67508 Federal Register / Vol. 70, No. 214 / Monday, November 7, 2005 / Notices 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 superseded and replaced the 

ISE’s original filing in its entirety. Amendment No. 

2 corrected a non-substantive typographical error in 

the text of the proposed rule change, and two 

incorrect references in footnotes to the Form 19b–

4 for Amendment No. 1 and Exhibit 1 thereto. 

4See Securities Exchange Act Release No. 52479 

(September 21, 2005), 70 FR 56755. 

5 ISE Rule 716 originally required that orders be 

exposed in the Facilitation Mechanism for 30 

seconds. In September 2002, the Commission 

approved an ISE proposal to reduce this exposure 

period from 30 seconds to 10 seconds. See 

Securities Exchange Act Release No. 46514 

(September 18, 2002), 67 FR 60627 (September 25, 

2005) (order approving File No. SR–ISE–2001–19). 

The Commission approved the ISE’s Solicited Order 

Mechanism in June 2004 with an exposure period 

of 10 seconds. See Securities Exchange Act Release 

No. 49943 (June 30, 2004), 69 FR 41317 (July 8, 

2004) (order approving File No. SR–ISE–2001–22). 

6See ISE Rule 723, ‘‘Price Improvement 

Mechanism for Crossing Transactions.’’ See also 

Securities Exchange Act Release No. 50819 

(December 8, 2004), 69 FR 75093 (December 15, 

2004) (order approving File No. SR–ISE–2003–06) 

(‘‘PIM Order’’). 

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

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

9 In approving this proposal, the Commission has 

considered its impact on efficiency, competition, 

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

10See PIM Order, supra note 6. 

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–CBOE–2005–78 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–CBOE–2005–78. 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–CBOE–2005–78 and should 

be submitted on or before November 28, 

2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.15

Jonathan G. Katz, 

Secretary. 

[FR Doc. E5–6138 Filed 11–4–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52711; File No. SR–ISE–

2004–04] 

Self-Regulatory Organizations; 

International Securities Exchange, Inc.; 

Order Approving Proposed Rule 

Change and Amendments No. 1 and 2 

Relating to Exposure Periods in the 

Facilitation and Solicited Order 

Mechanisms 

November 1, 2005. 

I. Introduction 

On February 23, 2004, the 

International Securities Exchange, Inc. 

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

Securities and Exchange Commission 

(‘‘Commission’’) pursuant to Section 

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

of 1934 (‘‘Act’’),1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

reduce the exposure period in its 

Facilitation and Solicited Order 

Mechanisms from ten seconds to three 

seconds. The ISE filed Amendments No. 

1 and 2 to the proposal on September 

7, 2005, and September 20, 2005, 

respectively.3 The proposed rule 

change, as amended, was published for 

comment in the Federal Register on 

September 28, 2005.4 The Commission 

received no comment letters regarding 

the proposal. This order approves the 

proposed rule change, as amended. 

II. Description of Proposal 

Supplementary Material .04 to ISE 

Rule 716, ‘‘Block Trades,’’ currently 

provides ISE members with 10 seconds 

to respond to broadcast messages for 

orders entered into the ISE’s Facilitation 

and Solicited Order Mechanisms. The 

ISE proposes to amend ISE Rule 716, 

Supplementary Material .04 to reduce 

the exposure period in the Facilitation 

and Solicited Order Mechanisms from 

10 seconds to three seconds.5

Similar to the Facilitation and 

Solicited Order Mechanisms, the ISE’s 

Price Improvement Mechanism (‘‘PIM’’) 

provides an auction process through 

which an ISE member may trade with 

its customer’s order as principal or 

execute its customer’s order against 

orders the member has solicited.6 The 

exposure period for orders entered into 

the ISE’s PIM is three seconds. The ISE 

notes that the PIM is an interactive 

auction in which ISE members receive 

and may respond to multiple price 

updates within the three-second 

exposure period. In contrast, ISE 

members receive only one message at 

the start of an auction for orders entered 

into the Facilitation and Solicited Order 

Mechanisms. The ISE believes that there 

is no reason for providing different 

exposure periods in the three 

mechanisms because, in each of the 

three mechanisms, ISE members are 

notified of orders and enter their 

interest in trading with such orders in 

the same technical manner. 

III. Discussion 

After careful consideration, the 

Commission finds that the proposed 

rule change, as amended, is consistent 

with Section 6(b) of the Act,7 in general, 

and furthers the objectives of Section 

6(b),8 in particular, in that it is designed 

to promote just and equitable principles 

of trade, 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.9 In 

particular, the Commission believes that 

reducing the exposure period for orders 

entered into the ISE’s Facilitation and 

Solicited Order Mechanisms from 10 

seconds to three seconds could facilitate 

the prompt execution of these orders 

while providing participants in ISE’s 

market with an adequate opportunity to 

compete and provide price 

improvement for the orders. 

