[Federal Register Volume 66, Number 104 (Wednesday, May 30, 2001)]
[Notices]
[Pages 29373-29374]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-13529]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44340; File No. SR-ISE-2001-16]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
International Securities Exchange LLC Related to a Temporary Extension 
of Allocation Algorithm Pilot

May 22, 2001.
    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 21, 2001, the International Securities Exchange LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change described in Items 
I and II below, which Items have been prepared by the ISE. The 
Commission is granting accelerated approval of the proposed rule change 
and publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend Supplementary Material .01 to 
ISE Rule 713 to temporarily extend, until August 1, 2001, the 
effectiveness of the Exchange's allocation algorithm pilot, approved by 
the Commission on May 22, 2000.\3\ The Exchange is requesting 
accelerated approval of the proposed rule change so that the current 
allocation formula will continue to remain in effect on a pilot basis 
while the Commission considers the Exchange's request for permanent 
approval of the allocation formula. The text of the proposed rule 
change is available at the ISE and the Commission.
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    \3\ See Securities Exchange Act Release No. 42808 (May 22, 
2000), 65 FR 34515 (May 30, 2000).
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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 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
    Under ISE Rule 713, orders sent to the ISE are executed at the best 
bid or offer first against public-customer limit orders on the ISE's 
limit order book and then against market maker quotes and professional 
orders according to an allocation formula. This allocation formula is 
specified in Supplementary Material .01 to ISE Rule 713. As discussed 
above, the portion of the allocation formula that gives the primary 
market maker (``PMM'') priority over other market makers and 
professional orders with respect to orders of five contracts or fewer 
was approved by the Commission on May 22, 2000 on a one-year pilot 
basis. According to the Exchange, it will be filing shortly a proposed 
rule change with the Commission requesting permanent approval of the 
current allocation formula. The Exchange is requesting that the current 
pilot be extended until August 1, 2001 so that the current allocation 
formula will remain in effect while the Commission considers its 
request for permanent approval.\4\
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    \4\ Pursuant to the terms of the pilot, the ISE was required to 
provide the Commission with confidential statistics regarding 
executions on a quarterly basis. In addition, the ISE was required 
to lower the size of the orders for which the PMM receives priority 
if more than 40% of the total volume executed on the ISE (excluding 
facilitation volume) was comprised of orders for five or fewer 
contracts executed by PMMs. During the term of the pilot, the 
Exchange has provided the statistics as required and made no 
adjustments to the order size for which the PMM receives priority as 
the percentage of orders for five or fewer contracts executed by 
PMMs did not approach the 40% threshold. The Exchange will continue 
to provide the required statistics during the pilot extension.
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2. Statutory Basis
    The ISE believes that the proposed rule change is consistent with 
the provisions of section 6(b)(5) of the Act,\5\ which requires 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 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.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE 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 on the proposed rule change were neither solicited 
nor received.

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, 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 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 
ISE. All submissions should refer to File No. SR-ISE-2001-16 and should 
be submitted by June 20, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful review, the Commission finds that granting a 
temporary extension to the existing pilot program relating to the ISE's 
existing allocation algorithm, as described in the proposed rule 
change, is consistent with the requirements of section 6 of the Act\6\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\7\ Specifically, the Commission believes the 
proposal is

[[Page 29374]]

consistent with Section 6(b)(5) of the Act\8\ because it will 
facilitate transactions in securities, promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market, by allowing the ISE to continue to operate 
its system on a pilot basis until August 1, 2001 according to the 
established allocation algorithm and allow market participants to rely 
upon the current features of the ISE's system, until such time as the 
Commission has the opportunity to review the ISE's request for 
permanent approval of its allocation algorithm.
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    \6\ 15 U.S.C. 78f.
    \7\ In approving the rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    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. The Commission notes that the 
ISE has not requested any change to its existing allocation algorithm, 
which was previously approved by the Commission on a pilot basis. 
Rather, it has requested only a temporary extension of this pilot 
program until August 1, 2001, during which time the Commission expects 
to review the ISE's proposal for permanent approval. The Commission 
notes that it has received no complaints regarding the operation of the 
allocation algorithm during the pilot period. The Commission believes, 
therefore, that granting accelerated approval of the proposed rule 
change is appropriate and consistent with section 6 of the Act.\9\
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    \9\ 15 U.S.C. 78f.
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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change is hereby approved on an 
accelerated basis as a pilot scheduled to expire on August 1, 2001.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-13529 Filed 5-29-01; 8:45 am]
BILLING CODE 8010-01-M