04-4122. Self-Regulatory Organizations; Order Granting Approval to Proposed Rule Change and Amendment No. 1 Thereto by the International Securities Exchange, Inc. Relating to Firm Quotations

February 19, 2004.

On November 20, 2003, 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 to require ISE market makers to be firm for the stated size of their quotations in all instances. The ISE submitted Amendment No. 1 to the proposed rule change on December 3, 2003.^[3] Currently, a market maker's disseminated quotation is required to be firm at its stated size for all incoming orders, except when quotes of two ISE market makers interact. In these cases, a market maker may limit its exposure to one contract, regardless of the size of its disseminated quotation.^[4] This proposed rule change will eliminate that exception.

The proposed rule change, as amended, was published for comment in the Federal Register on December 16, 2003.^[5] The Commission received no comments on the proposed rule change.

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, the requirements of Section 6 of the Act.^[6] Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,^[7] which requires that the rules of a national securities exchange be 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.^[8] The Commission believes that requiring market makers' quotes to be firm for the full stated size in all cases will further the development of the national market system by requiring ISE market makers to comply with the Quote Rule—Rule 11Ac1-1 under the Act.^[9]

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[10] that the proposed rule change, as amended (SR-ISE-2003-34) be, and hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[11]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Michael Simon, Senior Vice President and General Counsel, ISE, to Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, dated December 2, 2003. Amendment No. 1 deleted a reference to “Order Execution Size”—a term no longer used in the rule—and substituted the term “a bid or offer.”

4.  See Securities Exchange Act Release No. 47220 (January 21, 2003), 68 FR 4260 (January 28, 2003).

5.  See Securities Exchange Act Release No. 48892 (December 8, 2003), 68 FR 70058.

6.  15 U.S.C. 78f.

7.  15 U.S.C. 78f(b)(5).

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

9.  Rule 11Ac1-1 sets forth requirements for the dissemination of quotations and responsibilities of broker-dealers. 17 CFR 240.11Ac1-1. By letter dated January 21, 2003, the Commission granted responsible brokers and dealers on the ISE a limited exemption from the Quote Rule to permit an ISE market maker to be firm for only one contract when its quotations interact with those of other ISE market makers. See letter from Robert L.D. Colby, Deputy Director, Division of Market Regulation, Commission, to Michael J. Simon, Senior Vice President and General Counsel, ISE, dated January 21, 2003. Concurrent with approval of this proposed rule change, the Commission is revoking the ISE's limited exemption to the Quote Rule. See letter from Robert L.D. Colby, Deputy Director, Division of Market Regulation, Commission, to Michael J. Simon, Senior Vice President and General Counsel, ISE, dated January 21, 2003. Concurrent with approval of t this proposed rule change, the Commission is revoking the ISE's limited exemption to the Quote Rule. See letter from Robert L.D. Colby, Deputy Director, Division of Market Regulation, Commission, to Michael J. Simon, Senior Vice President and General Counsel, ISE, dated February 19, 2004.

10.  15 U.S.C. 78s(b)(2).

11.  17 CFR 200.30-3(a)(12).