hereby proposes to 

adopt new rules and amend certain 

existing rules in order to list and trade 

FCOs. The Exchange has also attached 

an exhibit to this proposed rule change 

that illustrates the contract 

specifications applicable to FCOs. The 

Exchange’s proposed ISE Rule 2201, 

Definitions, defines terms applicable to 

FCOs. Proposed ISE Rule 2202, Criteria 

for Foreign Currency Options, states that 

the Currencies may be approved for 

trading on the Exchange. Proposed ISE 

Rule 2202 also states that if any of the 

sovereign governments or the European 

Economic Community’s European 

Monetary System issuing one of the 

Currencies replaces it with a new 

currency, that new currency, subject to 

filing a proposed rule change with the 

Commission, shall also be approved for 

listing and trading under these proposed 

rules. 

Proposed ISE Rule 2203, Foreign 

Currency Options Contracts To Be 

Traded, states that the Exchange may 

open for trading put options and call 

options on the Currencies and that only 

options contracts of a series of options 

approved by the Exchange and currently 

open for trading may be traded on the 

Exchange. Proposed ISE Rule 2204, 

Withdrawal of Approval of Foreign 

Currency Options, states that, in the 

interest of a fair and orderly market and 

for the protection of investors, the 

Exchange may withdraw approval of the 

trading of a foreign currency option. For 

example, in the case of the European 

Economic Community’s European 

Monetary System, the Exchange will 

withdraw approval of the trading of a 

foreign currency option if such currency 

is eligible to and does in fact merge with 

the euro. 

Proposed ISE Rule 2205, Series of 

Foreign Currency Options Opened for 

Trading, states that after a class of 

options contracts on any of the 

Currencies has been approved for listing 

and trading, the Exchange may open for 

trading series of FCOs that expire in 

consecutive monthly intervals, in three 

or ‘‘cycle’’ month intervals, or that have 

up to 36 months to expiration.10 Under 

this proposed rule change, the Exchange 

may list cash-settled FCOs with 

expirations that are the same as the 

expirations permitted for index options 

pursuant to ISE Rules 2000 and 2001, 

except that cash-settled FCOs shall have 

expirations up to 36 months only. 

Though no long-term series will be 

listed initially, this proposal would 

allow the Exchange to list long-term 

series, i.e., up to 36 months. The 

expiration date for the consecutive and 

cycle month options will be 11:59 p.m. 

Eastern time on the Saturday 

immediately following the third Friday 

of the expiration month. Under 

Proposed ISE Rule 2205, as the modified 

exchange rate moves, the Exchange may 

list additional series of FCOs in order to 

maintain sufficient numbers of in-themoney and out-of-the-money series. 

Further, the strike price of each series of 

FCOs opened for trading by the 

Exchange shall be reasonably close to 

the modified exchange rate. 

Proposed ISE Rule 2206, Terms of 

Foreign Currency Options Contracts, 

states that, among other things, all FCOs 

shall be quoted in U.S. Dollars, shall be 

European-style, and that the interval 

between strike prices of series of FCOs 

shall be no less than $0.10. 

Additionally, under the Exchange’s 

current rules, the minimum trading 

increment for a FCO contract trading at 

less than $3.00 will be $0.05, and for a 

FCO contract trading at $3.00 or higher, 

the minimum trading increment will be 

$0.10. 

Proposed ISE Rule 2207, 

Dissemination of Information, states that 

the Exchange shall ensure that the 

current modified exchange rate is 

disseminated at least once every fifteen 

seconds by the Options Price Reporting 

Authority (‘‘OPRA’’) or one or more 

major market data vendors during the 

time FCOs are traded on the Exchange. 

The Exchange will also disseminate 

FCO quotes and trades over OPRA. 


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11The closing settlement value, whether based on 

the Noon Buying Rate or the WM/Reuters Closing 

Spot rate, will also be modified using the applicable 

modifier, i.e., 1, 10 or 100, that is used in 

calculating the respective modified exchange rate. 12The Exchange may use the WM/Reuters Closing 

Spot rate if the Noon Buying Rate is not available. 

