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Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the International Securities Exchange LLC Relating to a Market Maker Inactivity Fee

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Information about this document as published in the Federal Register.

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Start Preamble April 24, 2002.

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 April 16, 2002, the International Securities Exchange LLC (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the ISE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

Start Printed Page 30407

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

The ISE proposes to adopt a $25,000 per month fee on Competitive Market Makers (“CMMs”) if their membership is not actively trading. Below is the text of the proposed rule change. Additions are italicized.

* * * * *

ISE Schedule of Fees

Electronic Market PlaceAmountBillable unitFrequency
*         *         *         *         *         *         *
Inactive PMM Fee$100,000Membership 3Monthly
Minimum PMM Fee$50,000Membership 4Monthly
Inactive CMM Fee$25,000Membership 5Monthly
*         *         *         *         *         *         *
3 Effective January 1, 2001, if a group has not been open for trading, the PMM appointed to that group will be subject to an “inactive” fee of $100,000 per month; provided that, for an entity that owns a PMM membership and that is not itself a registered broker-dealer, the fee will become effective on May 7, 2001.
4 Effective January 1, 2001, PMMs are subject to a minimum fee of $50,000 per options group. To the extent that aggregate execution fees in a group do not total at least $50,000 per month, the PMM for that group must pay a fee representing the difference between $50,000 and the aggregate actual execution fees.
5Effective July 1, 2002, CMMs are subject to an inactivity fee of $25,000 per CMM membership that is not actively trading. In applying this fee: (1) this fee shall not apply to any CMM membership in an options group for which the CMM also is leasing a PMM membership; and (2) if a CMM is approved with respect to more than one CMM membership that is not actively trading (any such inactive CMM membership in addition to one inactive membership referred to as “additional inactive memberships”), an Exchange official designated by the Board may grant the CMM an exemption from this fee for any or all additional inactive memberships if the CMM presents a business plan that an Exchange official designated by the Board determines will lead to active trading in such additional inactive membership(s) within a reasonable period of time.

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 ISE 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 purpose of the proposed rule change is to adopt a fee allowing the ISE to recoup a portion of the revenue it loses when a CMM owns or leases one or more memberships that are not open for trading. While the Exchange currently has a Primary Market Maker (“PMM”) inactivity fee, there is no similar fee for CMMs. The Exchange proposes that the fee be effective on July 1, 2002, in order to give members a reasonable period of time to begin trading in inactive memberships.

The fee will not apply if a member holds an inactive CMM membership in a group of securities in which it also is operating the PMM membership pursuant to a lease. In that case, the member cannot operate both the PMM and CMM membership, and the member reasonably may want to retain control of the CMM membership so that it can operate the membership when its PMM lease expires. The proposal also will authorize the Exchange staff to grant exemptions if a member holds multiple inactive CMM memberships. In that situation, the Exchange can grant exemptions for all but one such membership as long as the member presents a business plan establishing that trading will begin in the inactive memberships over a reasonable time period.

The Exchange proposes a $25,000 fee based on conservative estimates of the revenues lost due to an inactive CMM membership. For the first quarter of 2002, an average CMM membership generated just over $25,000 in transaction-based fees. This does not include other fees that the Exchange loses, such as session/API fees. The Exchange will periodically reevaluate this fee to maintain the relationship between the amount of the fee and the lost revenue being recouped.

2. Statutory Basis

The basis for this proposed rule change is the requirement under section 6(b)(4) of the Act [6] that an exchange have an equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities.

B. Self-Regulatory Organization's Statement on Burden on Competition

The ISE believes that 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

No written comments were solicited or received with respect to the proposed rule change.

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 self-regulatory organization 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 Start Printed Page 30408change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 such filing also will be available for inspection and copying at the principal office of the ISE. All submissions should refer to File No. SR-ISE-2002-11 and should be submitted by May 28, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[7]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


[FR Doc. 02-11104 Filed 5-3-02; 8:45 am]