(if not spread in writing), and it can be difficult to ascertain the
identity of those who spread rumors to cause price moves.
    The Commission requests comment on whether momentum ignition
strategies are a significant problem in the current market structure.
To what extent do proprietary firms engage in the types of strategies
described above?

Does, for example, the speed of trading and ability to generate a large
amount of orders across multiple trading centers render this type of
strategy more of a problem today? If momentum ignition strategies have
caused harm, are there objective indicia that would reliably identify
problematic strategies? Are there regulatory tools (beyond the
currently applicable anti-fraud and anti-manipulation provisions) that
would effectively reduce or eliminate the use of momentum ignition
strategies while at the same time have a minimal impact on other
strategies that are beneficial to long-term investors and market
quality?
2. Tools
    This section will focus on two important tools that often are used
by proprietary firms to implement their short-term trading strategies--
co-location and trading center data feeds.
a. Co-Location
    Many proprietary firm strategies are highly dependent upon speed--
speed of market data delivery from trading center servers to servers of
the proprietary firm; speed of decision processing of trading engines
of the proprietary firm; speed of access to trading center servers by
servers of the proprietary firm; and speed of order execution and
response by trading centers. Speed matters both in the absolute sense
of achieving very small latencies and in the relative sense of being
faster than competitors, even if only by a microsecond. Co-location is
one means to save micro-seconds of latency.
    Co-location is a service offered by trading centers that operate
their own data centers and by third parties that host the matching
engines of trading centers. The trading center or third party rents
rack space to market participants that enables them to place their
servers in close physical proximity to a trading center's matching
engine. Co-location helps minimize network and other types of latencies
between the matching engine of trading centers and the servers of
market participants.
    The Commission believes that the co-location services offered by
registered exchanges are subject to the Exchange Act. Exchanges that
intend to offer co-location services must file proposed rule changes
and receive approval of such rule changes in advance of offering the
services to customers.\76\ The terms of co-location services must not
be unfairly discriminatory, and the fees must be equitably allocated
and reasonable.\77\
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    \76\ Section 3(a)(27) of the Exchange Act defines ``rules of an
exchange'' as, among other things, a stated policy, practice, or
interpretation of the exchange that the Commission has by rule
determined to be rules of the exchange. Rule 19b-4(b) under the
Exchange Act defines ``stated policy, practice, or interpretation''
to mean, in part, [a]ny material aspect of the operation of the
facilities of the self-regulatory organization.'' The Commission
views co-location services as being a material aspect of the
operation of the facilities of an exchange.
    \77\ Section 6(b)(4) and (5) of the Exchange Act.
---------------------------------------------------------------------------

    Fairness of Co-Location Services. Beyond these basic statutory
requirements, the Commission broadly requests comment on co-location
and whether it benefits or harms long-term investors and market
quality. For example, does co-location provide proprietary firms an
unfair advantage because they generally will have greater resources and
sophistication to take advantage of co-location services than other
market participants, including long-term investors? If so, specify how
this disparity harms long-term investors. Conversely, does co-location
offer benefits to long-term investors? For example, do co-location
services enable liquidity providers to operate more efficiently and
thereby increase the quality of liquidity they provide to the markets?
Please quantify any harm or benefits, if possible. Is it fair for some
market participants to pay to obtain better access to the markets than
is available to those not in a position to pay for or otherwise obtain
co-location services? Aside from physical proximity, are there other
aspects of services offered by exchanges to co-location participants
that may lead to unfair access concerns?
    In addition, are brokers generally able to obtain and use co-
location services on behalf of their customers? If so, are long-term
investors harmed by not being able to use co-location directly? Are co-
location fees so high that they effectively create a barrier for
smaller firms? Do commenters believe that co-location services
fundamentally differ from other respects in which market participants
can obtain latency advantages, particularly if co-location services are
not in short supply and are available to anyone on terms that are fair
and reasonable and not unreasonably discriminatory?
    If commenters believe that co-location services create unfair
access to trading, should the Commission prohibit or restrict
exchanges, and other trading centers, such as ATSs, from offering co-
location services? If exchanges and other trading centers were no
longer permitted to provide the services, would third parties, who may
be outside the Commission's regulatory authority, be encouraged to
obtain space close to an exchange's data center and rent such space to
market participants? Alternatively, could exchanges and other trading
centers batch process all orders each second and, if so, what would be
the effect of such a policy on market quality?
    The Commission also requests comment on exchanges and other trading
centers that place their trading engines in data facilities operated by
third parties. Such parties are not regulated entities subject to the
access and other requirements of the Exchange Act and Commission rules.
Could this disparity create competitive disadvantages among trading
centers? Should the third party data centers be considered facilities
of the exchange or trading center? Alternatively, should the Commission
require trading centers to obtain contractual commitments from third
parties to provide any co-location services on terms consistent with
the Exchange Act and Commission rules?
    With respect to those market participants that purchase co-location
services, should exchanges and other trading centers be subject to
specific requirements to help assure that all participants are treated
in a manner that is not unfairly discriminatory? Latency can arise from
a variety of sources, such as cable length and capacity, processing
capabilities, and queuing. Is it possible for trading centers to
guarantee equal latency across all market participants that use
comparable co-location services? Should the Commission require latency
transparency--the disclosure of information that would enable market
participants to make informed decisions about their speed of access to
an exchange or other trading center? Such disclosures could include,
for example, periodic public reports on the latencies of the fastest
market participants (on an anonymous basis), as well as private reports
directly to individual market participants of their specific latencies.
If latency disclosure should be required, what information should be
disclosed and in what manner?
    Affirmative or Negative Trading Obligations. Finally, the
Commission requests comment on whether all or some market participants
(such as proprietary firms) that obtain co-location services should be
subject to any affirmative or negative obligations with respect to
their trading behavior. Such obligations historically were applied to
exchange specialists that enjoyed a unique time and place advantage on
the floor of an exchange. Are co-location services analogous to the
specialist advantages? Or does the wider availability of co-location
services to many market participants distinguish co-located market
participants from