The Exchange notes that the Commission has 

recently approved listing standards for securities 

issued by a trust that represent investors’ discrete 

identifiable and undivided beneficial ownership 

interests in non-U.S. currency deposited into a trust 

that utilizes the Noon Buying Rate for the 

calculation of the Net Asset Value of the trust. See 

Securities Exchange Act Release No. 52843 

(November 28, 2005), 70 FR 72486 (December 5, 

2005) (order granting accelerated approval of SR–

NYSE–2005–65). 13The Federal Reserve Bank of New York 

currently does not publish a Noon Buying Rate for 

the Czech koruna, the Hungarian forint, the Israeli 

shekel, the Korean won, the Polish zloty and the 

Russian ruble. As a result, the Exchange proposes 

to use the WM/Reuters Closing Spot rate for these 

6 currencies to determine their closing settlement 

value. In the event the Federal Reserve Bank of New 

York determines to publish a Noon Buying Rate for 

any of these 6 currencies in the future, the 

Exchange shall resort to the Noon Buying Rate in 

place of the WM/Reuters Composite Spot rate to 

determine the closing settlement value for the 

applicable FCO. 

14The Australian dollar, British pound, Canadian 

dollar, Czech koruna, Danish krone, euro, Japanese 

yen, New Zealand dollar, Norwegian krone, 

Singapore dollar, South African rand, Swedish 

krona, and Swiss franc are all considered by WM/ 

Reuters to be ‘‘trade currencies,’’ while all others 

are considered ‘‘non-trade currencies.’’ The instant 

filing proposes to trade FCOs on all the ‘‘trade 

currencies’’ except the Danish krone and the 

Singapore dollar. 

Proposed ISE Rule 2208, Position 

Limits for Foreign Currency Options, 

sets the position limit for FCOs, on the 

same side of the market, as follows: 

1,200,000 contracts for the euro; 600,000 

contracts for the Australian dollar, the 

British pound, the Canadian dollar, the 

Israeli shekel, the Japanese yen, the 

Swedish krona and the Swiss franc; 

300,000 contracts for the Brazilian real, 

the Chinese renminbi, the Czech 

koruna, the Hungarian forint, the 

Korean won, the Mexican peso, the New 

Zealand dollar, the Norwegian krone, 

the Polish zloty, the Russian ruble and 

the South African rand. For the purpose 

of determining which positions are on 

the same side of the market, under 

Proposed ISE Rule 2208, long call 

positions are to be aggregated with short 

put positions and short call positions 

are to be aggregated with long put 

positions. 

Proposed ISE Rule 2209, Exercise 

Limits for Foreign Currency Options, 

generally states that exercise limits for 

FCOs shall be equivalent to the position 

limits prescribed to that FCO. Thus, the 

exercise limit for FCOs over any five 

consecutive business days shall be as 

follows: 1,200,000 contracts for the 

euro; 600,000 contracts for the 

Australian dollar, the British pound, the 

Canadian dollar, the Israeli shekel, the 

Japanese yen, the Swedish krona and 

the Swiss franc; 300,000 contracts for 

the Brazilian real, the Chinese renminbi, 

the Czech koruna, the Hungarian forint, 

the Korean won, the Mexican peso, the 

New Zealand dollar, the Norwegian 

krone, the Polish zloty, the Russian 

ruble and the South African rand. Under 

Proposed ISE Rule 2209, the Exchange 

may from time to time, subject to 

Commission approval, establish exercise 

limits that are different from the 

position limits established for FCOs on 

a Currency or across all Currencies. 

Proposed ISE Rule 2210, Trading 

Sessions, provides that transactions in 

FCOs may be effected on the Exchange 

between the hours of 9:30 a.m. and 4:15 

p.m. Eastern Time, except that on the 

last trading day of the week during 

which a FCO is set to expire, trading 

shall cease at 12 p.m. Eastern Time. 

