Federal Register / Vol. 66, No. 27 / Thursday, February 8, 2001 / Notices 9613

3See Securities Exchange Act Release No. 43833

(January 10, 2001), 66 FR 7822 (January 25, 2001).

4 15 U.S.C. 78f(b)(4).

5 15 U.S.C. 78s(b)(3)(A).

6 17 CFR 240.19b–4(f)(2).

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

notice is hereby given that on January

12, 2001, 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 prepared by the Exchange.

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 Exchange is proposing to

establish a marketing fee to fund its

payment-for-order-flow program. The

fee will be $.75 per contract on all

Primary Market Maker (‘‘PMM’’) and

Competitive Market Maker (‘‘CMM’’)

executions against customer orders.

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 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

The purpose of the proposed rule

change is to provide a source of funding

for the Exchange’s payment-for-orderflow program, recently approved by the

Commission.3 The fee will be $.75 per

contract on all PMM and CMM

executions against customer orders.

2. Statutory Basis

The basis under the Act for the

proposed rule change is the requirement

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

have an equitable allocation of

reasonable dues, fees and other charges

among its members and other persons

using its facilities.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that 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

unsolicited written comments from

members or other interested parties.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change, which

establishes or changes a due, fee, or

other charge applicable to members of

the Exchange, has become effective

pursuant to Section 19(b)(3)(A) 5 of the

Act and subparagraph (f)(2) of Rule 19b–

4 thereunder.6 At any time within 60

days of the filing of the 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Copies of

the submissions, 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 such filing will also be

available for inspection and copying at

the principal office of the ISE. All

submissions should refer to File No.

SR–01–01, and should be submitted by

March 1, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3237 Filed 2–7–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43920; File No. SR–ISE–

01–03]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the International Securities Exchange

LLC, Relating to Market Maker Block

Transactions

February 2, 2001.

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

Securities Exchange Act of 1934

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

notice is hereby given that on January

12, 2001, the International Securities

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

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, and II, and III below, which

Items have been prepared by the

Exchange. 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 Exchange is proposing to amend

its Rules 716(c) and 805(a) to permit

market makers to enter block-size orders

into the Block Order Mechanism. The

text of the proposed rule change is set

forth below. Additions are italicized and

deletions are bracketed.

* * * * *

Rule 716. Block Trades

* * * * *

(c) Block Order Mechanism. The

Block Order Mechanism is a process by

which [an Electronic Access Member] a

Member can obtain liquidity for the

execution of block-size orders.

* * * * *

Rule 805. Market Maker Orders

(a) Options Classes to Which

Appointed. Market makers may not

place principal orders to buy or sell

options in the options classes to which

9614 Federal Register / Vol. 66, No. 27 / Thursday, February 8, 2001 / Notices

3See 17 CFR 240.11ac1–1(b).

4The Exchange states that while a recent

amendment to Exchange Act Rule 11Ac1–1, making

it applicable to the trading of options, is not yet

effective, use of the Block Order Mechanism will be

consistent with the requirements of the Rule. See

Securities Exchange Act Release No. 43591

(November 17, 2000), 65 FR 75439 (December 1,

2000). The Exchange states in particular that the

Block Order Mechanism does not come within the

definition of an ‘‘electronic communications

network’’ contained in paragraph (a)(8) of Rule

11Ac1–1, and thus indications of interest entered

into the Block Order Mechanism would not be

subject to the requirements of paragraph (c)(5) of

the Rule.

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

they are appointed under Rule 802,

other than immediate-or-cancel orders

and block-size orders executed through

the Block Order Mechanism pursuant to

Rule 715(c). Competitive Market Makers

shall comply with the provisions of

Rule 804(e)(2)(ii) upon the entry of such

orders if they were not previously

quoting in the series.

* * * * *

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 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

The Exchange’s Block Order

Mechanism permits Electronic Access

Members to solicit trading interest for

orders of 50 contracts or more. Because

market makers do not handle agency

orders, the Exchange did not anticipate

that they would need a block

mechanism. Thus, the Exchange

initially limited the Block Order

Mechanism to Electronic Access

Members. Experience indicates that

market makers would find the Block

Order Mechanism useful to hedge or

liquidate positions resulting from their

market making activities on the

Exchange.

The ISE provides automatic

executions for orders placed by market

makers on the Exchange. The ISE

trading system enables ISE market

makers to individually enter quotations

with an associated size representing the

number of contracts for which each

market maker is firm for Public

Customer orders. The trading system

also permits ISE market makers to

specify how much of this size is

available for automatic execution by

non-customer orders and other ISE

market makers. Because ISE market

makers may be reluctant to be exposed

to automatic executions from other

market makers, the size available for

market makers may be substantially

lower than that available for Public

Customers. Indeed, no other options

exchange provides market makers the

opportunity to receive automatic

execution of their orders; and

conversely, no other options exchange

requires that its market makers be

exposed to automatic executions by

other market makers.

The ISE believes that permitting

market makers to utilize the Block Order

Mechanism will give the trading crowd

an opportunity to determine whether

they are willing to provide more

liquidity to large market maker orders

than would be available if the market

maker entered a large-size order for

automatic execution against existing

quotes. Market makers on the floors of

the other options exchanges currently

are able to trade with each other in this

manner.

The Exchange thus proposes to amend

Rule 716(c) (Block Order Mechanism)

and Rule 805(a) (Market Maker Orders)

to extend the Block Order Mechanism to

ISE market makers. The Block Order

Mechanism permits a participant to

solicit trading interest from crowd

participants via a text message in a

manner that replicates requests for

markets in a floor-based trading crowd.

