Document ID: SEC-2010-0181-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-02-04T05:00Z

[Federal Register: February 4, 2010 (Volume 75, Number 23)]
[Notices]               
[Page 5824-5826]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04fe10-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61433; File No. SR-ISE-2010-04]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Correct Inconsistencies in Certain Execution Rules

January 27, 2010.
    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 January 13, 2010, 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 self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to correct inconsistencies in certain of its 
execution rules. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.ise.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 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

[[Page 5825]]

sections A, B and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In January 2009,\3\ the Exchange received Commission approval of a 
rule change to give certain non-broker-dealer orders (identified as 
Professional Orders) the priority given broker-dealer orders and market 
maker quotes rather than the priority given all public customer orders. 
Those public customers who continue to receive priority in the 
execution algorithm are called Priority Customers under the rule 
change. The rule change uniformly changed the execution priority in 
each of the Exchange's execution rules as they existed in January 2009. 
After reviewing its execution rules, the Exchange has identified three 
inconsistencies with the Priority Customer priority execution rules. 
Accordingly, the Exchange proposes to amend these execution rules to be 
consistent with what is now the standard execution algorithm:
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    \3\ Securities Exchange Act Release No. 59287 (January 23, 
2009), 74 FR 5694 (January 30, 2009).
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    (i) Rule 715(g) regarding Reserve Orders. The proposed change 
clarifies that the execution of the displayed portion of a Reserve 
Order will follow the standard priority rules that now provide priority 
only to Priority Customers.\4\
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    \4\ Reserve orders are limit orders that contain both a 
displayed portion and a non-displayed portion. The entire size of a 
displayed price (including Priority Customer Orders, Professional 
Orders, and market maker quotes) is executed in full before any 
portion of the non-displayed portion of a reserve order. See ISE 
Rule 713(c) and ISE Rule 715(g)5.
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    (ii) Rule 715(i) and Rule 721(a) regarding Customer Cross Orders. A 
Customer Cross Order is currently defined as a Public Customer order to 
buy and a Public Customer order to sell, and such orders are not 
permitted to trade at the same price as Public Customers on the book. 
Since only Priority Customer Orders receive priority, the proposed 
change narrows the definition of a Customer Cross Order to Priority 
Customers only and specifies that such orders cannot be executed at the 
same price as Priority Customer Orders.\5\
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    \5\ Under ISE Rule 717(d) and (e), members are required to 
expose trading interest to the market before executing agency orders 
as principal or before executing agency orders against orders that 
were solicited from other broker-dealers (i.e., proprietary and 
solicited crossing transactions). However, the ISE options rules do 
not contain any limitations or exposure requirements regarding the 
execution of customer orders against other customer orders. Customer 
Cross Orders was adopted to provide a way to enter opposing customer 
orders using a single order type that protected customer orders on 
the book. See Securities Exchange Act Release No. 60253 (July 7, 
2009), 74 FR 34063 (July 14, 2009). While only Priority Customers 
will be permitted to be executed using the Customer Cross Order 
under the proposed rule change, Rule 717(d) continues to allow the 
execution of all Public Customer Orders against other Public 
Customer Orders without an exposure period. Communication between 
Samir Patel, Assistant General Counsel, ISE and Ira Brandriss, 
Special Counsel, Division of Trading and Markets, Commission, on 
January 26, 2010. Members may continue to enter two Public Customer 
orders on the exchange with the intent to cross them without the use 
of the Customer Cross Order type.
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    (iii) Rule 803, Supplementary Material .02 regarding flash orders. 
Execution of a flash order when the ISE BBO changes during the exposure 
period to a price that matches against the order being flashed is 
according to the standard priority rules that now provide priority only 
to Priority Customers.
    The Exchange also proposes to delete a provision from Rule 721 
regarding Customer Cross Orders that was related to a block exemption 
from the old linkage rules that does not now exist under the 
distributive linkage plan.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (``Exchange 
Act'') for this proposed rule change is the requirement under Section 
6(b)(5) that an exchange have rules that are designed to promote just 
and equitable principles of trade, and 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 corrects inconsistencies in the Exchange's 
rules.

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 unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not (1) 
significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for thirty days from the date on which it was filed, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6) \7\ thereunder.\8\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ Pursuant to Rule 19b-4(f)(6)(iii), the Exchange gave the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date on which the 
Exchange filed the proposed rule change. See 17 CFR 240.19b-
4(f)(6)(iii).
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    At any time within 60 days of the filing of such 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 rule-comments@sec.gov. Please include 
File Number SR-ISE-2010-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2010-04. 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

[[Page 5826]]

submission,\9\ 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. 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-2010-04 and should be submitted on or before 
February 25, 2010.
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    \9\ The text of the proposed rule change is available on ISE's 
Web site at http://www.ise.com, on the Commission's Web site at 
http://www.sec.gov, at ISE, and at the Commission's Public Reference 
Room.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2333 Filed 2-3-10; 8:45 am]
BILLING CODE 8011-01-P