03-1705. Self-Regulatory Organizations; Order Granting Approval of Proposed Rule Change by the International Securities Exchange, Inc., Relating to the Repeal of Limitations on Orders

January 17, 2003.

On November 21, 2002, the International Securities Exchange, Inc. (“ISE” or “Exchange”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change relating to the repeal of limitations on orders. Notice of the proposed rule change was published for comment in the Federal Register on December 16, 2002.^[3] No comments were received on the proposed rule change.

The Exchange proposes to repeal the provision in its Rule 717 that prohibits Electronic Access Members (“EAMs”) from sending in more than one order every 15 seconds for the same beneficial owner in options on the same underlying security. The ISE adopted this “speed bump” in 2000 to protect ISE market makers from exposure across multiple series of options if they receive orders in many series at the same time.^[4] The Exchange now represents that the rule has been outmoded by the development of sophisticated risk management tools and that eliminating this restriction will provide EAMs and their customers with enhanced access to the ISE.

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.^[5] Elimination of the “speed bump” will remove an impediment to trading created only to limit the market risk undertaken by ISE market makers. Additionally, the change should permit faster entry and execution of orders on the Exchange, thereby providing investors with improved services. Therefore, the Commission believes that the proposal is consistent with Section 6(b)(5) of the Act,^[6] which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market, and to protect investors and the public interest.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[7] that the proposed rule change (File No. SR-ISE-2002-27) be, and it hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[8]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 46959 (December 6, 2002), 67 FR 77115.

4.  See Securities Exchange Act Release No. 44017 (February 28, 2001), 66 FR 13820 (March 7, 2001).

5.  In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78(c)(f).

6.  15 U.S.C. 78f(b)(5).

7.  15 U.S.C. 78s(b)(2).

8.  17 CFR 200.30-3(a)(12).