Document ID: SEC-2009-0405-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2009-03-26T04:00Z

[Federal Register: March 26, 2009 (Volume 74, Number 57)]
[Notices]               
[Page 13286-13289]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr09-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59600; File No. SR-ISE-2009-09]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change to Amend Rule 623 (Communications to Customers)

March 19, 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 March 11, 2009, 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 and II below, which items have been prepared by 
the Exchange. ISE has designated the proposed rule change as 
constituting a non-controversial rule change under Rule 19b-4(f)(6) 
under the Act,\3\ which renders the proposal 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\ 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

    The Exchange proposes to remove or otherwise amend elements of ISE 
Rule 623 (``Communications to Customers'') that incorporate provisions 
of the Securities Act of 1933 (``Securities Act'') \4\ because options 
traded on the Exchange consist solely of standardized options issued by 
the Options Clearing Corporation (``OCC''), a registered clearing 
agency, that are exempt under Rule 238 of the Securities Act from all 
provisions of the Securities Act except the antifraud provisions of 
Section 17. Additionally, the proposed amendments expand the types of 
communications governed by Rule 623 to include independently prepared 
reprints and other communications between a member or member 
organization and a customer. The proposed amendments also exempt 
certain options communications from the pre-approval requirement by a 
Registered Options Principal (``ROP''). The text of the proposed rule 
change is available at the Exchange, the Commission's Public Reference 
Room, and http://www.ise.com.
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    \4\ 15 U.S.C. 77a et seq.
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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 sections A, B and C below.

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

1. Purpose
    On December 23, 2002, the Commission published final rules that 
exempt standardized options, as defined in Rule 9b-1 \5\ of the 
Exchange Act, that are issued by a registered clearing agency and 
traded on a registered national securities exchange or on a registered 
national securities association, from all provisions of the Securities 
Act (other than the anti-fraud provisions) and the registration 
requirements of the Exchange Act.\6\ Because the Securities Act and the 
rules thereunder (other than the anti-fraud provisions) are no longer 
applicable to such standardized options, the Exchange proposes to 
remove elements of the Securities Act that are embedded in ISE Rule 
623. In particular, ISE proposes to remove all references to a 
``prospectus'' from Rule 623. Prospectuses are no longer required for 
such standardized options, and the OCC has, in fact, ceased publication 
of a prospectus.\7\ In addition, the proposed amendments will update 
and reorganize Rule 623. The proposed amendments are similar to 
amendments filed with and approved by the Commission by the Financial 
Industry Regulatory Authority, Inc. and the Chicago Board Options 
Exchange, and, if adopted, would provide a more uniform

[[Page 13287]]