exchange specialists? If all or some co-location participants should be
subject to trading obligations, what should be the nature of such
obligations? For example, should some or all co-location participants
be prohibited from aggressively taking liquidity and moving prices
always or only under specified circumstances? If only under specified
circumstances, what should those include or exclude? Should some or all
co-location participants ever be required to provide liquidity on an
ongoing basis or in certain contexts?
b. Trading Center Data Feeds
    Another important tool widely used by proprietary firms is the
individual data feeds offered by many exchanges and ECNs. As discussed
in section III.B.1. above, the consolidated data feeds include the
best-priced quotations of all exchanges and certain ATSs and all
reported trades. The individual data feeds of exchanges and ECNs
generally will include their own best-priced quotations and trades, as
well as other information, such as inferior-priced orders included in
their depth-of-book. When it adopted Regulation NMS in 2005, the
Commission did not require exchanges, ATSs, and other broker-dealers to
delay their individual data feeds to synchronize with the distribution
of consolidated data, but prohibited them from independently
transmitting their own data any sooner than they transmitted the data
to the plan processors.\78\
---------------------------------------------------------------------------

    \78\ Regulation NMS Release, 70 FR at 37567.
---------------------------------------------------------------------------

    Given the extra step required for SROs to transmit market data to
plan processors, and for plan processors to consolidate the information
and distribute it the public, the information in the individual data
feeds of exchanges and ECNs generally reaches market participants
faster than the same information in the consolidated data feeds. The
extent of the latency depends, among other things, on the speed of the
systems used by the plan processors to transmit and process
consolidated data and on the distances between the trading centers, the
plan processors, and the recipients. As noted above,\79\ the Commission
understands that the average latency of plan processors for the
consolidated data feeds generally is less than 10 milliseconds. This
latency captures the difference in time between receipt of data by the
plan processors from the SROs and distribution of the data by the plan
processors to the public.
---------------------------------------------------------------------------

    \79\ See supra note 45 and accompanying text.
---------------------------------------------------------------------------

