59002 Federal Register / Vol. 73, No. 196 / Wednesday, October 8, 2008 / Notices 

10FINRA is proposing that firms admitted to 

FINRA membership under IM–1013–1 be subject to 

the consolidated FINRA rules. See Securities 

Exchange Act Release No. 58206 (July 22, 2008), 73 

FR 43808 (July 28, 2008). 

11FINRA proposes to grant NYSE Alternext 

waive-in member organizations a six-month period 

to comply with Incorporated NYSE Rules 311–313. 

12For purposes of this order, activities that are 

ancillary to a Floor broker’s core business include 

(i) routing orders in NYSE-traded or NYSE 

Alternext-traded securities to an away market for 

any reason relating to their ongoing Floor activity, 

including regulatory compliance or meeting bestexecution obligations; or (ii) provided that the 

majority of transactions effected by the firm are 

effected on NYSE, sending to other markets orders 

in NYSE-traded, NYSE Alternext-traded, or nonNYSE-traded securities and/or futures if such 

orders relate to hedging positions in NYSE-traded 

or NYSE Alternext-traded securities, or are part of 

arbitrage or program trade strategies that include 

NYSE-traded or NYSE Alternext-traded securities. 

13The licensing and other requirements 

applicable to the NYSE Alternext member 

organizations and their associated persons are 

subject to change as part of the process of 

establishing the Consolidated FINRA Rulebook. 

14 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

15 15 U.S.C. 78o–3(b)(2). 

16 15 U.S.C. 78o–3(b)(6). 

17See Securities Exchange Act Release No. 56653, 

supra note 6. 

18 15 U.S.C. 78s(b)(2). 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

would issue a letter notifying the 

applicant that it has been approved for 

membership. The Membership 

Agreement would become effective on 

the date of such notification letter. 

Any NYSE Alternext member 

organization admitted pursuant to 

proposed IM–1013–2, being a member 

organization of both NYSE and NYSE 

Alternext, would be subject to the 

consolidated FINRA rules,10 the NYSE 

rules incorporated by FINRA,11 the 

FINRA By-Laws and Schedules to ByLaws, including Schedule A 

(Assessments and Fees), and NASD 

Rules 8000 (Investigations and 

Sanctions) and 9000 (Code of 

Procedure) series, provided that its 

NYSE or NYSE Alternext securities 

business is limited to floor-based 

activities in either NYSE-traded or 

NYSE Alternext-traded securities, or 

routing away to other markets orders 

that are ancillary to its core NYSE or 

NYSE Alternext floor business under 

NYSE Rule 70.40 or NYSE Alternext 

Equities Rule 70.40 (‘‘permitted floor 

activities’’).12

If an NYSE Alternext member 

organization admitted pursuant to 

proposed IM–1013–2 seeks to expand its 

business operations to include any 

activities other than the permitted floor 

activities or makes changes to its 

securities business that would otherwise 

require FINRA membership, such firm 

must apply for and receive approval to 

engage in such business activity 

pursuant to NASD Rule 1017. Upon 

approval of such business expansion, 

the firm would become subject to all 

NASD Rules, in addition to the 

consolidated FINRA rules and those 

NYSE rules incorporated by FINRA. 

Associated persons of an NYSE 

Alternext member organization 

admitted to FINRA pursuant to 

proposed IM–1013–2 would be subject 

to the same set of rules as the firm with 

which they are associated. Inasmuch as 

these associated persons would not be 

subject to NASD Rules 1021 or 1031, 

they would not be required to register in 

a registration category recognized by 

FINRA. To the extent that such persons 

continue to be associated solely with a 

firm whose business complies with the 

limitations imposed on those firms 

admitted to FINRA pursuant to 

proposed IM–1013–2, FINRA is not 

imposing any registration requirements 

beyond those required by the NYSE or 

NYSE Alternext, provided their 

business is confined in scope as 

contemplated in proposed IM–1013–2.13

Finally, FINRA proposes to amend 

Interpretive Material Section 4(b)(1) and 

4(e) of Schedule A of the FINRA ByLaws to exempt NYSE Alternext 

applicants from the assessment of a 

FINRA membership application fee and 

from fees for each initial Form U4 filed 

by the applicant with FINRA for the 

registration of a representative or 

principal associated with the firm at the 

time it submits its application for 

FINRA membership pursuant to 

proposed IM–1013–2. 