approach to communications to customers regarding standardized 
options.\8\
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    \5\ 17 CFR 240.9b-1.
    \6\ See Exemption for Standardized Options From Provisions of 
the Securities Act of 1933 and From the Registration Requirements of 
the Securities Exchange Act of 1934; Final Rule, Securities Act 
Release No. 8171 and Exchange Act Release No. 47082 (December 23, 
2002), 68 FR 188 (January 2, 2003).
    \7\ The options disclosure document (``ODD'') prepared in 
accordance with Rule 9b-1 under the Exchange Act is not deemed to be 
a prospectus. 17 CFR 230.135b. See, e.g., Securities Act Release No. 
8049 (Dec. 21, 2001), 67 FR 228 (Jan. 2, 2002).
    \8\ See Exchange Act Release No. 57720 (Apr. 25, 2008), 73 FR 
24332 (May 2, 2008) (SR FINRA-2008-13), and Exchange Act Release No. 
58823 (October 21, 2008), 73 FR 63747 (October 28, 2008) (SR-CBOE 
2007-30).
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a. Deletion of Certain Provisions
    As noted above, ISE Rule 623 contains a number of references to a 
prospectus and other Securities Act requirements. The Exchange proposes 
to delete the following from Rule 623: Rule 623(a)(4), which references 
the Securities Act definition of prospectus; Rule 623(e), which 
incorporates Securities Act principles in that it prohibits written 
material concerning options from being furnished to any person who has 
not previously or contemporaneously received the ODD; Rule 623(a)(2), 
which defines the term ``Educational Material;'' \9\ Rule 623(g), which 
outlines what is permitted in an ``Advertisement;'' \10\ and Rule 
623(h), which concerns educational material.\11\
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    \9\ This paragraph essentially incorporates language of 
Securities Act Rule 134a. While this amendment would eliminate the 
separate educational material category, as discussed below the 
Exchange also proposes to revise the definition of Sales Literature 
to include educational material.
    \10\ This paragraph essentially incorporates language of 
Securities Act Rule 134.
    \11\ See note 9, supra.
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b. Redesignation of Rule 623(a) to Proposed Rule 623(d) and Related 
Amendments
    Rule 623(a) currently contains an outline of the ``General Rule'' 
for options communications. ISE proposes to redesignate paragraph (a) 
as paragraph (d), and to incorporate limitations on the use of options 
communications contained in Rule 623(f) into proposed Rule 623(d). In 
addition, proposed Rule 623(d)(3) would amend Rule 623(a)(3) by 
clarifying the types of cautionary statements and caveats that are 
prohibited. Also, as previously noted, ISE proposes to delete Rule 
623(a)(4). Further, current Rule 623(i) sets forth the standards 
applicable to Sales Literature and (i)(1) sets forth the requirement 
that Sales Literature shall state that supporting documentation for any 
claims, comparisons, recommendations, statistics or other technical 
data, will be supplied upon request. The Exchange proposed to 
redesignate Rule 623(i)(1) as proposed Rule 623(d)(7).
c. Redesignation of Rule 623(c) to Proposed Rule 623(b) and Proposed 
Amendments
    ISE proposes to redesignate paragraph (c) as paragraph (b). ISE 
also proposes to amend this paragraph to include the types of 
communications proposed to be added to the definition of ``Options 
Communications'' in proposed Rule 623(a). Proposed Rules 623(b)(2) and 
(b)(3) would also amend the current requirements to obtain advance 
approval by a ROP for most options communications by exempting certain 
options communications, defined as ``Correspondence'' and 
``Institutional Sales Material.'' Specifically, proposed Rule 623(b)(2) 
would exempt correspondence from the pre-approval requirement unless 
the correspondence is distributed to 25 or more existing retail 
customers within any 30 calendar-day period and makes any financial or 
investment recommendation or otherwise promotes a product or service of 
the member. All correspondence would be subject to general supervision 
and review requirements. Proposed Rule 623(b)(3) would exempt 
institutional sales material from the pre-approval requirement if the 
material is distributed to ``qualified investors'' (as defined in 
Section 3(a)(54) of the Exchange Act).\12\ Pre-approval by a ROP would, 
however, be required with respect to independently prepared reprints. 
In addition, Proposed Rule 623(b)(4) would require that firms retain 
options communications in accordance with the record-keeping 
requirements of Rule 17a-4 under the Exchange Act.\13\ Proposed Rule 
623(b)(4) would also require that firms retain other related documents 
in the form and for the time periods required for options 
communications by Rule 17a-4.
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    \12\ 15 U.S.C. 78c(a)(54).
    \13\ 17 CFR 240.17a-4. More specifically, Rule 17a-4(b)(4) 
requires that a broker-dealer retain ``originals of all 
communications received and copies of all communications sent * * * 
including all communications which are subject to rules of a self-
regulatory organization of which the member, broker or dealer is a 
member regarding communications with the public.''
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d. Redesignation of Rule 623(d) to Proposed Rule 623(c) and Related 
Amendments
    ISE proposes to redesignate paragraph (d) as paragraph (c). Rule 
623(d) currently requires members to obtain approval for every 
advertisement and all educational material from the Exchange. This 
requirement applies regardless of whether the options communications 
are used before or after the delivery of a current ODD. ISE proposes to 
amend this provision to require approval by the Exchange only with 
respect to options communications used prior to the delivery of a 
current ODD. The Exchange pre-approval requirement for options 
communications used subsequent to the delivery of the ODD is being 
eliminated because the ODD should help alert the customer to the 
characteristics and risks associated with trading in options and 
because Rule 623(b) requires the Registered Options Principal of a 
member organization to pre-approve options communications (with certain 
exceptions for ``Correspondence'' and ``Institutional Sales 
Material''). This provision would also be amended to include the types 
of communications added to the definition of ``Options Communications'' 
in proposed Rule 623(a).
e. Redesignation of Rule 623(b) to Proposed Rule 623(a) and Related 
Amendments
    Rule 623(b) currently defines terms used in Rule 623. ISE proposes 
to redesignate paragraph (b) as paragraph (a). ISE also proposes to 
amend the definition of ``Options Communications'' in proposed Rule 
623(a) to expand the types of communications governed by Rule 623 to 
include independently prepared reprints and other communications 
between a member or member organization and a customer. The Exchange 
proposes to amend the definitions of ``Advertisement'' and ``Sales 
Literature;'' and define ``Correspondence,'' ``Institutional Sales 
Material,'' ``Public Appearances,'' and ``Independently Prepared 
Reprints;'' to clarify the rule. In addition, as previously noted, ISE 
proposes to delete the definition of ``Educational Material.''
f. Proposed Rule 623(e)
    Proposed Rule 623(e) would set forth (i) standards for options 
communications that are not preceded or accompanied by an ODD and (ii) 
standards for options communications used prior to delivery of an ODD. 
These requirements generally would clarify and restate the requirements 
contained in the current Rule 623(i). Proposed Rule 623(e)(1)(B) would 
require options communications to contain contact information for 
obtaining a copy of the ODD. As previously noted, the provisions of 
Rule 623(g) that outline what is permitted in an advertisement are 
proposed to be deleted and the provisions relating to standards for 
options communications used prior to delivery of the ODD are proposed 
to be incorporated into proposed Rule 623(e)(2).