Trading in cash-settled FCOs will follow 

the holiday schedule of the U.S. equity 

markets. If Friday is an Exchange 

holiday, the settlement value for cashsettled FCOs will be determined on the 

preceding trading day, which will also 

be the last trading day for the expiring 

option. The Exchange’s Proposed Rules 

2210(b) and (c) make certain 

adjustments to current processes 

because FCO openings, unlike openings 

of equity and index options, do not 

depend on the opening of trading of the 

underlying market, because the 

currency market does not have specified 

trading hours. Accordingly, the opening 

rotation for FCOs shall be held at or as 

soon as practicable after the Exchange’s 

market opens, unless an Exchange 

official determines to delay the opening 

rotation in the interest of maintaining a 

fair and orderly market. Proposed ISE 

Rule 2210 lists some of the factors an 

Exchange official may consider in 

delaying the opening rotation. 

Additionally, in the interest of a fair and 

orderly market, an Exchange official 

may, under certain circumstances, halt 

or suspend trading in a FCO until such 

time that the circumstances that led to 

the halt or suspension no longer exist. 

Proposed ISE Rule 2211, Reporting of 

Foreign Currency Options Position, 

requires each Member of the Exchange 

to file a report with respect to all 

accounts that have an aggregate position 

of 12,500 or more FCO contracts on the 

same side of the market in any 

underlying foreign currency. Under this 

proposed rule, Members shall be 

required to file all such reports within 

one business day following the day that 

the reportable transactions occur. 

Proposed ISE Rule 2212, Foreign 

Currency Options Closing Settlement 

Value, states that the closing settlement 

value, which shall be posted by the 

Exchange on its Web site, shall be the 

Noon Buying Rate, as determined by the 

Federal Reserve Bank of New York, on 

the last trading day during expiration 

week.11 If the Noon Buying Rate is not 

announced by 2 p.m. Eastern Time, the 

closing settlement value will be the 

most recently announced Noon Buying 

Rate, unless the Exchange determines to 

apply an alternative closing settlement 

value as a result of extraordinary 

circumstances.12

In the event the Noon Buying Rate is 

not published for an underlying 

currency, the Exchange proposes to 

apply the WM/Reuters Closing Spot rate 

to determine the closing settlement 

value of any underlying currency.13 The 

WM/Reuters Closing Spot rate is 

determined at 16:00 UK time, also 

known as the ‘fix’ time (1 p.m., New 

York time). WM/Reuters typically 

publishes its closing rates 15 minutes 

after the fix time. The Reuters System is 

the primary source of spot foreign 

exchange rates used in the calculation of 

the WM/Reuters Closing Spot rate. WM/ 

Reuters, however, may use alternative 

sources such as a country’s Central Bank 

or rates from EBS, which is another 

major FX venue and market data service 

provider for 156 currencies, including 

all of the currencies underlying the 

products proposed by ISE under this 

filing. 

WM/Reuters has two main methods 

for calculating its Closing Spot rate. The 

methodology used depends on whether 

a currency is determined by WM/ 

Reuters to be a ‘‘trade currency’’ or a 

‘‘non-trade currency.’’ 14 WM/Reuters 

applies a unique methodology for each 

category. Closing Spot rates for ‘‘nontrade currencies’’ are determined 

primarily by using data from Reuters. 

This methodology involves taking 

snapshots of quoted bids and offers for 

each currency at 15-second intervals 

over a two minute period. The median 

is then calculated independently for 

each currency’s bid and offer. The 

midpoint of that median bid and offer 

becomes the final value. 

Closing Spot rates for ‘‘trade 

currencies’’ are determined primarily by 

using data from both Reuters and EBS. 