    Latency of Consolidated Data. The Commission requests comment on
all aspects of the latency between consolidated data feeds and
individual trading center data feeds. What have market participants
experienced in terms of the degree of latency between trading center
and consolidated data? Is the latency as small as possible given the
necessity of the consolidation function, or could plan processor
systems be improved to significantly reduce the latency from current
levels, while still retaining the high level of reliability required of
plan processors?
    More broadly, is the existence of any latency, or the disparity in
information transmitted, fair to investors or other market participants
that rely on the consolidated market data feeds and do not use
individual trading center data feeds? If so, should the unfairness be
addressed by a requirement that trading center data be delayed for a
sufficient period of time to assure that consolidated data reaches
users first? Would such a mandated delay adequately address unfairness?
Would a mandatory delay seriously detract from the efficiency of
trading and harm long-term investors and market quality? Should the
Commission require that additional information be included in the
consolidated market data feeds?
    Odd-Lot Transactions. Finally, the consolidated trade data
currently does not include reports of odd lot orders or odd lot
transactions (transactions with sizes of less than 1 round lot, which
generally is 100 shares). It appears that a substantial volume of
trading (approximately 4%) may be attributable to odd lot transactions.
Why is the volume of odd lots so high? Should the Commission be
concerned about this level of activity not appearing in the
consolidated trade data? Has there been an increase in the volume of
odd lots recently? If so, why? Do market participants have incentives
to strategically trade in odd lots to circumvent the trade disclosure
or other regulatory requirements? Would these trades be important for
price discovery if they were included in the consolidated trade data?
Should these transactions be required to be reported in the
consolidated trade data? Why?
3. Systemic Risks
    Stepping back from the particular strategies and tools used by
proprietary traders, comment is requested more broadly on whether HFT
poses significant risks to the integrity of the current equity market
structure. For example, do the high speed and enormous message traffic
of automated trading systems threaten the integrity of trading center
operations? Also, many proprietary firms potentially could engage in
similar or connected trading strategies that, if such strategies
generated significant losses at the same time, could cause many
proprietary firms to become financially distressed and lead to large
fluctuations in market prices. To the extent that proprietary firms
obtain financing for their trading activity from broker-dealers or
other types of financial institutions, the significant losses of many
proprietary firms at the same time also could lead to more widespread
financial distress.\80\
---------------------------------------------------------------------------

    \80\ A broker-dealer conducting a general securities business
that is required to register with the Commission under Section 15(b)
of the Exchange Act must comply with the Commission's net capital
rule, Exchange Act Rule 15c3-1. Under Rule 15c3-1, broker-dealers
are required to maintain, at all times, a minimum amount of net
capital. This means that firms must be able to demonstrate that they
have sufficient net capital for intra-day positions. In addition, if
a broker-dealer is engaged in proprietary trading on margin, it may
be subject to certain provisions of Regulation T, 12 CFR 220.1, et
seq., as well as SRO margin rules applicable to broker-dealers. See,
e.g., NYSE Rule 431(e)(5) (specialists' and market makers'
accounts), (e)(6)(A) (broker/dealer accounts), (e)(6)(B) (Joint Back
Office Arrangements) and NASD Rule 2520(e)(5), (e)(6)(A) and
(e)(6)(B). Moreover, high frequency traders who are not broker-
dealers must comply with the SRO day trading rules if they meet the
definition of ``pattern day trader.'' NYSE Rule 431(f)(8)(B) and
NASD Rule 2520(f)(8)(B).
---------------------------------------------------------------------------

    Comment also is requested on whether proprietary traders help
promote market integrity by providing an important source of liquidity
in difficult trading conditions. The Commission notes that, from an
operational standpoint, the equity markets performed well during the
world-wide financial crisis in the Autumn of 2008 when volume and
volatility spiked to record highs.\81\ Unlike some financial crises in
the past, the equity markets continued to operate smoothly and
participants generally were able to trade at currently displayed prices
(though most investors likely suffered significant losses from the
general decline of market prices). Does

the 2008 experience indicate that systemic risk is appropriately
minimized in the current market structure? If not, what further steps
should the Commission take to address systemic risk? Should, for
example, all proprietary firms be required to register as broker-
dealers and become members of FINRA to help assure that their
operations are subject to full regulatory oversight? Moreover, does the
current regulatory regime adequately address the particular concerns
raised by proprietary firms and their trading strategies and tools?
---------------------------------------------------------------------------

    \81\ See, e.g., NYSE Euronext, Consolidated Volume in NYSE
Listed Issues 2000-2009 (available at http://www.nyxdata.com/
nysedata/NYSE/FactsFigures/tabid/115/Default.aspx) (consolidated
average daily volume in NYSE-listed stocks reached a then-record
high of 7.1 billion shares in October 2008, compared to an average
of 3.4 billion shares for the year 2007); Pam Abramowitz, Technology
Drives Trading Costs, Institutional Investor (November 4, 2009)
(``[V]olatility has fallen substantially over the past six to nine
months as equity markets have rallied. * * * [The] VIX, which hit an
all-time high of 89.53 in October 2008, averaged 25.49 in the third
quarter of 2009, close to its precrisis historical average of
20.3''); Tom Lauricella, Volatility Requires New Strategies, Wall
Street Journal (October 20, 2008) (``The stock market's collapse and
unprecedented daily price swings are forcing investors of all
stripes to rethink their strategies, all the while looking for any
hints that the financial markets will stabilize. * * * So far this
month, there have been 10 days where the Dow Jones Industrial
Average ricocheted in a range of more than 5% * * *'').
---------------------------------------------------------------------------