[[Page 13288]]

g. Redesignation of Portions of Rule 623(i) to Proposed Rule 623(g), 
Proposed Rule 623(h), Proposed Rule 623(i), and Related Amendments
    As stated above, the Exchange proposes to redesignate Rule 
623(i)(1) as proposed Rule 623(d)(7). Current Rule 623(i)(2) pertains 
to standards for Sales Literature that contains projected performance 
figures and current Rule 623(i)(3) pertains to standards for Sales 
Literature that contains historical performance figures. The Exchange 
proposes to redesignate Rule 623(i)(2) as proposed Rule 623(g)(1) and 
Rule 623(i)(3) as proposed Rule 623(h). Rule 623(i) currently requires 
that a copy of the ODD precede or accompany options related sales 
literature. The Exchange is proposing to modify the ODD delivery 
requirement applicable to sales literature to provide that an ODD must 
precede or accompany any communication that conveys past or projected 
performance figures involving options or constitutes a recommendation 
pertaining to options. A notice providing the name and address of a 
person from whom the ODD may be obtained would be required in sales 
literature that does not contain a recommendation or past or projected 
performance figures. Because ISE is proposing to merge educational 
material into the sales literature category,\14\ this amendment would 
continue to allow communications that are educational in nature to be 
disseminated without being preceded or accompanied by a copy of the 
ODD.
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    \14\ See Proposed Rule 623(a)(2).
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    The Exchange proposes to redesignate current Rule 623(i)(4) as 
proposed Rule 623(i). The Exchange proposes to delete Rules 623(i)(5), 
(i)(6), and (i)(7). The Exchange believes that (i)(5) and (i)(6) are 
unnecessary because worksheets are included in the definition of 
``Sales Literature.'' The Exchange believes that (i)(7) is no longer 
necessary because the Exchange is proposing to clarify the record-
keeping requirements applicable to options communications in proposed 
Rule 623(b)(4).
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\15\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\16\ in particular, in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and to 
protect investors and the public interest in that it is designed 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 for a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Specifically, this proposed rule change will promote consistency 
between ISE and other SRO rules and provide the investing public with 
options communications rules that are designed to provide appropriate 
safeguards and greater clarity.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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 on this proposed rule change. The Exchange has not received 
any 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 rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition and (3) 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) \18\ thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ does not 
become operative prior to 30 days after the date of filing or such 
shorter time as the Commission may designate if such action is 
consistent with the protection of investors and the public interest. 
However, Rule 19b-4(f)(6) \20\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 30-day operative delay period to permit the 
proposed rule change to be implemented immediately. The Commission 
notes that the proposed rule change is substantially identical to a 
proposed rule change that was approved by the Commission after an 
opportunity for public comment,\21\ and does not raise any new 
substantive issues. For these reasons, the Commission believes that 
waiver of the 30-day operative delay \22\ is consistent with the 
protection of investors and the public interest and designates the 
proposal operative upon filing.
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ ISE's proposed rule change is substantially identical to a 
proposed rule change by the Chicago Board Options Exchange 
(``CBOE'') that was recently approved by the Commission. See 
Exchange Act Release No. 58823 (October 21, 2008), 73 FR 63747 
(October 28, 2008) (SR-CBOE-2007-30).
    \22\ For 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 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:

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-2009-09 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-2009-09. 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 Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent

[[Page 13289]]

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 such 
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-2009-09 and should be submitted on or before April 
16, 2009.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-6617 Filed 3-25-09; 8:45 am]