III. Discussion and Commission 

Findings 

The Commission has carefully 

reviewed the proposed rule change and 

finds that it is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities association.14 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 15A(b)(2) of the Act,15

which requires a national securities 

association to be so organized and have 

the capacity to carry out the purposes of 

the Act and to enforce compliance by its 

members and persons associated with 

its members with the provisions of the 

Act. Further, the Commission finds that 

the proposed rule change is consistent 

with Section 15A(b)(6) of the Act,16 in 

that it is designed, among other things, 

to prevent fraudulent and manipulative 

acts and practices; 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. 

The Commission has previously 

approved a similar waive-in process for 

NYSE members required to become 

FINRA members.17 This proposal 

affords eligible NYSE Alternext 

members and member organizations 

with a similar expedited process to 

become FINRA members, provided that 

they engage in permitted floor activities 

only. The proposal appears reasonably 

designed to facilitate the consolidation 

of member firm regulatory functions of 

FINRA, NYSE, and NYSE Alternext, 

thereby encouraging more efficient 

regulation of members and their 

associated persons. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,18 that the 

proposed rule change (SR–FINRA– 

2008–043) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–23839 Filed 10–7–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58665; File No. SR–ISE– 

2008–21] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Amendment 

No. 1 and Order Granting Accelerated 

Approval of Proposed Rule Change as 

Modified by Amendment No. 1 Relating 

to an Exchange Member’s Conduct of 

Doing Business With the Public 

September 26, 2008. 

I. Introduction 

On March 27, 2008, the International 

Securities Exchange, LLC (‘‘ISE’’ or the 

‘‘Exchange’’), pursuant to Section 

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

of 1934 (the ‘‘Act’’),1 and Rule 19b–4 

thereunder,2 filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change relating to the Exchange’s rules 

governing doing business with the 

public. On July 9, 2008, the Commission 

issued a release noticing the proposed 


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3See Securities Exchange Act Release No. 58129 

(July 9, 2008), 73 FR 40895 (July 16, 2008) (‘‘Initial 

Notice’’). 

4The Initial Notice did not provide notice of 

Amendment No. 1. Amendment No. 1 made minor 

changes to the initial filing consisting of adding 

clarifying text and fixing typographical and similar 

errors. 

5See Securities and Exchange Act Release No. 

56492 (September 21, 2007), 72 FR 54952 

(September 27, 2007) (SR–CBOE–2007–106). 

6Securities and Exchange Commission, 96th 

Cong., 1st Sess., Report of the Special Study of the 

Options Markets (Comm. Print 1978) 316 fn. 11. 

7 Id. at p. 335. 

8See Proposed Rule 611. 

9See Proposed Rule 601(e). 

10See Proposed Rule 608(f)(3). 

11See Proposed Rules 601(d) and 601(e). 

12See Proposed Rule 602(d). 

13See, e.g., NYSE Rule 408. 

rule change, which was published for 

comment in the Federal Register on July 

16, 2008.3 The comment period expired 

on August 6, 2008. The Commission did 

not receive any comment letters in 

response to the proposed rule change. 

On May 13, 2008, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.4 This order provides notice of 

the proposed rule change, as modified 

by Amendment No. 1, and approves the 

proposed rule change as amended on an 

accelerated basis. 

II. Description 

The Exchange proposes to amend 

certain Exchange rules that govern an 

Exchange member’s conduct of doing 

business with the public. Specifically, 

the proposed rule change would require 

members to integrate the responsibility 

for supervision of their public customer 

options business into their overall 

supervisory and compliance programs. 

In addition, the proposal would require 

members to strengthen their supervisory 

procedures and internal controls as 

related to their public customer options 

business. 

A. Integration of Options Supervision 

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. 

