Document ID: SEC-2009-0963-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Customer Cross Orders
Posted Date: 2009-07-14T04:00Z

[Federal Register Volume 74, Number 133 (Tuesday, July 14, 2009)]
[Notices]
[Pages 34063-34065]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-16577]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60253; File No. SR-ISE-2009-34]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Regarding Customer Cross Orders

July 7, 2009.
    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 June 24, 2009, International Securities Exchange, LLC (``ISE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``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 ISE proposes to adopt rules related to the execution of 
Customer Cross Orders. The text of the proposed rule amendment is as 
follows, with deletions in [brackets] and additions italicized:
* * * * *
Rule 715. Types of Orders
    (a) through (h) no change.
    (i) Customer Cross Orders. A Customer Cross Order is comprised of a 
Public Customer Order to buy and a Public Customer Order to sell at the 
same price and for the same quantity.
* * * * *
Rule 717. Limitations on Orders
    (a) through (g) no change.
Supplemental Material to Rule 717
    .01 Rule 717(d) prevents an Electronic Access Member from executing 
agency orders to increase its economic gain from trading against the 
order without first giving other trading interest on the Exchange an 
opportunity to either trade with the agency order or to trade at the 
execution price when the Member was already bidding or offering on the 
book. However, the Exchange recognizes that it may be possible for an 
Electronic Access Member to establish a relationship with a customer or 
other person (including affiliates) to deny agency orders the 
opportunity to interact on the Exchange and to realize similar economic 
benefits as it would achieve by executing agency orders as principal. 
It will be a violation of Rule 717(d) for an Electronic Access Member 
to be a party to any arrangement designed to circumvent Rule 717(d) by 
providing an opportunity for a customer or other person (including 
affiliates) to regularly execute against agency orders handled by the 
Electronic Access Member immediately upon their entry into the System.
    .02 no change.
* * * * *
Rule 721. [[Reserved]] Customer Cross Orders
    Customer Cross Orders are automatically executed upon entry 
provided that the execution is at or between the best bid and offer on 
the Exchange and (i) is not at the same price as a Public Customer 
Order on the Exchange's limit order book and (ii) will not trade 
through the NBBO unless the order is for at least 500 contracts and has 
a premium value of at least $150,000.

[[Page 34064]]

    (a) Customer Cross Orders will be automatically canceled if they 
cannot be executed.
    (b) Customer Cross Orders may only be entered in the regular 
trading increments applicable to the options class under Rule 710.
    (c) Supplemental Material .01 to Rule 717 applies to the entry and 
execution of Customer Cross 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 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 those 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 parts of such statements.

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

1. Purpose
    Under the Exchange's options rules, 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),\3\ and the Exchange provides several different 
mechanisms that allow members to execute these types of crossing 
transactions in a manner that complies with the exposure 
requirement.\4\ However, the ISE options rules do not contain any 
limitations or exposure requirements regarding the execution of 
customer orders against other customer orders, and the Exchange has 
developed a way to enter opposing customer orders using a single order 
type (``Customer Cross Orders'').
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    \3\ ISE Rule 717(d) (Principal Transactions) and Rule 717(e) 
(Solicitation Orders).
    \4\ ISE Rule 716 (Block Trades) and Rule 723 (Price Improvement 
Mechanism for Crossing Transactions). See e-mail from Kathy Simmons, 
Deputy General Counsel, ISE, to Ira Brandriss, Special Counsel, and 
Brian O'Neill, Attorney, Division of Trading and Markets, 
Commission, dated July 1, 2009.
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    The purpose of this rule proposal is to adopt rules regarding the 
entry and execution of Customer Cross Orders. In particular, the 
Exchange proposes to add a definition of a Customer Cross Order 
specifying that a Customer Cross Order is comprised of a Public 
Customer Order to buy and a Public Customer Order to sell at the same 
price and for the same quantity. The Exchange also proposes to adopt 
Rule 721 specifying that Customer Cross Orders are automatically 
executed upon entry provided that the execution will not take place at 
the same price as a Public Customer Order on the limit order book, nor 
trade through the national best bid or offer unless the order is for at 
least 500 contracts and has a premium value of at least $150,000.\5\ 
The proposed rule also specifies that Customer Cross Orders entered at 
a price that is outside of the NBBO or at the same price as a Public 
Customer Order on the limit order book will be automatically canceled, 
and that Customer Cross Orders may only be entered in the regular 
trading increments applicable to the options class under Rule 710. 
Finally, the proposal specifies that Supplemental Material .01 to Rule 
717, which prohibits a member from being a party to any arrangement 
designed to circumvent the requirements applicable to executing agency 
orders as principal, applies to the entry and execution of Customer 
Cross Orders. In this respect, the Exchange proposes to amend 
Supplemental Material .01 to Rule 717 to specifically reference 
affiliates of member firms, which is consistent with how the Exchange 
has interpreted the provision.
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    \5\ Execution of orders of at least 500 contracts and with a 
premium value of at least $150,000 will meet the definition of a 
Block Trade in ISE Rule 1900(2) (definitions under the Linkage 
Rules).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange and, in particular, the requirements of 
Section 6(b) of the Act.\6\ Specifically, the Exchange believes the 
proposed rule change is consistent with the requirement of Section 
6(b)(5) \7\ 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 provides for the efficient entry and execution 
of Customer Cross Orders while also protecting Public Customer Orders 
on the book at the same price.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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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 regarding 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: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, does not become operative for 30 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 \8\ and Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to submit to 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 of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    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:

[[Page 34065]]

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-2009-34 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-2009-34. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal office of 
the Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-ISE-
2009-34 and should be submitted on or before August 4, 2009.

    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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Elizabeth M. Murphy,
Secretary.
 [FR Doc. E9-16577 Filed 7-13-09; 8:45 am]
BILLING CODE 8010-01-P