Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 7345 

firm regulation. See Securities Exchange Act 

Release No. 56148 (July 26, 2007), 72 FR 42146 

(August 1, 2007) (Notice of Filing and Order 

Approving and Declaring Effective a Plan for the 

Allocation of Regulatory Responsibilities). The 

Common Rules are the same NYSE rules that 

FINRA has incorporated into its rulebook. See 

Securities Exchange Act Release No. 56147 (July 26, 

2007), 72 FR 42166 (August 1, 2007) (Notice of 

Filing and Order Granting Accelerated Approval of 

Proposed Rule Change to Incorporate Certain NYSE 

Rules Relating to Member Firm Conduct; File No. 

SR–NASD–2007–054). Paragraph 2(b) of the 

Agreement sets forth procedures regarding 

proposed changes by either NYSE or FINRA to the 

substance of any of the Common Rules. 

14 15 U.S.C. 78o–3(b)(6). 

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

16 17 CFR 240.19b–4(f)(6). 

17 17 CFR 240.19b–4(f)(6)(iii). 

18 17 CFR 240.19b–4(f)(6)(iii). 

19For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

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

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

2. Statutory Basis 

The proposed rule change is 

consistent with the provisions of 

Section 15A(b)(6) of the Act,14 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The proposed rule 

change is necessary and appropriate to 

comply with the amendments to SEC 

Rule 10a–1 and Regulation SHO and to 

maintain consistency with the NYSE’s 

amendments to its Rules 421, 440F and 

440G. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA 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 foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 15 and Rule 19b–

4(f)(6) thereunder.16

FINRA has requested that the 

Commission waive the five-day prefiling notice 17 and the requirement that 

the rule change, by its terms, not 

become operative for 30 days after the 

date of the filing.18 FINRA has requested 

that the effective date of the proposed 

rule change be the same as the effective 

date of the NYSE’s amendments to 

NYSE Rules 421, 440F and 440G to 

ensure that FINRA’s NYSE Rules 421, 

440F and 440G maintain their status as 

Common Rules under the Agreement. 

The Commission believes that waiver of 

the five-day pre-filing notice and the 30- 

day operative delay 19 is consistent with 

the protection of investors and the 

public interest, given that the 

compliance date for the Commission’s 

amendments to Rule 10a–1 was July 6, 

2007. In addition, waiver of these 

requirements will permit FINRA to 

implement its rule changes on the same 

date that proposed rule changes 

included in the NYSE’s filing are 

implemented. For these reasons, the 

Commission designates the proposal to 

be effective and operative upon filing 

with the Commission. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

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–FINRA–2007–025 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–FINRA–2007–025. 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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. to 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. 

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–FINRA–2007–025 and 

should be submitted on or before 

February 28, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2184 Filed 2–6–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57254; File No. SR–ISE–

2006–26] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Proposed Rule 

Change, as Modified by Amendment 

No. 1, Relating to Professional 

Account Holders 

February 1, 2008. 

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 5, 

2006, the International Securities 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change as described in 


jlentini on PROD1PC65 with NOTICES
7346 Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 

3Amendment No. 1 replaced the previously filed 

proposed rule change in its entirety. 

4 ISE Rule 100(a)(32) and (33). 

5 ISE Rule 100(a)(22) and (23). 

6 ISE Rules 713 (Priority of Quotes and Orders), 

716 (Block Trades) and 723 (Price Improvement 

Mechanism for Crossing Transactions). 

7Market professionals have access to 

sophisticated trading systems that contain 

functionality not available to a retail customer, 

including things such as continuously updated 

pricing models based upon real-time streaming 

data, access to multiple markets simultaneously, 

and order and risk management tools. 

8Exchange staff visited a broker-dealer that 

provided their professional customers with multiscreened trading stations equipped with trading 

technology that allowed the trader to monitor and 

place orders on all six options exchanges 

simultaneously. These trading stations also 

provided compliance filters, order management 

tools, the ability to place orders in the underlying 

securities, and market data feeds. 

