Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”)  and Rule 19b-4 thereunder, notice is hereby given that on January 14, 2011, the International Securities Exchange, LLC (the “Exchange” or “ISE”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I and II below, which items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange is submitting this proposed rule change (the “Proposed Rule Change”) to the Commission to amend ISE Rule 312 (Limitation on Affiliation between the Exchange and Members) in connection with the capital contribution by its parent company, International Securities Exchange Holdings, Inc. (“ISE Holdings”), in Ballista Holdings LLC (formerly Optifreeeze [sic] LLC), a Delaware Limited Liability Company (“Ballista Start Printed Page 5226Holdings”). The text of the proposed rule change is available on the Exchange's Web site http://www.ise.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.
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 Exchange 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 self-regulatory organization 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
On June 5, 2009, ISE Holdings entered into a Membership Purchase Agreement (“Purchase Agreement”) with Ballista Holdings. Pursuant to the Purchase Agreement, ISE Holdings contributed cash to the capital of Ballista Holdings in exchange for membership interests representing on the date of such issuance 8.57% of the aggregate membership interests in Ballista Holdings (“Purchased Interests”). ISE Holdings and its subsidiaries and affiliates do not have any voting or other “control” arrangements with any of the other members of Ballista Holdings relating to its investment in Ballista Holdings. The purchase by ISE Holdings of the Purchased Interests was consummated on June 5, 2009 (the “Transaction”). As a result of such purchase, ISE Holdings became a member of Ballista Holdings pursuant to the Third Amended and Restated Operating Agreement of Ballista Holdings dated June 5, 2009, and has one representative on the Ballista Holdings Board of Directors. Ballista Securities LLC (“Ballista Securities”), a wholly-owned subsidiary of Ballista Holdings, is an electronic access member of the Exchange.
The Exchange, through ISE Holdings, maintains an ownership interest in an ISE member, Ballista Securities, which, without Commission approval, would be prohibited by ISE Rule 312. In 2009, recognizing that the Commission has previously expressed concern regarding (1) the potential for conflicts of interest in instances where an exchange is affiliated with one of its members, and (2) the potential for informational advantages that could place an affiliated member of an exchange at a competitive advantage vis-à-vis the other non-affiliated members, the ISE submitted a proposed rule change to amend ISE Rule 312 to permit the proposed affiliation subject to several limitations and obligations. Specifically, the limitations and obligations of ISE Rule 312 provide that for so long as (i) ISE Holdings maintains an ownership interest in Ballista Securities; and (ii) Ballista Securities remains a member of the Exchange: (1) Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization unaffiliated with the Exchange or any of its affiliates, will carry out oversight and enforcement responsibilities as the designated examining authority designated by the Commission pursuant to Rule 17d-1 of the Exchange Act with the responsibility for examining Ballista Securities for compliance with applicable financial responsibility rules; (2) the Exchange shall (a) enter into a plan pursuant to Rule 17d-2 under the Exchange Act with a non-affiliated self-regulatory organization (“SRO”) to relieve the Exchange of regulatory responsibilities for Ballista Securities with respect to rules that are common rules between the Exchange and the SRO, and (b) enter into a regulatory services contract with a non-affiliated SRO to perform certain regulatory responsibilities for Ballista Securities for unique Exchange rules;  (3) the regulatory services contract shall require the Exchange to provide the non-affiliated SRO with information, in an easily accessible manner, regarding all exception reports, alerts, complaints, trading errors, cancellations, investigations, and enforcement matters (collectively, “Exceptions”) in which Ballista Securities is identified as a participant that has potentially violated Exchange or SEC rules, and shall require that the nonaffiliated SRO provide a report to the Exchange quantifying Exceptions on not less than a quarterly basis; (4) the Exchange shall establish and maintain procedures and internal controls reasonably designed to ensure that Ballista Securities and its affiliates do not have access to nonpublic information obtained as a result of ISE Holdings' ownership interest in Ballista Securities, until such information is available generally to similarly situated members of the Exchange; and (5) the ownership interest of ISE Holdings, Inc. in Ballista Securities is subject to the conditions set forth above and is granted on a temporary basis, for not longer than one year from the date of Commission approval of the filing.
