Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 68485 

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

2 17 CFR 240.19b–4. 

3See Form 19b–4 dated October 21, 2005, which 

replaced the original filing in its entirety 

(‘‘Amendment No. 1’’). 

4See partial amendment dated November 3, 2005, 

which corrected a minor omission in the current 

rule text and a typographical error in the filing 

(‘‘Amendment No. 2’’). 

5See Securities Exchange Act Release No. 49931 

(June 28, 2004), 69 FR 40696 (July 6, 2004) (‘‘June 

2004 Filing’’). 

6 ISE Rule 717 imposes various limitations on 

orders that Electronic Access Members may enter 

on the ISE, while ISE Rule 805 governs market 

maker orders. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52729; File No. SR–ISE–

2005–48] 

Self-Regulatory Organizations; 

International Securities Exchange, Inc.; 

Notice of Filing of Proposed Rule 

Change and Amendments No. 1 and 

No. 2 Thereto Relating to Market Maker 

Quote Interaction 

November 3, 2005. 

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 October 

3, 2005, the International Securities 

Exchange, Inc. (‘‘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 prepared by the Exchange. 

On October 21, 2005, the ISE submitted 

Amendment No. 1 to the proposed rule 

change.3 On November 3, 2005, the ISE 

submitted Amendment No. 2 to the 

proposed rule change.4 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 ISE proposes to amend its rules 

regarding a delay of up to one second 

before two market maker quotations 

interact. The text of the proposed rule 

change is as follows. Proposed new 

language is in italics; proposed 

deletions are in [brackets]. 

* * * * * 

Rule 804. Market Maker Quotations 

* * * * * 

(d) Firm Quotes. (1) Market maker 

bids and offers are firm for orders and 

Exchange market maker quotations both 

under this Rule and Rule 602 of 

Regulation NMS[11Ac1–1] under the 

Exchange Act (‘‘Rule 602 of Reg 

NMS[11Ac1–1]’’) for the number of 

contracts specified according to the 

requirements of paragraph (b) above. 

Market maker bids and offers are not 

firm under this Rule and Rule 602 of 

Reg NMS[11Ac1–1] if: 

(i) A system malfunction or other 

circumstance impairs the Exchange’s 

ability to disseminate or update market 

quotes in a timely and accurate manner; 

(ii) The level of trading activities or 

the existence of unusual market 

conditions is such that the Exchange is 

incapable of collecting, processing, and 

making available to quotation vendors 

the data for the option in a manner that 

accurately reflects the current state of 

the market on the Exchange, and as a 

result, the market in the option is 

declared to be ‘‘fast’’ pursuant to Rule 

704; 

(iii) During trading rotations; or 

(iv) Any of the circumstances 

provided in paragraph (c)(3) of Rule 602 

of Reg NMS[11Ac1–1] exist. 

(2) Notwithstanding Paragraph (1) 

above, if a market maker’s bid (offer) can 

trade with the offer (bid) of another 

market maker, the Exchange shall have 

the authority to implement a delay so 

that no execution shall occur between 

such quotations for a period of no more 

than one second. During such [this] 

period, the System will update 

quotations that may be received; 

provided however, that during such 

[this] period all quotations shall 

otherwise remain firm and the System 

shall [will] automatically execute all 

incoming orders against such 

quotations. 

* * * * * 

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 

Exchange 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 

Exchange 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 

In June 2004, the Commission 

approved a proposed rule change by the 

Exchange adopting a delay of up to one 

second before two market maker 

quotations at the same price would 

trade.5 As represented in the June 2004 

Filing, the ISE treats orders and 

quotations differently, with ISE Rule 

804(a) stating that only market makers 

may enter quotations on the ISE. Market 

makers use quotations to input and 

update prices on multiple series of 

options at the same time. Quotations 

generally are based on pricing models 

that rely on various factors, including 

the price and volatility of the 

underlying security. The ISE states that 

as these variables change, a market 

maker’s pricing model automatically 

updates quotations for some or all of an 

option’s series. In contrast, an order is 

an interest to buy a stated number of 

contracts of one specific options series. 

The ISE states that all ISE members, 

including ISE market makers, can enter 

orders.6

The ISE states that the purpose of the 

one-second delay adopted by the June 

2004 Filing was to allow a market maker 

to update its quotation to reflect price 

changes in an underlying stock before 

another market maker’s quotation would 

‘‘hit’’ its quote. During this brief period, 

market maker quotations remain firm for 

all orders the ISE receives. This 

includes orders from customers, brokerdealers and even other market makers. 

The only exclusion is for executions 

against other market maker quotes. 

However, as the ISE trading system 

and its market maker members’ quoting 

systems continue to advance 

technologically, the ISE believes that, at 

some point, providing this one-second 

delay may no longer be necessary. Thus, 

in order to have the flexibility to remove 

this delay at that point, the ISE proposes 

to amend this rule to specify that this is 

a functionality that the ISE can, but is 

not required, to use. Additionally, if the 

Exchange determines to remove the onesecond delay entirely, this proposed 

rule change would give ISE the ability 

to reinstate the one-second delay, if 

needed, due to, for example, such 

removal resulting in a disruption to the 

market or other unintended 

consequences. In making any 

determination to remove the delay, the 

Exchange would take into consideration 

input from its market maker members, 

particularly through the Exchange’s 

Market Maker Advisory Committee. 

The Exchange notes that any change 

made to this functionality would be 

implemented in a uniform, market-wide 

basis (as opposed to, for example, a 

class-by-class basis). The Exchange 

would inform its members of any 

changes made to this functionality by 

68486 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 

7 15 U.S.C. 78f(b). 

8 15 U.S.C. 78f(b)(5). 9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaced the original filing in 

its entirety. 

distributing a Regulatory Information 

Circular prior to the implementation of 

any change. 

2. Statutory Basis 

The Exchange believes the proposal is 

consistent with Section 6(b) of the Act 7, 

in general, and furthers the objectives of 

Section 6(b)(5) of the Act,8 in particular, 

in that it is designed to promote just and 

equitable principles of trade, remove 

impediments to and perfect the 

mechanisms of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest in that it would promote 

efficient interaction of market maker 

quotations. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange believes 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 

No written comments were solicited 

or received by the Exchange on this 

proposal. 

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 the 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, as amended 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–2005–48 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–ISE–2005–48. 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 

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–2005–48 and should be 

submitted on or before December 1, 

2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22416 Filed 11–9–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52725; File No. SR–NASD–

2005–118] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Order Granting Accelerated Approval 

of a Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

the Listing and Trading of 9% Targeted 

Income Strategic Total Return 

SecuritiesSM Linked to the CBOE 

Nasdaq–100 BuyWrite Index 

November 3, 2005. 

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 30, 2005, the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’), through its subsidiary, The 

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’), 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by Nasdaq. On 

October 14, 2005, Nasdaq filed 

Amendment No. 1 to the proposed rule 

change.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons and is approving the proposal 

on an accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

Nasdaq proposes to list and trade 9% 

Targeted Income Strategic Total Return 

SecuritiesSM (‘‘9% STRS’’ or ‘‘Notes’’), 

the return on which is based upon the 

CBOE Nasdaq–100 BuyWrite Index 

(‘‘BXN Index’’ or ‘‘Index’’) and issued by 

Morgan Stanley. The text of the 

proposed rule change is available on the 

NASD’s Web site (http:// 

www.nasd.com), at the principal offices 

of the Nasdaq, 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, 

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