9Market makers enter quotes based upon the 

theoretical value of the option, which moves with 

various factors in their pricing models, such as the 

value of the underlying security. Professional 

customers place and cancel orders in relation to an 

options theoretical value in much the same manner 

as a market maker. This is evidenced by the entry 

of limit orders that join the best bid or offer and 

by a very high rate of orders that are canceled. In 

contrast, retail customers who enter orders as part 

of an investment strategy (such as a covered right 

or a directional trade) most frequently enter 

marketable orders or limit orders that they do not 

cancel and replace. A study of 10 retail-oriented 

broker-dealer members over a six-month period 

indicated that typically only around 20% of their 

executed customer volume resulted from orders that 

joined the ISE best bid or offer upon entry. In 

contrast, over the same period, around 45% of the 

volume executed by a broker-dealer with a 

professional trader client base resulted from orders 

that joined the ISE best bid and offer upon entry. 

Additionally, retail-oriented broker-dealer members 

generally have a cancel to trade ratio that is less 

than 1 (i.e., more of their orders are executed than 

canceled), whereas members with a professional 

trader client base generally have cancel to trade 

ratios that exceed 5 (i.e., for every order that is 

executed, 5 are canceled). 

Items I, II, and III below, which Items 

have been prepared substantially by the 

ISE. On January 25, 2008, the Exchange 

filed Amendment No. 1 to the 

proposal.3 The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 1, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The ISE is proposing to amend ISE 

Rules 713 (Priority of Quotes and 

Orders), 716 (Block Trades) and 723 

(Price Improvement Mechanism for 

Crossing Transactions) to give certain 

non-broker-dealer orders the same 

priority as broker-dealer orders and 

market maker quotes. The ISE also 

proposes to charge the same fee for the 

execution of certain non-broker-dealer 

orders as is applicable to the execution 

of broker-dealer orders on the Exchange. 

The text of the proposed rule change is 

available on the Exchange’s Web site 

(http://www.iseoptions.com), at the 

principal office of 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 

Under ISE rules, a ‘‘Public Customer’’

is any person or entity that is not a 

broker or dealer in securities, and a 

‘‘Public Customer Order’’ is an order for 

the account of a Public Customer.4 A 

‘‘Non-Customer’’ is any person or entity 

that is a broker or dealer in securities, 

and a ‘‘Non-Customer Order’’ is an order 

for the account of a broker or dealer.5

These terms are used in ISE specific 

rules that provide certain marketplace 

advantages to Public Customer Orders 

over Non-Customer Orders. In 

particular, under ISE rules (i) Public 

Customer Orders are given priority over 

Non-Customer Orders and market maker 

quotes at the same price,6 and (ii) 

subject to certain exceptions, members 

are not charged a transaction fee for the 

execution of Public Customer Orders. 

The purpose of providing these 

marketplace advantages to Public 

Customer Orders is to attract retail 

investor order flow to the Exchange by 

leveling the playing field for retail 

investors over market professionals 7

and providing competitive pricing. 

With respect to these ISE marketplace 

advantages, the Exchange does not 

believe the definitions of Public 

Customer and Non-Customer properly 

distinguish between non-professional 

retail investors and certain 

professionals. According to the 

Exchange, providing marketplace 

advantages based upon whether the 

order is for the account of a participant 

that is a registered broker-dealer is no 

longer appropriate in today’s 

marketplace because some non-brokerdealer individuals and entities have 

access to information and technology 

that enables them to professionally trade 

listed options in the same manner as a 

broker or dealer in securities.8 These 

individual traders and entities 

(collectively, ‘‘professional account 

holders’’) have the same technological 

and informational advantages over retail 

investors as broker-dealers trading for 

their own account, which enables them 

to compete effectively with brokerdealer orders and market maker quotes 

for execution opportunities in the ISE 

marketplace.9

The Exchange therefore does not 

believe that it is consistent with fair 

competition for these professional 

account holders to continue to receive 

the same marketplace advantages as 

retail investors over broker-dealers 

trading on the ISE. Moreover, because 

Public Customer Orders at the same 

price are executed in time priority, retail 

investors are prevented from fully 

benefiting from the priority advantage 

when professional account holders are 

afforded Public Customer Order 

priority. 

Accordingly, the Exchange is seeking 

to adopt two new terms that will be 

used to more appropriately provide ISE 

marketplace advantages to retail 

investors on the ISE. Under the 

proposal, execution priority under ISE 

Rules 713 (Priority of Quotes and 

Orders), 716 (Block Trades) and 723 

(Price Improvement Mechanism for 

Crossing Transactions) will be given to 

‘‘Priority Customer Orders’’ over 

‘‘Professional Orders’’ and market maker 

quotes. Transaction fees will also be 

charged using these definitions. 

