Document ID: SEC-2007-0548-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: International Securities Exchange LLC
Posted Date: 2007-04-13T04:00Z

[Federal Register: April 13, 2007 (Volume 72, Number 71)]
[Notices]               
[Page 18701-18703]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ap07-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55586; File No. SR-ISE-2007-19]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Access to the Exchange by Sponsored Customers

April 5, 2007.
    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 March 13, 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 and 
II below, which Items have been substantially prepared by ISE. The 
Exchange has filed the proposal as a ``non-controversial'' rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders it effective upon filing with the 
Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE proposes to amend ISE Rule 706 to permit Sponsored Customers of 
a Member to access the Exchange. 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, 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. 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
    This proposed rule change seeks to permit Sponsored Customers of 
Members to access the Exchange provided that a Sponsored Customer 
Agreement has been entered into with the Exchange by the Sponsored 
Customer, and provided certain other conditions are satisfied. The 
proposed revisions to Rule 706 outlines the requirements that 
Sponsoring Members and Sponsored Customers would be required to meet 
prior to engaging in a Sponsoring Member/Sponsored Customer 
relationship.\5\
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    \5\ ISE notes that this proposed rule change will enable 
Sponsored Customers of Members to access both its Options Exchange, 
as per Rule 706, and its Stock Exchange, as per Rule 2100, which 
incorporates Rule 706 by cross-reference.
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    A ``Sponsored Customer'' is a non-Member of the Exchange, such as 
an institutional investor, that trades under a Sponsoring Member's 
execution and clearing identity pursuant to a sponsorship arrangement 
between such non-Member and a Member. The Sponsoring Member must have 
documentation acknowledging it has full and complete responsibility for 
all trading activity conducted by its Sponsored Customer. A Sponsoring 
Member that provides access to a Sponsored Customer also has a 
continuing obligation to comply with all ISE rules and procedures and 
the federal securities laws and regulations. A Sponsoring Member must 
also continue to satisfy any agency obligations that may exist between 
itself and its Sponsored Customer.
    A Sponsored Customer's access to the Exchange is conditioned on the 
following requirements being met: Sponsored Customers would be required 
to enter into a sponsorship arrangement with a ``Sponsoring Member,'' 
which is defined as an ISE Member that has been designated by a 
Sponsored Customer to execute, clear and settle transactions on ISE. 
The sponsorship arrangement consists of three separate components.
    First, the Sponsored Customer would have to enter into and maintain 
a customer agreement with its Sponsoring Member, establishing a proper 
relationship and account through which the Sponsored Customer would be 
permitted to trade on ISE.
    Second, the Sponsored Customer and its Sponsoring Member would have 
to enter into a written agreement that

[[Page 18702]]

incorporates the following Sponsorship Provisions:
    (1) The Sponsoring Member acknowledges and agrees that: (i) All 
orders entered by its Sponsored Customer and any person acting on 
behalf of or in the name of such Sponsored Customer and any executions 
occurring as a result of such orders are binding in all respects on the 
Sponsoring Member; and (ii) the Sponsoring Member is responsible for 
any and all actions taken by such Sponsored Customer and any person 
acting on behalf of or in the name of such Sponsored Customer.
    (2) The Sponsored Customer agrees that it would comply with the ISE 
Certificate of Formation, Constitution, Rules and procedures with 
regard to its activity on the Exchange as if the Sponsored Customer 
were an ISE Member.
    (3) The Sponsored Customer agrees that it would maintain, keep 
current and provide to the Sponsoring Member a list of its Authorized 
Traders \6\ who would be permitted to obtain access to the Exchange on 
behalf of the Sponsored Customer(s).
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    \6\ See proposed ISE Rule 706, Supplementary Material 
.01(b)(2)(iv).
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    (4) The Sponsored Customer agrees that it would familiarize its 
Authorized Traders with all of the Sponsored Customer's obligations 
under ISE Rules and would assure that they receive appropriate training 
prior to any use of or access to the Exchange.
    (5) The Sponsored Customer agrees that it would not permit anyone 
other than Authorized Traders to use or obtain access to the Exchange.
    (6) The Sponsored Customer agrees that it would take reasonable 
security precautions to prevent unauthorized use or access to the 
Exchange, including unauthorized entry of information into the System, 
or the information and data made available therein. The Sponsored 
Customer understands and agrees that it is responsible for any and all 
orders, trades and other messages and instructions entered, transmitted 
or received under identifiers, passwords and security codes of 
Authorized Traders, and for the trading and other consequences thereof.
    (7) The Sponsored Customer acknowledges its responsibility for 
establishing adequate procedures and controls that permit it to 
effectively monitor its employees, agents and customers' use of and 
access to the Exchange for compliance with the terms of the Sponsorship 
Provisions.
    (8) The Sponsored Customer agrees that it would pay when due all 
amounts, if any, payable to the Sponsoring Member, ISE or any other 
third parties that arise from the Sponsored Customer's access to and 
use of the Exchange. Such amounts would include, but would not be 
limited to, applicable exchange and regulatory fees.
    Third, the Sponsoring Member would have to provide ISE with an 
express acknowledgement of the Sponsoring Member's responsibility for 
the orders, executions and actions of its Sponsored Customer.
    As a further condition to access to the Exchange, each Member would 
be required to maintain an up-to-date list of persons who could obtain 
access to the Exchange on behalf of the Sponsoring Member or the 
Sponsoring Member's Sponsored Customers, i.e., Authorized Traders, and 
provide the list to ISE upon request. In addition, each Member would 
have to have reasonable procedures to ensure that all of its Authorized 
Traders maintain the physical security of ISE and otherwise comply with 
ISE Rules. If ISE determines that an Authorized Trader has caused a 
Member to violate ISE Rules, ISE could direct the Member to suspend or 
withdraw the person's status as an Authorized Trader.
    The Sponsoring Member/Sponsored Customer relationship would allow a 
Member to grant access to ISE to their customers while confirming that 
those customers who do have access to ISE have appropriate procedures 
in place to comply with ISE rules. Furthermore, the identity of all 
individuals with access (i.e., Authorized Traders) would have to be 
disclosed to the Exchange, giving the Exchange better information in 
the event that the Exchange determines to take action because its 
systems have been used inappropriately.
2. Statutory Basis
    ISE believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(5) of the Act,\8\ in particular, in that the proposal is designed 
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.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ISE 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

    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 forgoing 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 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to Section 19(b)(3)(A) 
of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\11\ 
However, Rule 19b-4(f)(6)(iii) \12\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
would permit ISE Members to immediately provide its Sponsored Customers 
access to ISE's markets.\13\ For this reason, the Commission designates 
the proposed rule change to be operative upon filing with the 
Commission.\14\
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    \11\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization 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 Commission has decided to waive the five-day 
pre-filing notice requirement.
    \12\ Id.
    \13\ The Commission notes that proposed ISE Rule 706, 
Supplementary Material .01 is substantially similar to NYSE Arca, 
Inc. Rule 7.29.
    \14\ For the 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).
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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

[[Page 18703]]

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-2007-19 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-2007-19. 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. Copies of the filing 
also will be available for inspection and copying at the principal 
office of 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-
2007-19 and should be submitted on or before May 4, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-6961 Filed 4-12-07; 8:45 am]

BILLING CODE 8010-01-P