This methodology involves taking 

snapshots of actual traded rates every 

second for a period of 30 seconds before 

the fix to 30 seconds after the fix. Trades 

are identified as a bid or offer and a 

spread is applied to calculate the 

opposite bid or offer. The spread 

applied is determined by the spread 

between buy and sell orders captured at 

the same time. The median is then 

independently calculated for each 

currency’s bid and offer, resulting in a 


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15The sale of additional market maker trading 

licenses during the year shall be at a premium to 

the auction price, pro rated for the amount of time 

remaining for the year, in order to, among other 

things, ensure that the supply of market maker 

trading licenses is adequate to meet demand for 

market maker trading licenses should conditions 

change after an auction, and to accommodate new 

businesses that commence operations after the 

beginning of the year. The premium will help 

defray out-of-cycle administrative costs and 

encourage participation in the annual auction, 

thereby promoting the optimal price and quantity 

discovery in the auction. In accordance with 

proposed ISE Rule 2210(f)(7), market maker trading 

licenses that are sold at any time except during the 

fourth quarter of a calendar year shall expire either 

in December of the 3rd year if the auction is 

conducted prior to June 30th of the current year, or 

in December of the 4th year if the auction is 

conducted after June 30th of the current year. For 

example, a FXPMM trading license that goes into 

effect on June 1, 2007 will expire on December 31, 

2009, for a total license period of 2 years and 7 

months. A FXPMM trading license that goes into 

effect on August 1, 2007 will expire on December 

31, 2010, for a total license period of 3 years and 

5 months. 

16Similar to PHLX Rule 722, Commentary .16, the 

Exchange will calculate the margin requirement for 

customers that assume short FCO positions by 

adding a percentage of the current market value of 

the underlying foreign currency contract to the 

Continued 

midpoint trade rate. The midpoint of 

that median bid and offer becomes the 

final value. 

Proposed ISE Rule 2212 additionally 

disclaims the Exchange’s (and that of 

any agent of the Exchange’s) liability 

and that of the Reporting Authority due 

to force majeure. 

Proposed ISE Rule 2213, Market 

Maker Trading Licenses, creates two 

new classes of market makers on the 

Exchange, FXPMMs and FXCMMs, who 

shall have similar obligations as the 

PMMs and CMMs of the Exchange’s 

equity and index markets. These new 

memberships will entitle firms to quote 

and trade FCOs only. Proposed ISE Rule 

2213 sets out the rules and the 

obligations of market makers under 

which a FXPMM and/or FXCMM may 

purchase a trading license from the 

Exchange, subject to an annual fee paid 

to the Exchange in monthly 

installments. Under this proposed rule, 

market maker trading licenses, which do 

not hold any equity interest in the 

Exchange, will be sold annually through 

an auction conducted during the fourth 

quarter of each year. A firm may not 

hold more than four FXPMM trading 

licenses across all currencies and no 

more than one FXCMM trading license 

per currency pair. Additionally, market 

makers may not hold and act as both a 

FXPMM and FXCMM in the same 

currency pair. Market maker trading 

licenses will not be able to be leased or 

transferred, although they will be 

permitted to be transferred to an 

affiliated Member, or to another 

qualified Member which continues 

substantially the same business as the 

Member that currently holds the market 

maker trading license. Additionally, 

market maker trading licenses that are 

sold between annual auctions shall be 

assessed a premium of ten percent of the 

price at which the market maker trading 

license was sold during the preceding 

auction.15

Proposed ISE Rule 2213(f) relates 

specifically to FXPMMs and states that 

a FXPMM’s trading license shall have a 

three year term and that at the end of 

the three year term, the incumbent 

FXPMM shall have the right of first 

refusal to match the highest bid and 

market quality commitment from 

another bidding firm, enabling that 

FXPMM to remain a market maker in 

the currency pair for which it has a 

trading license. Under proposed ISE 

Rule 2213(f), sales of FXPMM trading 

licenses will be conducted by a sealed 

bid auction and prospective FXPMMs 

will be required to submit both a bid 

amount and a market quality 

commitment using parameters similar to 

those currently used by the Exchange 

for ETF and index options. Proposed 

ISE Rule 2213(f) further states that a 

FXPMM that continuously fails to meet 

its stated market quality commitments 

will have its trading license terminated 

by the Exchange, which will 

subsequently conduct an auction to sell 

the failing FXPMM’s trading license to 

another firm. Proposed ISE Rule 2213(f) 

also states that a FXPMM generally 

cannot terminate its trading license and 

that in the event a FXPMM is unable to 

fulfill its obligations, a backup FXPMM 

shall be designated by the Exchange. 