Specifically, the ISE will charge 

standard transaction fees currently 

applicable to broker-dealer orders for 

Professional Orders, and fee waivers 

currently available to Public Customer 

Orders will be limited to Priority 

Customer Orders. A Priority Customer 

Order will be defined as a person or 

entity that (i) is not a broker or dealer 

in securities, and (ii) does not place 

more than 390 orders in listed options 

per day on average during a calendar 

month for its own beneficial account(s). 

A ‘‘Professional Order’’ will be defined 

as an order that is for the account of a 

person or entity that is not a Priority 

Customer. 

The use of these new terms in the 

execution rules and fee schedule will 

result in professional account holders 

participating in the ISE’s allocation 

process on equal terms with brokerdealer orders and market maker quotes. 

It will also result in members paying the 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 7347 

10Orders for any customer that had an average of 

more than 390 orders per day during any month of 

a calendar quarter must be represented as 

Professional Orders for the next calendar quarter. 

Members will be required to conduct a quarterly 

review and make any appropriate changes to the 

way in which they are representing orders within 

five days after the end of each calendar quarter. 

While Members only will be required to review 

their accounts on a quarterly basis, if during a 

quarter the Exchange identifies a customer for 

which orders are being represented as Priority 

Customer Orders but that has averaged more than 

390 orders per day during a month, the Exchange 

will notify the Member and the Member will be 

required to change the manner in which it is 

representing the customer’s orders within five days. 

11Three hundred and ninety orders is equal to the 

total number of orders that a person would place 

in a day if that person entered one order every 

minute from market open to market close. A study 

of one of the largest retail-oriented options 

brokerage firms indicated that on a typical trading 

day, options orders were entered with respect to 

5922 different customer accounts. There was only 

one order entered with respect to 3765 of the 5922 

different customer accounts on this day, and there 

were only 17 customer accounts with respect to 

which more than 10 orders were entered. The 

highest number of orders entered with respect to 

any one account over the course of an entire week 

was 27. Additionally, many of the largest retailoriented electronic brokers offer lower commission 

rates to customers they define as ‘‘active traders.’’

The Exchange reviewed the publicly available 

information from the Web sites for Charles Schwab, 

Fidelity, TD Ameritrade and optionsXpress, all of 

which define an ‘‘active trader’’ as someone who 

executes only a few options trades per month. The 

highest required trading activity to qualify as an 

active trader among these four firms was 35 trades 

per quarter. 

12 15 U.S.C. 78f(b)(5). 

same transaction fees for the execution 

of orders for a professional account as 

they do for broker-dealer orders. The 

proposal will not otherwise affect nonbroker-dealer individuals or entities 

under the ISE rules, and in particular, 

all Public Customer Orders will 

continue to be treated equally for 

purposes of the linkage-related rules. 

For example, the ISE will provide the 

same away-market protection for all 

Public Customer Orders, including nonbroker-dealer orders that are included in 

the definition of ‘‘Professional 

Orders.’’10

In order to properly represent orders 

entered on the Exchange according to 

the new definitions, Electronic Access 

Members will be required to indicate 

whether Public Customer Orders are 

‘‘Priority Customer Orders’’ or 

‘‘Professional Orders.’’ To comply with 

this requirement, Electronic Access 

Members will be required to review 

their customers’ activity on at least a 

quarterly basis to determine whether 

orders that are not for the account of a 

broker or dealer should be represented 

as Priority Customer Orders or 

Professional Orders. 

The Exchange believes that 

identifying professional account holders 

based upon the average number of 

orders entered for a beneficial account 

is an appropriately objective approach 

that will reasonably distinguish such 

persons and entities from retail 

investors. The Exchange proposes the 

threshold of 390 orders per day on 

average over a calendar month because 

it believes it far exceeds the number of 

orders that are entered by retail 

investors in a single day,11 while being 

a sufficiently low number of orders to 

cover the professional account holders 

that are competing with broker-dealers 

in the ISE marketplace. In addition, 

basing the standard on the number of 

orders that are entered in listed options 

for a beneficial account(s) assures that 

professional account holders cannot 

inappropriately avoid the purpose of the 

rule by spreading their trading activity 

over multiple exchanges, and using an 

average number over a calendar month 

will prevent gaming of the 390 order 

threshold. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 12 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. In particular, the 

proposal will assure that retail investors 

continue to receive the appropriate 

marketplace and cost advantages in the 

ISE marketplace, while furthering fair 

competition among marketplace 

professionals by treating them equally 

within the ISE marketplace. 