Crowd participants receive the message

indicating interest to trade in large-size

and are given 30 seconds to respond. It

is necessary for the Exchange to set a

response period only because the

communications are made electronically

rather than face-to-face as on a floor. In

the case of a floor-based crowd, there

will be some amount of time between

the announcement of the trading

interest by the floor broker and the

response by the market makers, but

there is no need to define a time limit

because the market makers are able to

communicate directly.

The ISE states that when requests for

markets are made on a trading floor,

they are not considered the same as bids

or offers that are required to be

displayed in the exchange’s

disseminated quotation by Rule 11Ac1–

1 under the Act,3 as they require an

immediate response which may or may

not be accepted. On a floor, if the

response from the crowd is not

sufficient, the broker walks away and

the interest is withdrawn. Similarly,

when interest is communicated

electronically through the ISE’s Block

Order Mechanism, there is no obligation

to execute during the response period,

and the indication may be withdrawn

anytime during the 30 seconds. If the

response from the crowd is not

sufficient at the end of the response

period, the interest is automatically

withdrawn from the system.

It is only after the 30 seconds that an

interest entered into the Block Order

Mechanism will be executed in whole

or in part according to the algorithm

contained in 716(c). Again, if no

execution takes place, the interest is

automatically canceled from the system.

In other words, there is no standing

limit order in the trading system and

there is no ability for any person to

execute against the interest during the

exposure period.4

Permitting ISE market makers to enter

trading interest into the Block Order

Mechanism is no different from

allowing market makers on the floor of

the other options exchanges to

announce trading interest to the crowd.

In fact, an ISE market maker can use a

floor broker to assess the liquidity in

trading crowds on the other options

exchange, but currently has no

mechanism to accomplish the same

objective on the ISE. This situation

places the ISE at a competitive

disadvantage, as this trading interest is

executed on other exchanges purely

because participants communicate

directly rather than electronically.

2. Statutory Basis

The basis under the Act for this

proposed rule change is the requirement

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

extent that ISE market makers can seek

liquidity for large size orders on other

options exchanges but currently are

unable to do so on the ISE, the proposed

rule change will remove a substantial

impediment to and perfect the

mechanism for a free and open market

on the ISE.

Federal Register / Vol. 66, No. 27 / Thursday, February 8, 2001 / Notices 9615

6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

This proposed rule change will

remove a burden on competition in that

it provides a mechanism for ISE market

makers to announce indications of

interest where currently they only have

such capability on other options

exchanges. Restricting ISE market

makers’ ability to seek liquidity for

large-size trading interest when they are

able to do so on other options exchanges

is a substantial burden on competition

as it reduces the likelihood that such

orders will be executed on the

Exchange. It is not necessary or

appropriate in furtherance of the

purposes of the Act to competitively

disadvantage the ISE on the basis that

its members communicate electronically

rather than in person.

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

unsolicited 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of the filing will also be

available for inspection and copying at

the principal offices of the ISE. All

submissions should refer to File No.

SR–ISE–01–03 and should be submitted

by March 1, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3267 Filed 2–7–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43914; File No. SR–NASD–

00–78]

Self Regulatory Organizations; Notice

of Filing of a Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Amending the Nasdaq ByLaws

January 31, 2001.

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

Securities Exchange Act of 1934

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

notice is hereby given that on January

22, 2001, 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, II, and III below, which Items

have been prepared by Nasdaq. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Nasdaq is proposing to amend its ByLaws regarding the balancing

requirements on the Nasdaq Board of

Directors (‘‘the Board’’) and the

composition and operation of certain

Nasdaq committees. Nasdaq also seeks

to make certain changes to conform to

the General Corporation Law of the

State of Delaware (‘‘Delaware law’’).

Proposed new language is in italics;

proposed deletions are in brackets.

By-Laws of the NASDAQ Stock Market,

Inc.

Article I

Definitions

* * * * *

(j) ‘‘Industry Director’’ or ‘‘Industry

member’’ means a Director (excluding

[the President or the Chief Executive

Officer] any two officers of Nasdaq,

selected at the sole discretion of the

Board, amongst those officers who may

be serving as Directors (the ‘‘Staff

Directors’’)) or Nasdaq Listing and

Hearing Review Council or committee

member who (1) is or has served in the

prior three years as an officer, director,

or employee of a broker or dealer,

excluding an outside director or a

director not engaged in the day-to-day

management of a broker or dealer; (2) is

an officer, director (excluding an

outside director), or employee of an

entity that owns more than ten percent

of the equity of a broker or dealer, and

the broker or dealer accounts for more

than five percent of the gross revenues

received by the consolidated entity; (3)

owns more than five percent of the

equity securities of any broker or dealer,

whose investments in brokers or dealers

exceed ten percent of his or her net

worth, or whose ownership interest

otherwise permits him or her to be

engaged in the day-to-day management

of a broker or dealer; (4) provides

professional services to brokers or

dealers, and such services constitute 20

percent or more of the professional

revenues received by the Director or 20

percent or more of the gross revenues

received by the Director’s or member’s

firm or partnership; (5) provides

professional services to a director,

officer, or employee of a broker, dealer,

or corporation that owns 50 percent or

more of the voting stock of a broker or

dealer, and such services relate to the

director’s officer’s, or employee’s

professional capacity and constitute 20

percent or more of the professional

revenues received by the Director or

member or 20 percent or more of the

gross revenues received by the

Director’s or member’s firm or

partnership; or (6) has a consulting or

employment relationship with or

provides professional services to the

NASD, NASD Regulation, Nasdaq, or

Amex (and any predecessor) or has had

any such relationship or provided any

such services at any time within the

prior three years;

* * * * *

(p) ‘‘[National] Nominating

Committee’’ means the [National]

Nominating Committee appointed