C. Undisplayed Liquidity

    As noted in section III.A. above, undisplayed liquidity is trading
interest that is available for execution at a trading center, but is
not included in the consolidated quotation data that is widely
disseminated to the public. Undisplayed liquidity also is commonly
known as ``dark'' liquidity. The Commission recently published
proposals to address certain practices with respect to undisplayed
liquidity. These include the use of actionable indications of interest,
or ``IOIs,'' to attract order flow, the lowering of the trading volume
threshold that would trigger ATS order display obligations, and the
real-time disclosure of the identity of ATSs on the public reports of
their executed trades.\82\ This release is intended to request comment
on a wide range of issues with respect to undisplayed liquidity in all
of its forms.
---------------------------------------------------------------------------

    \82\ See Non-Public Trading Interest Release, 74 FR at 61209-
61210.
---------------------------------------------------------------------------

    Undisplayed liquidity in general is not a new phenomenon. Market
participants that need to trade in large size, such as institutional
investors, always have faced a difficult trading dilemma. On the one
hand, if they prematurely reveal the full extent of their large trading
interest to the market, then market prices are likely to run away from
them (a price rise for those seeking to buy and a price decline for
those seeking to sell), which would greatly increase their transaction
costs and reduce their overall investment returns. On the other hand,
if an institutional investor that wants to trade in large size does
nothing, then it will not trade at all. Finding effective and
innovative ways to trade in large size with minimized transaction costs
is a perennial challenge for institutional investors, the brokers that
represent their orders in the marketplace, and the trading centers that
seek to execute their orders.
    A primary source of dark liquidity for many years was found on the
manual trading floors of exchanges. The floor brokers ``worked'' the
large orders of their customers by executing such orders in a number of
smaller transactions without revealing to potential counterparties the
total size of the order. One consequence of the decline in market share
of the NYSE floor in recent years is that this historically large
undisplayed liquidity pool in NYSE-listed stocks appears to have
largely migrated to other types of venues. As discussed in section
III.A.3. above, a recent form of undisplayed liquidity is the dark
pool--an ATS that does not display quotations in the consolidated
quotation data. Other sources of undisplayed liquidity are broker-
dealers that internalize orders \83\ and undisplayed order types of
exchanges and ECNs.
---------------------------------------------------------------------------

    \83\ As noted in section III.A.2. above, many broker-dealers may
submit orders to exchanges or ECNs, which then are included in the
consolidated quotation data. The internalized executions of broker-
dealers, however, primarily reflect liquidity that is not included
in the consolidated quotation data and are appropriately classified
as undisplayed liquidity.
---------------------------------------------------------------------------