In approving the ISE’s PIM, the 

Commission concluded that the threesecond PIM auction should afford 

electronic crowds sufficient time to 

compete for orders submitted to the 

PIM.10 In reaching this conclusion, the 

Federal Register / Vol. 70, No. 214 / Monday, November 7, 2005 / Notices 67509 

11See PIM Order, supra note 6. 

12See PIM Order, supra note 6. 

13 15 U.S.C. 78s(b)(2). 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 42476 

(February 29, 2000); 65 FR 12305 (March 8, 2000) 

(SR–NASD–97–89). 

Commission stated that the critical issue 

is determining whether the three-second 

timeframe would give participants in a 

fully automated marketplace sufficient 

time to respond to a PIM broadcast, to 

compete, and to provide price 

improvement for orders, and whether 

electronic systems were available to ISE 

members that would allow them to 

respond to PIM broadcasts in a 

meaningful way within the proposed 

timeframe.11 The Commission noted 

that the ISE is a fully electronic 

exchange where crowd members 

interact by electronic means, and that 

electronic systems were readily 

available, if not already in place, that 

would allow ISE members to respond to 

PIM broadcasts.12

The Commission believes that its 

rationale for approving the three-second 

PIM auction applies equally to auctions 

in the Facilitation and Solicited Order 

Mechanisms. In this regard, the 

Commission notes that in contrast to the 

PIM, which provides an interactive 

auction in which ISE members may 

receive and respond to multiple price 

updates within the three-second 

exposure period, the Facilitation and 

Solicited Order Mechanisms provide 

ISE members with only one message at 

the start of the auctions. Accordingly, 

the Commission believes that the 

electronic systems that would allow ISE 

members to receive and respond to 

multiple price updates during a threesecond PIM auction also should allow 

them to respond in a meaningful way to 

three-second auctions in the Facilitation 

and Solicited Order Mechanisms. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,13 that the 

proposed rule change (SR–ISE–2004–

04), as amended, is approved. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.14

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22179 Filed 11–4–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52709; File No. SR–NASD–

2005–117] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing of 

Proposed Rule Change and 

Amendment No. 1 Thereto Seeking 

Permanent Approval of Rules 

Concerning Bond Mutual Fund 

Volatility Ratings Prior to Expiration of 

Pilot 

November 1, 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 28, 2005 and October 24, 

2005 (Amendment No. 1), the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by NASD. 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 

NASD is seeking permanent approval 

of NASD Rule 2210(c)(3) and 

Interpretive Material 2210–5 concerning 

bond mutual fund volatility ratings 

prior to the expiration of the pilot on 

December 29, 2005. 

Below is the text of the proposed rule 

change. Proposed new language is in 

italics; proposed deletions are in 

brackets. 

* * * * * 

IM–2210–5. Requirements for the Use of 

Bond Mutual Fund Volatility Ratings 

[(This rule and Rule 2210(c)(3) will 

expire on December 29, 2005, unless 

extended or permanently approved by 

NASD at or before such date.)] 

(a) through (c) No change. 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NASD included statements concerning 

the purpose of and basis for the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. 

NASD 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 

Background and Description of NASD’s 

Rules on Bond Mutual Fund Volatility 

Ratings 

On February 29, 2000, the SEC 

approved on a pilot basis NASD 

Interpretive Material 2210–5, which 

permits members and their associated 

persons to include bond fund volatility 

ratings in supplemental sales literature 

(mutual fund sales material that is 

accompanied or preceded by a fund 

prospectus).3 At that time, the SEC also 

approved as a pilot NASD Rule 

2210(c)(3), which sets forth the filing 

requirements and review procedures 

applicable to sales literature containing 

bond mutual fund volatility ratings. 

Previously, NASD staff interpreted 

NASD rules to prohibit the use of bond 

fund volatility ratings in sales material. 

IM–2210–5 permits the use of bond 

fund volatility ratings only in 

supplemental sales literature and only if 

certain conditions are met: 

• The word ‘‘risk’’ may not be used to 

describe the rating. 

• The rating must be the most recent 

available and be current to the most 

recent calendar quarter ended prior to 

use. 

• The rating must be based 

exclusively on objective, quantifiable 

factors. 

• The entity issuing the rating must 

provide to investors through a toll-free 

telephone number or Web site (or both) 

a detailed disclosure on its rating 

methodology. 

• A disclosure statement containing 

all of the information required by the 

rule must accompany the rating. The 

statement must include such 

information as the name of the entity 

issuing the rating, the most current 

rating and the date it was issued, and a 

description of the rating in narrative 

form containing certain specified 

disclosures. 

Rule 2210(c)(3) requires members to 

file for approval with NASD’s 

Advertising Regulation Department 

(‘‘Department’’), at least 10 days prior to