Under proposed ISE Rule 2213(g), 

which relates specifically to FXCMMs, 

the Exchange intends to initially sell ten 

FXCMM trading licenses per currency 

pair, with each trading license having a 

term of one year. Based on market 

demand, the Exchange may increase the 

number of FXCMM trading licenses 

available at the next regularly scheduled 

auction. Proposed ISE Rule 2213(g)(2) 

sets out the manner in which a ‘‘Dutch 

auction’’ to sell FXCMM trading 

licenses will be conducted. A FXCMM 

shall have the ability to terminate its 

trading license prior to its scheduled 

expiration, so long as the FXCMM 

provides the requisite written notice 

and a pays a termination fee, as set forth 

in proposed ISE Rule 2213(g)(4). 

The Exchange believes that the 

procedures under which market maker 

trading licenses will be made available 

are calculated to comply with the 

requirements of Section 6(b)(2) of the 

Act regarding fair access to the facilities 

of a registered exchange. The Dutch 

auction, by which FXCMM trading 

licenses will be sold, is itself a fair way 

to determine access, especially given 

that it is subject to provisions calculated 

to ensure that market maker trading 

licenses are widely available, such as 

the provisions (i) Specifying a 

reasonable minimum Reserve Price, (ii) 

limiting the number of market maker 

trading licenses that may be bid by a 

single Member, and (iii) the ability to 

sell additional unsold market maker 

trading licenses during the year at a 

10% premium. The sealed bid auction, 

by which FXPMM trading licenses will 

be sold, requires potential bidders to 

provide the Exchange with market 

quality commitments along with a bid. 

The Exchange believes that this added 

measure of qualification will enable the 

Exchange to sell these market maker 

trading licenses in an objective manner 

without solely awarding a trading 

license to the highest bidder. The 

procedures under which market maker 

trading licenses will be made available 

are also intended to comply with the 

requirements of Section 6(b)(4) of the 

Act, which requires that a registered 

exchange provide for the equitable 

allocation of reasonable dues, fees, and 

charges among its members and issuers 

and other persons using its facilities. 

The price of a market maker trading 

license is reasonable because it will be 

determined by ‘‘the market,’’ that is, by 

Members that wish to obtain a market 

maker trading license. A Dutch auction 

allows its participants to themselves 

determine the price, while the sealed 

bid auction will be conducted with a 

relatively low Reserve Price established 

by the Exchange. The auctions are 

closely related to the way access to the 

Exchange was traditionally priced, with 

supply and demand governing the price 

at which memberships were purchased 

or leased. The pricing of market maker 

trading licenses between auctions is also 

reasonable, as it is based on the auction 

price, but with a premium to the auction 

price, which will encourage 

participation in the regular auctions, 

which in turn will strengthen the price 

discovery mechanism that the auctions 

provide. 

The Exchange is also proposing to 

amend its Rule 1202 regarding margin 

requirements by adopting a rule for 

FCOs that is substantially similar to the 

PHLX’s margin rules for foreign 

currency options. Accordingly, under 

proposed ISE Rule 1202(d), cash-settled 

FCOs will have the same customer 

margin requirements as are provided in 

PHLX Rule 722, ‘‘Margin Accounts,’’