    Although they offer liquidity that is not included in the
consolidated quotation data, dark pools and OTC market makers generally
trade with reference to the best displayed quotations and execute
orders at prices that are equal to or better than the NBBO. Indeed, all
dark pools and OTC market makers are covered by the trade-through
restrictions of Rule 611 and, subject to limited exceptions, cannot
execute transactions at prices that are inferior to the best displayed
prices.
    The Commission requests comment on all forms of undisplayed
liquidity in the current market structure. It particularly wants to
present three issues for comment--the effect of undisplayed liquidity
on order execution quality, the effect of undisplayed liquidity on
public price discovery, and fair access to sources of undisplayed
liquidity.
1. Order Execution Quality
    It appears that a significant percentage of the orders of
individual investors are executed at OTC market makers, and that a
significant percentage of the orders of institutional investors are
executed in dark pools. Comment is requested on the order execution
quality provided to these long-term investors. Given the strong
Exchange Act policy preference in favor of price transparency and
displayed markets, do dark pools and OTC market makers offer
substantial advantages in order execution quality to long-term
investors? If so, do these advantages justify the diversion of a large
percentage of investor order flow away from the displayed markets that
play a more prominent role in providing public price discovery? If
investors were limited in their ability to use undisplayed liquidity,
how would trading behavior change, if at all? What types of activity
might evolve to replace undisplayed liquidity if its use were
constrained?
    Individual Investors. Liquidity providers generally consider the
orders of individual investors very attractive to trade with because
such investors are presumed on average to not be as informed about
short-term price movements as are professional traders. Do individual
investor orders receive high quality executions when routed to OTC
market makers? For example, does competition among OTC market makers to
attract order flow lead to significantly better prices for individual
investor orders than they could obtain in the public markets? Do OTC
market makers charge access fees comparable to those charged by public
markets? Does the existence of payment for order flow arrangements
between routing brokers and OTC market makers (and internalization
arrangements when the routing broker and OTC market maker are
affiliated) detract from the quality of executions for investor orders?
If more individual investor orders were routed to public markets, would
it promote quote competition in the public markets, lead to narrower
spreads, and ultimately improve order execution quality for individual
investors beyond current levels? Finally, are a significant number of
individual investor orders executed in dark pools and, if so, what is
the execution quality for these orders?
    Institutional Investors. An important objective of many dark pools
is to offer institutional investors an efficient venue in which to
trade in large size (often by splitting a large parent order into many
child orders) with minimized market impact. To what extent do dark
pools meet this objective of improving execution quality for the large
orders of institutional investors? Does execution quality vary across
different types of dark pools and, if so, which types? If so, does this
difference depend on the characteristics of particular securities (such
as market capitalization and security price)?
    As noted above in section IV.C., many dark pools execute orders
with reference to the displayed prices in public markets. Does this
reference pricing create opportunities for institutional investors to
be treated unfairly by improper behavior (such as placing a small order
to change the NBBO for a

very short period and quickly submitting orders to dark pools for
execution at prices affected by the new NBBO)? \84\ If so, to what
extent does gaming occur? Do all types of dark pools employ anti-gaming
tools? How effective are such tools?
---------------------------------------------------------------------------

    \84\ The Commission has found that similar conduct is
manipulative. See supra note 72.
---------------------------------------------------------------------------

    Finally, are institutional investors able to trade more efficiently
using undisplayed liquidity at dark pools and broker-dealers than they
are using the undisplayed liquidity at exchanges and ECNs? What are the
advantages and disadvantages of each form of undisplayed liquidity? If
the use of undisplayed liquidity at dark pools and broker-dealers were
curtailed in any way, could institutional investors adjust by using
undisplayed liquidity on exchanges and ECNs without incurring higher
transaction costs?
2. Public Price Discovery
    Comment is requested on whether the trading volume of undisplayed
liquidity has reached a sufficiently significant level that it has
detracted from the quality of public price discovery and execution
quality. For example, has the level of undisplayed liquidity led to
increased spreads, reduced depth, or increased short-term volatility in
the displayed trading centers? If so, has such harm to public price
discovery led to a general worsening of execution quality for investors
in undisplayed markets that execute trades with reference to prices in
the displayed markets?
    It appears that a significant percentage of the orders of long-term
investors are executed either in dark pools or at OTC market makers,
while a large percentage of the trading volume in displayed trading
centers is attributable to proprietary firms executing short-term
trading strategies. Has there in fact been an increase in the
proportion of long-term investor orders executed in undisplayed trading
centers? If so, what is the reason for this tendency and is the
practice beneficial or harmful to long-term investors and to market
quality? With respect to undisplayed order types on exchanges and ECNs,
do commenters believe that these order types raise similar concerns
about public price discovery as undisplayed liquidity at dark pools and
broker-dealers?
    If commenters do not believe the current level of undisplayed
liquidity has detracted from the quality of public price discovery, is
there any level at which they believe the Commission should be
concerned? In this regard, it appears that the overall percentage of
trading volume between undisplayed trading centers and displayed
trading centers has remained fairly steady for many years between 70%
and 80%.\85\ Does this overall percentage accurately reflect the effect
of undisplayed liquidity on public price discovery or does it mask
potentially important changes in the routing of underlying types of
order flow? For example, the NYSE captures a smaller percentage of
trading in NYSE-listed stocks, while the overall volume in NYSE stocks
has increased dramatically.\86\ Should this change in market share be
interpreted to mean that a greater percentage of long-term individual
investor and long-term institutional investor order flow in NYSE-listed
stocks has shifted to dark pools and OTC market makers, while the
public markets are executing an expanding volume of trading that is
primarily attributable to HFT strategies? If so, does this underlying
shift in order flow affect the quality of public price discovery in
NYSE-listed stocks and what are the reasons for this development? Do
similar order flow patterns affect the quality of public price
discovery in stocks listed on other exchanges as well?
---------------------------------------------------------------------------

