Document ID: SEC-2009-1077-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by International Securities Exchange, LLC Relating to Changes to Rule 312 in Connection With the Purchase of Equity Interests by International Securities Exchange Holdings, Inc. in Optifreeze, LLC
Posted Date: 2009-07-30T04:00Z

[Federal Register: July 30, 2009 (Volume 74, Number 145)]
[Notices]               
[Page 38068-38070]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy09-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60382; File No. SR-ISE-2009-45]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by International Securities Exchange, LLC Relating to Changes to 
Rule 312 in Connection With the Purchase of Equity Interests by 
International Securities Exchange Holdings, Inc. in Optifreeze, LLC

July 24, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on July 23, 2009, the International Securities 
Exchange, LLC (the ``Exchange'' or ``ISE'') filed with the Securities 
and Exchange Commission (``Commission'' or ``SEC'') 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.
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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 is submitting this proposed rule change (the 
``Proposed Rule Change'') to the Commission to amend ISE Rule 312 
(Limitation on Affiliation between the Exchange and Members) in 
connection with the capital contribution by its parent company, 
International Securities Exchange Holdings, Inc. (``ISE Holdings''), in 
Optifreeze LLC, a Delaware Limited Liability Company (``Optifreeze''). 
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 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 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
    On June 5, 2009, ISE Holdings entered into a Membership Purchase 
Agreement (``Purchase Agreement'') with Optifreeze. Pursuant to the 
Purchase Agreement, ISE Holdings contributed cash to the capital of 
Optifreeze in exchange for membership interests representing on the 
date of such issuance 8.57% of the aggregate membership interests in 
Optifreeze (``Purchased Interests''). ISE Holdings and its subsidiaries 
and affiliates do not have any voting or other ``control'' arrangements 
with any of the other members of Optifreeze relating to its investment 
in Optifreeze. The purchase by ISE Holdings of the Purchased Interests 
(the ``Transaction'') was consummated on June 5, 2009. As a result of 
such purchase, ISE Holdings became a member of Optifreeze pursuant to 
the Third Amended and Restated Operating Agreement of Optifreeze dated 
June 5, 2009, and is entitled to appoint one representative to the 
Optifreeze Board of Directors. Ballista Securities LLC (``Ballista 
Securities''), a wholly-owned subsidiary of Optifreeze, is an 
electronic access member (``EAM'') of the Exchange.
    In connection with the capital contribution by ISE Holdings in 
Optifreeze, the Exchange proposes to amend ISE Rule 312 (Limitation on 
Affiliation between the Exchange and Members) to reflect ISE Holdings' 
ownership interest in Ballista Securities, and to set forth certain 
limitations and obligations relating to such relationship.

[[Page 38069]]