The purpose of the proposed rule 

change is to create a supervisory 

structure for options that is similar to 

that required by New York Stock 

Exchange, Inc. (‘‘NYSE’’) Rule 342 and 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’) Rule 3010. The 

proposed rule change would also 

conform ISE rules to those of the 

Chicago Board Options Exchange 

(‘‘CBOE’’) which has recently 

eliminated the requirement that 

members qualified to do a public 

customer business in options must 

designate a single person to act as a 

Senior Registered Options Principal 

(‘‘SROP’’) for the member and that each 

such member designate a specific 

individual as a Compliance Registered 

Options Principal (‘‘CROP’’).5 Instead, 

the rule requires members to integrate 

the SROP and CROP functions into their 

overall supervisory and compliance 

programs. 

The SROP concept was first 

introduced during the early years of 

development of the listed options 

market. Previously, members were 

required to designate one or more 

persons qualified as Registered Options 

Principals (‘‘ROPs’’) to have supervisory 

responsibilities with respect to the 

firms’ options business. As the number 

of ROPs at larger firms began to 

increase, an additional requirement was 

imposed that firms designate one of 

their ROPs as the SROP. This was 

intended to eliminate confusion as to 

where the compliance and supervisory 

responsibilities lay by centralizing in a 

single supervisory officer overall 

responsibility for the supervision of a 

firm’s options activities.6 Subsequently, 

following the recommendation of the 

Commission, the options exchanges 

required firms to designate a CROP to be 

responsible for each firm’s overall 

compliance program with respect to its 

options activities.7 The CROP could be 

the same person designated as a SROP. 

Since the SROP and CROP 

requirements were first imposed, the 

supervisory function with respect to 

options activities of most securities 

firms has been integrated into the matrix 

of supervisory and compliance 

functions in respect of the firms’ other 

securities activities. This not only 

reflects the maturity of the options 

market, but also recognizes the ways in 

which the uses of options themselves 

have become more integrated with other 

securities in the implementation of 

particular strategies. By permitting 

supervision of a firm’s options activities 

to be handled in the same manner as the 

supervision of its securities and futures 

activities, the proposed rule change 

would ensure that supervisory 

responsibility over each segment of a 

firm’s business is assigned to the best 

qualified persons in the firm, thereby 

enhancing the overall quality of 

supervision and compliance. 

The proposed rule change would 

allow firms the flexibility to assign such 

supervisory and compliance 

responsibilities, which formerly resided 

with the SROP and/or CROP, to more 

than one individual. For example, the 

proposed rule change would permit a 

member firm to designate certain ROPs 

to be responsible for a variety of 

supervisory compliance functions such 

as approving acceptance of 

discretionary accounts,8 approval of 

communications to customers,9 and 

exceptions to a member firm’s 

suitability standards for trading 

uncovered short options.10 A firm 

would be likely to do this in instances 

where the firm believes it advantageous 

to do so to enhance its supervisory or 

compliance structure. Typically, a firm 

may also wish to divide these functions 

on the basis of geographic region or 

functional considerations. Rule 601 

would be amended to clarify the 

qualification requirements of 

individuals designated as ROPs.11 Rule 

602 would be amended to specify the 

registration requirements of individuals 

who accept orders from non-brokerdealer customers.12

The proposed rule change would call 

for options discretionary accounts, the 

acceptance of which must be approved 

by a ROP qualified individual (other 

than the ROP who accepted the 

account), to be supervised in the same 

manner as the supervision of other 

securities accounts that are handled on 

a discretionary basis. The proposed rule 

change would eliminate the requirement 

that discretionary options orders be 

approved on the day of entry by a ROP 

(with one exception as discussed 

below). This requirement predates the 

Special Study and is not consistent with 

the use of supervisory tools in 

computerized format or exception 

reports generated after the close of a 

trading day. No similar requirement 

exists for supervision of other securities 

accounts that are handled on a 

discretionary basis.13 Discretionary 

orders would be reviewed in accordance 

with a firm’s written supervisory 

procedures. The Exchange believes the 

proposed rule change would ensure that 

supervisory responsibilities are assigned 

to specific ROP-qualified individuals, 

thereby enhancing the quality of 

supervision. 