    \85\ See supra note 21 and accompanying text (estimated 25.4% of
share volume in NMS stocks executed in undisplayed trading centers
in September 2009).
    \86\ See supra notes 8 and 10 and accompanying text.
---------------------------------------------------------------------------

    Trade-At Rule. If commenters believe that the quality of public
price discovery has been harmed by undisplayed liquidity, are there
regulatory tools that the Commission should consider to address the
problem? Should the Commission consider a ``trade-at'' rule that would
prohibit any trading center from executing a trade at the price of the
NBBO unless the trading center was displaying that price at the time it
received the incoming contra-side order? Under this type of rule, for
example, a trading center that was not displaying the NBBO at the time
it received an incoming marketable order could either: (1) Execute the
order with significant price improvement (such as the minimum allowable
quoting increment (generally one cent)); or (2) route ISOs to full
displayed size of NBBO quotations and then execute the balance of the
order at the NBBO price.
    The Commission requests comment on all aspects of a trade-at rule.
Would it help promote pre-trade public price discovery by preventing
the diversion of a significant volume of highly valuable marketable
order flow away from the displayed trading centers and to undisplayed
trading centers? If so, to what extent would the increased routing of
this marketable order flow to displayed trading centers create
significantly greater incentives for market participants to display
quotations in greater size or with more aggressive prices?
    Given the order-routing and trading system technologies currently
in place to prevent trade-throughs, would it be feasible for market
participants to comply with a trade-at rule at reasonable cost? Should
a trade-at rule apply to all types of trading centers (e.g., exchanges,
ECNs, OTC market makers, and dark pools) or only to some of them? If
so, which ones and why? In addition, if the Commission were to consider
such a rule, how should it treat the issue of displayed markets that
charge access fees? Should it, for example, condition the ``trade-at''
protection of a displayed quotation on there being no access fee or an
access fee that is much smaller than the current 0.3 cent per share cap
in Rule 610(c) of Regulation NMS?
    Depth-of-Book Protection. Rule 611 currently provides trade-through
protection only to quotations that reflect the best, ``top-of-book,''
prices of a trading center.\87\ Should Rule 611 be expanded to provide
trade-through protection to the displayed ``depth-of-book'' quotations
of a trading center? Would depth-of-book protection significantly
promote the greater display of trading interest? Is depth-of-book
protection feasible under current trading conditions and could the
securities industry implement depth-of-book protection at reasonable
cost?
---------------------------------------------------------------------------

    \87\ See Regulation NMS Release, 70 FR at 37529-37530
(discussion of decision not to adopt a ``Voluntary Depth
Alternative'' that would have provided trade-through protection to
depth-of-book quotations that a market voluntarily included in the
consolidated quotation data).
---------------------------------------------------------------------------

    Low-Priced Stocks. There may be greater incentives for broker-
dealer internalization in low-priced stocks than in higher priced
stocks. In low-priced stocks, the minimum one cent per share pricing
increment of Rule 612 of Regulation NMS is much larger on a percentage
basis than it is in higher-priced stocks. For example, a one cent
spread in a $20 stock is 5 basis points, while a one cent spread in a
$2 stock is 50 basis points--10 times as wide on a percentage basis.
Does the larger percentage spread in low-price stocks lead to greater
internalization by OTC market makers or more trading volume in dark
pools? If so, why? Should the Commission consider reducing the minimum
pricing increment in Rule 612 for lower priced stocks?

3. Fair Access and Regulation of ATSs
    A significant difference between the undisplayed liquidity offered
by exchanges and the undisplayed liquidity offered by dark pools and
broker-dealers is the extent of access they allow to such liquidity. As
noted in section III.B.3. above, registered exchanges are required to
offer broad access to broker-dealers. As ATSs that are exempt from
exchange registration, dark pools are not required to provide fair
access unless they reach a 5% trading volume threshold in a stock,
which none currently do.\88\ Broker-dealers that internalize also are
not subject to fair access requirements. As a result, access to the
undisplayed liquidity of dark pools and broker-dealers is determined
primarily by private negotiation.
---------------------------------------------------------------------------

