E7-9365. Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change as Modified by Amendment No. 1 Thereto Relating to Split Prices

May 10, 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 26, 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, II, and III below, which Items have been substantially prepared by the ISE. On April 20, 2007, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The ISE proposes to amend its rule governing “Split Prices.” Specifically, the Exchange proposes to provide for executions in its Block, Facilitation and Solicitation Mechanisms at half-penny prices for certain options classes included in the penny pilot program.^[3] The text of the proposed rule change is available at ISE, the Commission's Public Reference Room, and 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, the 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. The Exchange 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

The Exchange proposes to amend its rule governing “Split Prices.” ^[4] Specifically, the Exchange proposes to provide for executions in its Block, Facilitation and Solicitation Mechanisms at half-penny prices for certain options classes included in the penny pilot program. The Exchange's rule governing Split Prices was previously approved by the Commission.^[5] Pursuant to the Commission's approval, the Exchange currently provides for such “Split Prices” in options quoted in standard $.05 and $.10 increments.

On January 26, 2007, the Exchange, along with the other options exchanges, commenced a six-month pilot program to quote certain options classes in penny increments.^[6] The penny pilot rules adopted by the Exchange specifically state that Split Prices do not apply to options trading in penny increments. At the time ISE adopted the penny pilot rules, the Exchange believed that being able to place orders and responses in the Block, Facilitation and Solicitation Mechanisms in penny increments would give its members sufficient pricing flexibility. However, based on its experience with the penny pilot thus far, the Exchange believes that the same competitive pressure that led to Split Prices in standard increments has arisen in the penny pilot options. Specifically, the Exchange stated that it has seen floor-based exchanges print large blocks at two prices, one-cent apart, effectively providing for a half-penny block print. For competitive reasons, and to allow its members the same pricing flexibility that floor-based exchanges appear to be providing to their members, the ISE proposes to extend Split Prices to options classes included in the penny pilot program. The Exchange also represents that the Options Clearing Corporation will continue to accept and clear trades at sub-penny prices and that orders that are on the ISE book will be protected and executed at the midpoint prices.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,^[7] in general, and furthers the objectives of Section 6(b)(5) of the Act,^[8] in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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, the proposal will provide additional pricing flexibility in penny pilot options and allow the Exchange to compete more effectively with floor-based exchanges.

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 Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

Written comments on the proposed rule change were neither solicited nor received.

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 Exchange consents, the Commission will:

(A) By order approve such proposed rule change, or

(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 [e-mail]. Please include File No. SR-ISE-2007-22 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 No. SR-ISE-2007-22. 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 at 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 the Exchange. 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-2007-22 and should be submitted on or before June 6, 2007.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Florence E. Harmon,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 55161 (January 24, 2007), 72 FR 4754 (February 1, 2007) (SR-ISE-2006-62) (“Penny Pilot Order”).

4.  See Supplementary Material .06 to ISE Rule 716.

5.  See Securities Exchange Act Release No. 51666 (May 9, 2005), 70 FR 25631 (May 13, 2005) (SR-ISE-2003-07).

6.  See Penny Pilot Order, supra note 3.

7.  15 U.S.C. 78f(b).

8.  15 U.S.C. 78f(b)(5).

9.  17 CFR 200.30-3(a)(12).