Exchange Rule 611 would be revised 

by adding the requirement that any 

member that does not utilize 

computerized surveillance tools for the 

frequent and appropriate review of 

discretionary account activity must 

establish and implement procedures to 

require ROP-qualified individuals who 


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14See Proposed Rule 609(g), which is modeled 

after NYSE Rule 342.20. 

15See Proposed Rule 609(h), which is modeled 

after NYSE Rule 354. 

16See Proposed Rule 609(a). 

17See Proposed Rule 609(i). 

18See Securities Exchange Act Release Nos. 

49882 (June 17, 2004), 69 FR 35108 (June 23, 2004) 

(SR–NYSE–2002–36) (approval order), 49883 (June 

17, 2004), 69 FR 35092 (June 23, 2004) (SR–NASD– 

2002–162). 

19Proposed Rule 609(a) is modeled after NYSE 

Rule 342.19. 

20Proposed Rule 609(a)(3)(iv) would provide that 

a member organization that complies with the 

NYSE or NASD rules that are substantially similar 

to the requirements in Rules 609(a)(3)(i), (a)(3)(ii) 

and (a)(3)(iii) will be deemed to have met such 

requirements. 

21Proposed Rule 609(c)(i) is modeled after NYSE 

Rule 342.23. Paragraph (c)(ii) of proposed Rule 609 

would provide that a member organization that 

complies with NYSE or NASD rules that are 

substantially similar to the requirements in 

paragraph (c)(i) of proposed Rule 609 will be 

deemed to have met such requirements. 

22Proposed Rules 609(d)(1)(i) and (ii) would 

provide members with two exceptions from the 

annual supervisory branch office inspection 

requirement. 

have been designated to review 

discretionary accounts to approve and 

initial each discretionary order on the 

day entered. The Exchange believes that 

any firm that does not utilize 

computerized surveillance tools to 

monitor discretionary account activity 

should continue to be required to 

perform the daily manual review of 

discretionary orders. 

Under the proposed rule change, 

firms would continue to be required to 

designate ROP-qualified individuals to 

provide frequent appropriate 

supervisory review of options 

discretionary accounts. This review 

includes the requirement that these 

ROP-qualified individuals review the 

accounts in order to determine whether 

the ROP accepting the account had a 

reasonable basis for believing that the 

customer was able to understand and 

bear the risks of the proposed strategies 

or transactions. This requirement 

provides an additional level of 

supervisory audit over options 

discretionary accounts that does not 

exist for other securities discretionary 

accounts. 

In addition, Proposed Rule 609(g) 

would require that each member submit 

to the Exchange a written report by 

April 1 of each year that details the 

member’s supervision and compliance 

effort, including its options compliance 

program, during the preceding year and 

reports on the adequacy of the member’s 

ongoing compliance processes and 

procedures.14

Proposed Rule 609(h) would require 

that each member submit, by April 1 of 

each year, a copy of the Rule 609(g) 

annual report to one or more of its 

control persons or, if the member has no 

control person, to the audit committee 

of its board of directors or its equivalent 

committee or group.15 Further, the 

proposed rule would provide that a 

member that specifically includes its 

options compliance program in a report 

that complies with substantially similar 

NYSE and NASD rules would be 

deemed to have satisfied the 

requirements of Rules 609(g) and 609(h). 

Members would be required to 

designate a single general partner or 

executive officer to assume overall 

authority and responsibility for internal 

supervision, control of the organization 

and compliance with securities laws 

and regulations.16 Members would also 

be required to designate specific 

qualified individuals as having 

supervisory or compliance 

responsibilities over each aspect of the 

firm’s options activities and to set forth 

the names and titles of these individuals 

in their written supervisory 

procedures.17

B. Supervisory Procedures and Internal 

Controls 

The Exchange is also proposing to 

amend certain rules to strengthen 

members’ supervisory procedures and 

internal controls relating to a member’s 

public customer options business. The 

proposed rule changes discussed below 

are modeled after NYSE and NASD 

rules approved by the Commission in 

2004.18 The Exchange believes its 

proposal to strengthen member 

supervisory procedures and internal 

controls is appropriate and consistent 

with the proposal discussed above to 

integrate the responsibility for 

supervision of a member firm’s public 

customer options business into its 

overall supervisory and compliance 

program. 