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–2006–26 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–2006–26. 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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 


jlentini on PROD1PC65 with NOTICES
7348 Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 ISE Rule 100(a)(32) and (33). 

4 ISE Rule 100(a)(22) and (23). 

5The Exchange is also proposing to make nonsubstantive changes to correct cross references in 

Rule 100(a) to the Constitution, and to clarify that 

the term Public Customer means a person ‘‘or 

entity’’ that is not a broker or dealer securities. 

Copies of the filing also will be available 

for inspection and copying at the 

principal office of the ISE. 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–2006–26 and should be 

submitted on or before February 28, 

2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2206 Filed 2–6–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57255; File No. SR–ISE–

2007–76] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Proposed Rule 

Change and Amendment No. 1 Thereto 

Relating to Voluntary Professionals 

February 1, 2008. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 2 thereunder, 

notice is hereby given that on August 

24, 2007, 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 

Exchange. On January 25, 2008, ISE 

filed Amendment No. 1 to the proposed 

rule change. 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 proposes to allow, on a 

purely voluntary basis, non-brokerdealer customers to designate their 

orders as ‘‘Voluntary Professional.’’

Voluntary Professional orders will be 

treated the same as non-customer orders 

for purposes of execution priority and 

the ISE schedule of fees. The text of the 

proposed rule change is available at ISE, 

the Commission’s Public Reference 

Room, and http://www.iseoptions.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, 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Under ISE rules, a ‘‘Public Customer’’

is any person or entity that is not a 

broker or dealer in securities and a 

‘‘Public Customer Order’’ is an order for 

the account of a Public Customer.3 A 

‘‘Non-Customer’’ is any person or entity 

that is a broker or dealer in securities 

and a ‘‘Non-Customer Order’’ is an order 

for the account of a broker or dealer.4

These terms are used in specific ISE 

rules that provide certain marketplace 

advantages to Public Customer Orders 

over Non-Customer Orders. In 

particular, under ISE rules Public 

Customer Orders are given priority over 

Non-Customer Orders and market maker 

quotes at the same price, and subject to 

certain exceptions, members are not 

charged a transaction fee for the 

execution of Public Customer Orders, 

but are subject to cancellation fees 

related to the execution of Public 

Customer Orders. 

Members have indicated that certain 

of their non-broker-dealer customers 

employing sophisticated trading 

strategies that involve cancelling a large 

percentage of their orders before the 

orders are executed would prefer to 

have their orders categorized as NonCustomer Orders, thereby gaining relief 

from the Exchange’s cancellation fee 

that member firms pass through to these 

customers. Accordingly, the Exchange 

proposes to allow, on a purely voluntary 

basis, non-broker-dealer customers to 

instruct member firms, in writing, to 

designate their orders as Voluntary 

Professional.5 Such orders would be 

considered Non-Customer Orders for 

purposes of ISE Rules 713 (Priority of 

Quotes and Orders), 716 (Block Trades), 

722 (Complex Orders), and 723 (Price 

Improvement Mechanism for Crossing 

Transactions). For orders designated as 

Voluntary Professional, ISE would 

charge members standard transaction 

fees currently applicable to brokerdealer orders, which means that the 

cancellation fee will not be applicable to 

such orders. 

Under the proposal, Voluntary 

Professionals would participate in ISE’s 

allocation process on equal terms with 

broker-dealer orders and market maker 

quotes. The proposal would also result 

in members paying the same transaction 

fees for the execution of Voluntary 

Professional orders as they do for 

broker-dealer orders. By definition, the 

Voluntary Professional designation 

would not otherwise affect these nonbroker-dealer individuals or entities 

under the ISE rules. The Exchange notes 

that Voluntary Professional orders 

would continue to be treated the same 

as Public Customer Orders for purposes 

of linkage-related rules. For example, 

the ISE would provide the same awaymarket protection for orders designated 

as Voluntary Professional as it does for 

orders designated as Public Customer 

Orders by preventing incoming 

marketable orders from automatically 

executing at prices inferior to the best 

bid or offer on another national 

securities exchange. As provided in ISE 

Rule 714, such Voluntary Professional 

orders would be handled by the Primary 

Market Maker who may, according to 

ISE Rule 1901(c), send a P/A order to 

another exchange to get a better price for 

the customer. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 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 purposes of the Act. 


jlentini on PROD1PC65 with NOTICES