Commentary.16.16 Chapter 6 of the 


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9368 Federal Register / Vol. 72, No. 40 / Thursday, March 1, 2007 / Notices 

option premium price less an adjustment for the 

out-of-the-money amount of the option contract. On 

a quarterly calendar basis, ISE will review five-day 

price changes over the preceding three-year period 

for each underlying currency and set the add-on 

percentage at a level which would have covered 

those price changes at least 97.5% of the time (the 

‘‘confidence level’’). If the results of subsequent 

reviews show that the current margin level provides 

a confidence level below 97%, ISE will increase the 

margin requirement for that individual currency up 

to a 98% confidence level. If the confidence level 

is between 97% and 97.5%, the margin level will 

remain the same but will be subject to monthly 

follow-up reviews until the confidence level 

exceeds 97.5% for two consecutive months. If 

during the course of the monthly follow-up reviews, 

the confidence level drops below 97%, the margin 

level will be increased to a 98% level and if it 

exceeds 97.5% for two consecutive months, the 

currency will be taken off monthly reviews and will 

be put back on the quarterly review cycle. If the 

currency exceeds 98.5%, the margin level will be 

reduced to a 98% confidence level during the most 

recent 3 year period. Finally, in order to account for 

large price movements outside the established 

margin level, if the quarterly review shows that the 

currency had a price movement, either positive or 

negative, greater than two times the margin level 

during the most recent 3 year period, the margin 

requirement will be set at a level to meet a 99% 

confidence level (‘‘Extreme Outlier Test’’). The 

Exchange will inform Members and the public of 

the margin levels for each currency option 

immediately following the quarterly reviews 

described in Rule 1202(d). 

17Pursuant to ISE Rule 602, Representatives of a 

Member may solicit or accept customer orders for 

FCOs. 

18The OCC, together with the Exchange, has 

prepared an amendment to the Options Disclosure 

Document (‘‘ODD’’), which ISE expects OCC to 

shortly submit to the Commission for approval. The 

amended ODD will include characteristics of the 

Exchange’s FCOs and trading examples. 

19CME is an affiliate member of ISG. 

20See Letter from Michael Simon, General 

Counsel, ISE, to John Roeser, Assistant Director, 

Commission, dated February 23, 2007. 

21 15 U.S.C. 78f(b). 

22 15 U.S.C. 78f(b)(1). 

Exchange’s rules is designed to protect 

public customer trading and shall apply 

to trading in FCOs. Specifically, ISE 

Rules 608(a) and (b) prohibit Members 

from accepting a customer order to 

purchase or write an option, including 

on a cash-settled FCO, unless such 

customer’s account has been approved 

in writing by a designated Options 

Principal of the Member.17

Additionally, ISE’s Rule 610 regarding 

suitability is designed to ensure that 

options, including cash-settled FCOs, 

are only sold to customers capable of 

evaluating and bearing the risks 

associated with trading in this 

instrument. Further, ISE Rule 611 

permits members to exercise 

discretionary power with respect to 

trading options, including trading cashsettled FCOs, in a customer’s account 

only if the Member has received prior 

written authorization from the customer 

and the account had been accepted in 

writing by a designated Options 

Principal. ISE Rule 611 also requires 

designated Options Principals or 

Representatives of a Member to approve 

and initial each discretionary order, 

including discretionary orders for cashsettled FCOs, on the day the 

discretionary order is entered. Finally, 

ISE Rule 609, Supervision of Accounts, 

Rule 612, Confirmation to Customers, 

and Rule 616, Delivery of Current 

Options Disclosure Documents and 

Prospectus,18 will also apply to trading 

in FCOs. 

As previously noted, the Exchange 

represents that it has an adequate 

surveillance program in place for FCOs, 

and intends to apply the same program 

procedures that it applies to the 

Exchange’s index options. The 

Exchange is also a member of the 

Intermarket Surveillance Group (‘‘ISG’’) 

