03-24755. Self-Regulatory Organizations; Order Approving Proposed Rule Change and Amendment No. 1 Thereto, by the International Securities Exchange, Inc. Relating to the Limitation of Liability of the Options Clearing Corporation to Exchange Members

September 24, 2003.

On May 29, 2003, the International Securities Exchange, Inc. (“ISE” or “Exchange”) submitted to 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 provide that the Options Clearing Corporation (“OCC”) will have no liability to ISE Members, with respect to the use, non-use, or inability to use the Options Intermarket Linkage (“Linkage”). The ISE filed Amendment No. 1 to the proposal on July 30, 2003.^[3] The proposed rule change, as amended, was published for comment in the Federal Register on August 19, 2003.^[4] The Commission received no comments on the proposed rule change, as amended. This order approves the proposed rule change, as amended.

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 ^[5] and, in particular, the requirements of section 6(b) of the Act ^[6] and the rules and regulations thereunder. The Commission finds that the proposed rule change, as amended, is consistent with section 6(b)(5) of the Act,^[7] which requires, among other things, that the rules of the Exchange be designed to foster cooperation and coordination with persons engaged in regulation, 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.

The Commission notes that the ISE, along with the other exchanges that are Participants in the Linkage Plan, entered into an agreement with the OCC, which operates the central core or “hub” to and from which all Linkage orders are routed.^[8] In the Agreement, the ISE committed to file a proposed rule change with the Commission that would limit the liability of the OCC to ISE Members. The Commission believes that this proposed rule change, as amended, should foster cooperation and promote a relationship between the ISE and the OCC that is conducive to the effective operation of the Linkage.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[9] that the proposed rule change, as amended, (File No. SR-ISE-2003-15) be, and it hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[10]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Mike Simon, Senior Vice President and General Counsel, ISE, to Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, dated July 30, 2003 (“Amendment No. 1”). In Amendment No. 1, the Exchange submitted a technical correction to clarify that the proposed rule change would establish ISE Rule 1905.

4.  Securities Exchange Act Release No. 48321 (August 12, 2003), 68 FR 49829.

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

6.  15 U.S.C. 78f(b).

7.  15 U.S.C. 78f(b)(5).

8.  Linkage Project and Facilities Management Agreement (“the Agreement”) (January 30, 2003).

9.  15 U.S.C. 78s(b)(2).

10.  17 CFR 200.30-3(a)(12).