The Exchange is proposing to revise 

Rule 609(a) to require members to 

develop and implement written policies 

and procedures reasonably designed to 

supervise sales managers and other 

supervisory personnel who service 

customer options accounts.19 This 

requirement would apply to branch 

office managers, sales managers, 

regional/district sales managers, or any 

person performing a similar supervisory 

function. Such policies and procedures 

are expected to encompass all options 

sales-related activities. Proposed Rule 

609(a)(3)(i) would require that 

supervisory reviews of producing sales 

managers be conducted by a qualified 

ROP who is either senior to, or 

otherwise ‘‘independent of,’’ the 

producing manager under review. This 

provision is intended to ensure that all 

options sales activity of a producing 

manager is monitored for compliance 

with applicable regulatory requirements 

by persons who do not have a personal 

interest in such activity. 

Proposed Rule 609(a)(3)(ii) would 

provide an exception for firms so 

limited in size and resources that there 

is no qualified person senior to, or 

otherwise independent of, the 

producing manager to conduct the 

review. In this case, the review would 

be conducted by a qualified ROP to the 

extent practicable. Under proposed Rule 

609(a)(3)(iii), a member relying on the 

limited size and resources exception 

must document the factors used to 

determine that compliance with each of 

the ‘‘senior’’ or ‘‘otherwise 

independent’’ standards of proposed 

Rule 609(a)(3)(i) is not possible, and that 

the required supervisory systems and 

procedures in place with respect to any 

producing manager comply with the 

provisions of proposed Rule 609(a)(3)(i) 

to the extent practicable.20

Proposed Rule 609(c)(1) would 

require members to develop and 

maintain adequate controls over each of 

their business activities. The proposed 

rule would further require that such 

controls include the establishment of 

procedures to independently verify and 

test the supervisory systems and 

procedures for those business activities. 

A member would be required to include 

in the annual report, prepared pursuant 

to proposed Rule 609(g), a review of the 

member’s efforts in this regard, 

including a summary of the tests 

conducted and significant exceptions 

identified. The Exchange believes 

proposed Rule 609(c)(1) would enhance 

the overall quality of each member 

organization’s supervision and 

compliance function.21

Proposed Rule 609(d) would establish 

requirements for branch office 

inspections similar to the requirements 

of NYSE Rule 342.24. Specifically Rule 

609(d) would require a member to 

inspect, at least annually, each 

supervisory branch office and inspect 

each non-supervisory branch office at 

least once every three years.22 The 

proposed rule would further require 

persons who conduct a firm’s annual 

branch office inspection to be 

independent of the direct supervision or 

control of the branch office (i.e., not the 

branch office manager, or any person 

who directly or indirectly reports to 

such manager, or any person to whom 

such manager directly reports). The 

Exchange believes that requiring branch 

office inspections to be conducted by 

someone who has no significant 


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23Proposed Rules 609(e) and (f) are modeled after 

NYSE Rules 342.25 and 342.26. 

24Proposed Rule 609(g)(5) is modeled after NASD 

Rule 3013 and NYSE Rule 342.30(e). 

25Proposed Rule 609(b)(2) is modeled after NASD 

Rule 3110(i). 

26Proposed Rule 609(b)(3) is modeled after NASD 

Rule 3110(j). 

27Proposed Rule 611(d) is modeled after NASD 

Rule 2510(d)(1). 

28 In approving this rule change, as amended, 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). 

29 15 U.S.C. 78f(b)(5). 

30See supra footnotes 3 and 4. 

financial interest in the success of a 

branch office should lead to more 

objective and vigorous inspections. 

Under proposed Rule 609(e), any firm 

seeking an exemption, pursuant to Rule 

609(d)(1)(ii), from the annual branch 

office inspection requirement would be 

required to submit to the Exchange 

written policies and procedures for 

systematic risk-based surveillance of its 

branch offices, as defined in Rule 

609(e). Proposed Rule 609(f) would 

require the annual branch office 

inspection programs to include, at a 

minimum, testing and verification of 

specified internal controls.23 Proposed 

Rule 609(d)(3) would provide that a 

member that complies with the 

requirements of NASD or the NYSE that 

are substantially similar to the 

requirements of Rules 609(d), (e) and (f) 

would be deemed to have met such 

requirements. The Exchange is also 

proposing to amend Rule 609 to define 

‘‘branch office’’ in a way that is 

substantially similar to the definition of 

branch office in NYSE Rule 342.10. 