under the Intermarket Surveillance 

Group Agreement, dated June 20, 1994, 

and may obtain trading information via 

the ISG from other exchanges who are 

members or affiliates of the ISG. The 

members of the ISG include all of the 

U.S. registered stock and options 

markets. The ISG members work 

together to coordinate surveillance and 

investigative information sharing in the 

stock and options markets. In addition, 

the major futures exchanges are 

affiliated members of the ISG, which 

allows for the sharing of surveillance 

information for potential intermarket 

trading abuses. Specifically, ISE can 

obtain such information from the CME 

in connection with futures trading on 

that exchange.19

Finally, the Exchange represents that 

it has the necessary systems capacity to 

support new options series that will 

result from the introduction of cashsettled FCOs. The Exchange has 

provided the Commission with system 

capacity information that supports its 

system capacity representations.20

2. Statutory Basis 

The Exchange believes that this filing 

is consistent with Section 6(b) under the 

Act,21 in general, and furthers the 

objectives of Section 6(b)(1) 22 in 

particular, in that it enables the 

Exchange to be so organized as to have 

the capacity to be able to carry out the 

purposes of the Act and to comply, and 

to enforce compliance by its Members 

and persons associated with its 

Members, with the provisions of the 

Act, the rules and regulations 

thereunder, and the rules of the 

Exchange. 

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 purposes 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 written 

comments from members or other 

interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

As the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission will: 

(A) By order approve such proposed 

rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. 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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–ISE–2006–59 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–ISE–2006–59. 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, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 


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Federal Register / Vol. 72, No. 40 / Thursday, March 1, 2007 / Notices 9369 

23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5See Securities Exchange Act Release No. 55160 

(January 24, 2007), 72 FR 4202 (January 30, 2007). 

6 Id. 

7 15 U.S.C. 78f. 

8 15 U.S.C. 78f(b)(5). 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f)(6). 

11 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its intent to file the proposed rule change, 

along with a brief description and text of the 

proposed rule change, at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Commission has decided to waive 

the five-day pre-filing notice requirement. 

12 Id. 

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 the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–ISE–2006–59 and should be 

submitted on or before March 22, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.23

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3558 Filed 2–28–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55335; File No. SR–

NASDAQ–2007–005] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Modify the 

Date for Compliance With Regulation 

NMS 

February 23, 2007. 

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 February 

2, 2007, The NASDAQ Stock Market 

LLC (‘‘Nasdaq’’ or ‘‘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 substantially prepared by Nasdaq. 

The Exchange has filed the proposal as 

a ‘‘non-controversial’’ rule change 

pursuant to Section 19(b)(3)(A) of the 

Act 3 and Rule 19b–4(f)(6) thereunder,4

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 

Nasdaq proposes to modify certain of 

its rules that become effective upon the 

compliance date for Regulation NMS 

under the Act. The Commission has 

established March 5, 2007, as the date 

of compliance for all automated trading 

centers such as Nasdaq.5 Accordingly, 

Nasdaq proposes to modify its approved 

rules to demonstrate compliance with 

Regulation NMS by March 5, 2007, to 

conform with the Commission’s 

scheduled compliance date. The text of 

the proposed rule change is available at 

Nasdaq, the Commission’s Public 

Reference Room, and http:// 

www.nasdaq.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, 

Nasdaq 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 IV below. Nasdaq 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 

Nasdaq proposes to modify certain of 

its rules that become effective upon the 

compliance date for Regulation NMS 

under the Act. The Commission has 

established March 5, 2007, as the date 

of compliance for all automated trading 

centers such as Nasdaq.6 Accordingly, 

Nasdaq proposes to modify its approved 

rules to demonstrate compliance with 

Regulation NMS by March 5, 2007, to 

conform with the Commission’s 

scheduled compliance date. 

2. Statutory Basis 

Nasdaq believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,7 in 

general, and with Section 6(b)(5) of the 

Act,8 in particular, in that the proposal 

is 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, 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. The proposed rule 

change clarifies certain terms in 

Nasdaq’s rules. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Nasdaq does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the forgoing rule change does 

not: (1) Significantly affect the 

protection of investors or the public 

interest; (2) impose any significant 

burden on competition; and (3) become 

operative for 30 days after the date of 

this filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 9 and Rule 19b–

4(f)(6) thereunder.10

A proposed rule change filed under 

19b–4(f)(6) normally may not become 

operative prior to 30 days after the date 

of filing.11 However, Rule 19b–

4(f)(6)(iii) 12 permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest. The 

Exchange has requested that the 

Commission waive the 30-day operative 

delay. The Commission believes that 

waiving the 30-day operative delay is 


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