On September 1, 2009, the Commission approved the amendments to ISE Rule 312 (Limitation on Affiliation between the Exchange and Members) to reflect ISE Holdings' ownership interest in Ballista Securities and to set forth such limitations and obligations relating to the relationship, and an exemption from ISE Rule 312 of the Exchange with respect to the investment by ISE Holdings in Ballista Holdings for a one (1) year pilot period which ended on September 1, 2010. The Exchange now proposes that there be an exemption from Rule 312 of the Exchange with respect to the investment by ISE Holdings in Ballista Holdings for a second one (1) year pilot period subject to the same limitations and obligations as were previously approved by the Commission, and to make certain technical changes to Rule 312 to reflect that the 17d-2 Plan  and the Regulatory Services Agreement with a non-affiliated self-regulatory organization are currently in place, and also to reflect that the Exchange has established and maintains procedures and internal controls reasonably designed to ensure that Ballista Securities and its affiliates do not have access to nonpublic information obtained as a result of ISE Holdings' ownership interest in Ballista Securities, until such information is available generally to similarly situated members of the Exchange.
In addition, the Exchange notes that ISE Holdings continues to own less than 9% of the equity in Ballista Holdings and therefore does not own a controlling interest or otherwise have any veto or other special voting rights with respect to the management or operation of Ballista Holdings. The Exchange acknowledges that if the Exchange or Start Printed Page 5227any of its affiliates were to directly or indirectly increase the equity ownership of Ballista Holdings, such increase would require prior Commission approval. The Exchange believes that the foregoing measures and factors minimize the concerns identified by the Commission regarding potential conflicts of interest.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Exchange Act, in general, and with Sections 6(b)(1) and (b)(5) of the Exchange Act, in particular, in that the proposal enables the Exchange to be so organized as to have the capacity to be able to carry out the purposes of the Exchange Act and to comply with and enforce compliance by members and persons associated with members with provisions of the Exchange Act, the rules and regulations thereunder, and SRO rules, and is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, 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. In particular, this rule change will provide for a second one (1) year pilot program designed to prevent any potential regulatory issues that could arise with ISE Holdings' investment in Ballista Holdings.
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 Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members, participants or others.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate 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 or disapprove the 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:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an e-mail to email@example.com. Please include File Number SR-ISE-2011-05 on the subject line.
- Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2011-05. 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 (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 Web site viewing and printing in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such 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 publicly available. All submissions should refer to File Number SR-ISE-2011-05 and should be submitted on or before February 18, 2011.Start Signature
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Elizabeth M. Murphy,
3. In relevant part, ISE Rule 312 provides that, without prior SEC approval, the Exchange, or any entity with which the Exchange is affiliated shall not, directly or indirectly, acquire or maintain an ownership interest in a member or non-member owner. In addition, ISE Rule 312 provides that nothing in that rule shall prohibit a member or non- member owner from being or becoming an affiliate of the Exchange, or an affiliate of an affiliate of the Exchange solely by reason of any officer, director or partner of such member becoming an Exchange Director (as defined in the Amended and Restated Constitution of the ISE).Back to Citation
4. The non-affiliated SRO will perform certain regulatory responsibilities for Ballista Securities other than market surveillance, including, but not limited to, investigative and disciplinary services.Back to Citation
5. See Securities and Exchange Act Release No. 34-60598 (September 1, 2009), 74 FR 38068 (July 30, 2009) [sic] (SR-ISE-2009-45).Back to Citation
6. See Securities and Exchange Act Release No. 34-61853 (April 6, 2010), 75 FR 18925 (April 13, 2010).Back to Citation
9. See e-mail from Tracy Tang, Assistant General Counsel, ISE, to Michael Gaw, Assistant Director, Division of Trading and Markets, Commission, dated January 20, 2011 (correcting text of the Statutory Basis at the Exchange's request).Back to Citation
[FR Doc. 2011-1860 Filed 1-27-11; 8:45 am]
BILLING CODE 8011-01-P