In particular, the Exchange proposes that there be an exemption from 
Rule 312 of the Exchange with respect to the investment by ISE Holdings 
in Optifreeze. In relevant part, Rule 312 provides that, without prior 
SEC approval, the Exchange, or any entity with which the Exchange is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member or non-member owner. In addition, the 
Rule 312 provides that nothing in that rule shall prohibit a member or 
non-member owner from being or becoming an affiliate of the Exchange, 
or an affiliate of an affiliate of the Exchange solely by reason of any 
officer, director or partner of such member becoming an Exchange 
Director (as defined in the Amended and Restated Constitution of the 
ISE). As a result of the Transaction, the Exchange, through ISE 
Holdings, will maintain an ownership interest in an ISE member, 
Ballista Securities, which, without Commission approval, would be 
prohibited by Rule 312. The Commission has also has previously noted 
its concern regarding (1) the potential for conflicts of interest in 
instances where an exchange is affiliated with one of its members, and 
(2) the potential for informational advantages that could place an 
affiliated member of an exchange at a competitive advantage vis-
[agrave]-vis the other non-affiliated members. The Commission has also 
noted its concerns about potential unfair competition and conflicts of 
interest between an exchange's self-regulatory obligations and its 
commercial interest when the exchange is affiliated with one of its 
members. As such, ISE proposes to amend Rule 312 to permit the proposed 
relationship subject to several conditions and limitations.
    Accordingly, the Exchange is proposing to adopt subsection (c) to 
Rule 312 to require that, for so long as (i) ISE Holdings maintains an 
ownership interest in Ballista Securities; and (ii) Ballista Securities 
remains a member of the Exchange: (1) Financial Industry Regulatory 
Authority (``FINRA''), a self-regulatory organization unaffiliated with 
the Exchange or any of its affiliates, will carry out oversight and 
enforcement responsibilities as the designated examining authority 
designated by the Commission pursuant to Rule 17d-1 of the Exchange Act 
with the responsibility for examining Ballista Securities for 
compliance with applicable financial responsibility rules; (2) the 
Exchange shall (a) enter into a plan pursuant to Rule 17d-2 under the 
Exchange Act with a non-affiliated self-regulatory organization 
(``SRO'') to relieve the Exchange of regulatory responsibilities for 
Ballista Securities with respect to rules that are common rules between 
the Exchange and the SRO, and (b) enter into a regulatory services 
contract with a non-affiliated SRO to perform certain regulatory 
responsibilities for Ballista Securities for unique Exchange rules; \3\ 
(3) the regulatory services contract shall require the Exchange to 
provide the non-affiliated SRO with information, in an easily 
accessible manner, regarding all exception reports, alerts, complaints, 
trading errors, cancellations, investigations, and enforcement matters 
(collectively, ``Exceptions'') in which Ballista Securities is 
identified as a participant that has potentially violated Exchange or 
SEC rules, and shall require that the nonaffiliated SRO provide a 
report to the Exchange quantifying Exceptions on not less than a 
quarterly basis; (4) the Exchange shall establish and maintain 
procedures and internal controls reasonably designed to ensure that 
Ballista Securities and its affiliates do not have access to nonpublic 
information obtained as a result of ISE Holdings' ownership interest in 
Ballista Securities, until such information is available generally to 
similarly situated members of the Exchange in connection with the 
provision of inbound order routing to the Exchange; and (5) the 
ownership interest of ISE Holdings, Inc. in Ballista Securities is 
subject to the conditions set forth above and is granted on a temporary 
basis, for not longer than one year from the date of Commission 
approval of this filing.
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    \3\ The non-affiliated SRO will perform certain regulatory 
responsibilities for Ballista Securities other than market 
surveillance, including, but not limited to, investigative and 
disciplinary services.
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    In addition, the Exchange notes that ISE Holdings owns less than 9% 
of the equity in Optifreeze and therefore does not own a controlling 
interest in Optifreeze or otherwise have any veto or other special 
voting rights with respect to the management or operation of 
Optifreeze. The Exchange acknowledges that if the Exchange or any of 
its affiliates were to directly or indirectly increase the equity 
ownership of Optifreeze, such increase would require prior Commission 
approval. The Exchange believes that the foregoing measures and factors 
minimize the concerns identified by the Commission regarding potential 
conflicts of interest.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Exchange Act,\4\ in general, 
and with Sections 6(b)(1) and (b)(5) of the Exchange Act,\5\ in 
particular, in that the proposal enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply with and enforce compliance by 
members and persons associated with members with provisions of the 
Exchange Act, the rules and regulations thereunder, and SRO rules, and 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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. 
In particular, this rule change will address any potential regulatory 
issues that could arise with ISE Holdings' investment in, and providing 
capital to, an innovative brokerage operation.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(3), (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange 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, participants or others.

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 self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change; or

[[Page 38070]]

    (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. 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 No. SR-ISE-2009-45 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 No. SR-ISE-2009-45. 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 changes 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 such 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 No. SR-ISE-2009-45 and should be 
submitted on or before August 20, 2009.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-18169 Filed 7-29-09; 8:45 am]

BILLING CODE 8010-01-P