Proposed Rule 609(g)(4) would 

require a firm to designate a Chief 

Compliance Officer (CCO). Proposed 

Rule 609(g)(5) would require each firm’s 

Chief Executive Officer (CEO), or 

equivalent, to certify annually that the 

member organization has in place 

processes to: (1) Establish and maintain 

policies and procedures reasonably 

designed to achieve compliance with 

applicable Exchange rules and federal 

securities laws and regulations, (2) 

modify such policies and procedures as 

business, regulatory, and legislative 

changes and events dictate, and (3) test 

the effectiveness of such policies and 

procedures on a regular basis, the timing 

of which is reasonably designed to 

ensure continuing compliance with 

Exchange rules and federal securities 

laws and regulations. 

Proposed Rule 609(g)(5) would also 

require the CEO to attest (1) that the 

CEO has conducted one or more 

meetings with the CCO in the preceding 

12 months to discuss the compliance 

processes in proposed Rule 609(g)(5)(i), 

(2) that the CEO has consulted with the 

CCO and other officers to the extent 

necessary to attest to the statements in 

the certification, and (3) that the 

compliance processes are evidenced in 

a report, reviewed by the CEO, CCO and 

such other officers as the member firm 

deems necessary to make the 

certification, that is provided to the 

member firm’s board of directors and 

audit committee (if such committee 

exists).24

Under proposed Rule 609(b)(2), a 

member, upon a customer’s written 

instructions, may hold mail for a 

customer who will not be at his or her 

usual address for no longer than two 

months if the customer is on vacation or 

traveling, or three months if the 

customer is going abroad. This 

provision would help ensure that 

members that hold mail for customers 

who are away from their usual 

addresses do so only pursuant to the 

customer’s written instructions and for 

a specified, relatively short period of 

time.25

Proposed Rule 609(b)(3) would 

require that, before a customer options 

order is executed, the account name or 

designation must be placed upon the 

memorandum for each transaction. In 

addition, only a qualified ROP would be 

permitted to approve any changes in 

account names or designations. The 

ROP would be required to document the 

essential facts relied upon in approving 

the changes and maintain the record in 

an easily accessible place. A member 

would be required to preserve any 

documentation that provides for an 

account designation change for a period 

of not less than three years, with the 

documentation preserved for the first 

two years in an easily accessible place, 

as the term ‘‘easily accessible place’’ is 

used in Rule 17a–4 of the Act. The 

Exchange believes the proposed rule 

would help to protect account name and 

designation information from possible 

fraudulent activity.26

Proposed Rule 611(d) would allow a 

member to exercise time and price 

discretion on orders for the purchase or 

sale of a definite number of options 

contracts in a specified security. The 

Exchange proposes to limit the duration 

of this discretionary authority to the day 

it is granted, absent written 

authorization to the contrary. In 

addition, the proposed rule would 

require any exercise of time and price 

discretion to be reflected on the 

customer order ticket. The proposed 

one-day limitation would not apply to 

time and price discretion exercised for 

orders effected with or for an 

institutional account (as defined in the 

Rule) pursuant to valid Good-TillCancelled instructions issued on a ‘‘not 

held’’ basis. The Exchange believes that 

investors would receive greater 

protection by clarifying the time such 

discretionary orders remain pending.27

The Exchange believes the proposed 

rule changes recognize that options have 

become more integrated with other 

securities in the implementation of 

particular strategies, and thus should 

not continue to be regulated as though 

they are a new and experimental 

product. The Exchange further asserts 

that the supervisory and compliance 

structure in place for non-options 

products at most firms is not materially 

different from the structure in place for 

options. The proposed rule change 

would also conform ISE rules to those 

of the CBOE. Accordingly, the Exchange 

submits that the proposed rule changes 

are appropriate and would not 

materially alter the supervisory 

operations of member firms. 

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder.28 In particular, the 

Commission finds the proposal to be 

consistent with the objectives of Section 

6(b)(5) of the Act,29 in that it is designed 

to promote just and equitable principles 

of trade, to prevent fraudulent and 

manipulative acts and practices, and in 

general, to protect investors and the 

public interest. The Commission 

believes the proposed rule change 

would integrate the supervision and 

compliance functions relating to 

member organizations’ public customer 

options activities into the overall 

supervisory structure of a member 

organization, thereby eliminating any 

uncertainty over where supervisory 

responsibility lies. In addition, the 

proposed rule change would foster the 

strengthening of members’ and member 

organizations’ internal controls and 

supervisory systems. 

The Commission also finds good 

cause for approving the proposed rule 

change, as modified by Amendment 

No.1, prior to the thirtieth day after the 

date of publication of notice of filing of 

the amendment in the Federal 

Register.30 The Commission believes 

that Amendment No. 1 should reduce 

ambiguity by providing clarifying 

changes and fixing typographical and 

similar errors. Amendment No. 1 does 


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31 15 U.S.C. 78s(b)(2). 

32 15 U.S.C. 78s(b)(2). 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

not contain any major modifications 

that would alter the scope of the 

proposed rule change as published in 

the Federal Register. The Commission 

believes that approving the proposed 

rule change, as modified by Amendment 

No. 1, will simplify compliance, and is 

consistent with the public interest and 

the investor protection goals of the Act. 

Finally, the Commission finds that it is 

in the public interest to approve the 

proposed rule change as modified as 

soon as possible to expedite its 

implementation. Accordingly, the 

Commission believes good cause exists, 

consistent with Section 19(b)(2) of the 

Act 31 to approve the proposed rule, as 

modified by Amendment No. 1 on an 

accelerated basis. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning Amendment No. 

1, including whether Amendment No. 1 

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 

No. SR–ISE–2008–21 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ISE–2008–21. 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 Commissions 

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. Copies of such 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–2008–21 and should be 

submitted by October 29, 2008. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,32 that the 

proposed rule change (SR–ISE–2008– 

21), as amended by Amendment No. 1, 

be, and hereby is, approved on an 

accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–23758 Filed 10–7–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58692; File No. SR–ISE– 

2008–70] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Cancellation Fees 

September 30, 2008. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on 

September 23, 2008, the International 

Securities Exchange, LLC (the 

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

Securities and Exchange Commission 

the proposed rule change as described 

in Items I, II, and III below, which items 

have been prepared by the selfregulatory organization. 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 is proposing to amend its 

Schedule of Fees regarding its 

cancellation fee. The text of the 

proposed rule change is available at the 

Exchange. 

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 

self-regulatory organization 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 self-regulatory organization 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 this proposed rule 

change is to amend the ISE’s 

cancellation fee. The Exchange 

currently has a cancellation fee of $1.75 

that applies to Electronic Access 

Members (‘‘EAMs’’) that cancelled at 

least 500 orders in a month, for each 

order cancellation in excess of the total 

number of orders such member 

executed that month. Further, all orders 

from the same clearing EAM executed in 

the same series on the same side of the 

market at the same price within a 30 

second period are aggregated and 

counted as one executed order for 

purposes of this fee. This fee is 

currently charged only to customer 

orders; broker-dealer orders, including 

non-member market maker (FARMM) 

orders, are excluded from this fee. The 

Exchange notes that the level of activity 

in the cancellation of orders continues 

to remain quite large. The fee currently 

charged by the Exchange is insufficient 

to offset the cost of administering and 

processing the large number of 

cancellations on a monthly basis. The 

Exchange, therefore, proposes to 

increase its cancellation fee from $1.75 

to $2.00. This fee increase will enable 

the ISE to recoup some of the costs of 

administering and processing cancelled 

orders. This proposed fee change will be 

operative on October 1, 2008. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(4) that an exchange 

have an equitable allocation of 

reasonable dues, fees and other charges 

among its members and other persons 

using its facilities. In particular, the 


jlentini on PROD1PC65 with NOTICES