    \88\ The Commission understands that ECNs, unlike most dark
pools, generally offer wide access to their services, including
undisplayed liquidity, even if not subject to the fair access
requirement of Rule 301(b)(5) of Regulation ATS.
---------------------------------------------------------------------------

    The Commission requests comment on whether trading centers offering
undisplayed liquidity are subject to appropriate regulatory
requirements for the type of business they conduct. For example, should
the trading volume threshold in Regulation ATS that triggers the fair
access requirement be lowered from its current 5%? If so, what is the
appropriate threshold?
    If an ATS exceeds the trading volume threshold, Regulation ATS
requires that the ATS have access standards that do not unreasonably
prohibit or limit any person in respect to access services, and
prohibits the ATS from applying such standards in an unfair or
discriminatory manner. Do commenters believe that all types of dark
pools can comply with this fair access requirement, yet still achieve
the objective of enabling institutional investors to trade in large
size with minimized price impact? Can dark pool restrictions designed
to prevent predatory trading behavior \89\ be drafted in an objective
fashion that would comply with the Regulation ATS fair access
requirement?
---------------------------------------------------------------------------

    \89\ See, e.g., section IV.B.1.d. supra (discussion of order
anticipation strategies that seek to ascertain the existence of
large buyers and sellers).
---------------------------------------------------------------------------

    The majority of dark pool volume is executed in ATSs that are
sponsored by multi-service broker-dealers.\90\ Can a broker-dealer
sponsored dark pool apply objective fair access standards reasonably to
prevent predatory trading, but without using such standards as a
pretext to discriminate based on the competitive self interest of the
sponsoring broker?
---------------------------------------------------------------------------

    \90\ Data compiled from Forms ATS submitted to Commission for 3d
quarter 2009.
---------------------------------------------------------------------------

    Finally, do investors have sufficient information about dark pools
to make informed decisions about whether in fact they should seek
access to dark pools? Should dark pools be required to provide improved
transparency on their trading services and the nature of their
participants? If so, what disclosure should be required and in what
manner should ATSs provide such disclosures?
    More broadly, are there any other aspects of ATS regulation that
should be enhanced for dark pools or for all ATSs, including ECNs? For
example, do ATSs contribute appropriately to the costs of consolidated
market surveillance? Currently, FINRA is the SRO for ATSs, and ATSs
must pay the applicable FINRA regulatory fees. Do these FINRA fees
adequately reflect the significant volume currently executed by ATSs?
Should ATSs be required to contribute more directly to the cost of
market surveillance? Finally, are there any ways in which Regulation
ATS should be modified or supplemented to appropriately reflect the
significant role of ATSs in the current market structure?

D. General Request for Comments

    The Commission requests and encourages all interested persons to
submit their views on any aspect of the current equity market
structure. While this release was intended to present particular issues
for comment, it was not intended in any way to limit the scope of
comments or issues to be considered. In addition, the views of
commenters are of greater assistance when they are accompanied by
supporting data and analysis.

    Dated: January 14, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-1045 Filed 1-20-10; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: May 14, 2009 (Volume 74, Number 92)]
[Proposed Rules]
[Page 22722-22725]
[DOCID:fr14my09-20]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket No. USCG-2009-0139]
RIN 1625-AA11

Regulated Navigation Area; Gulf Intracoastal Waterway, Inner
Harbor Navigation Canal, New Orleans, LA

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes for a rule to prohibit all floating
vessels from being within an area in the Inner Harbor Navigation Canal
from Mile Marker 22 (west of Chef Menteur Pass) on the Gulf
Intracoastal Waterway, west through the Gulf Intracoastal Waterway and
Inner Harbor Navigation Canal out to Lake Ponchartrain and the
Mississippi River in New Orleans, LA. This regulated navigation area
would also apply to part of the Harvey Canal, between Lapalco Boulevard
Bridge and the intersection of the Harvey Canal and the Algiers
Alternate Route of the Intracoastal Waterway. This action is necessary
to protect the high-risk areas in the flood protection for New Orleans.
The proposed rule will protect the floodwalls in the designated areas
of the Inner Harbor Navigation Canal and the Harvey Canal from damage
caused by drifting vessels by excluding vessels from the area under
certain weather conditions.

DATES: Comments and related material must be received by the Coast
Guard on or before June 15, 2009. Requests for public meetings must be
received by the Coast Guard on or before June 15, 2009.

ADDRESSES: You may submit comments identified by docket number USCG-
2009-0139 using any one of the following methods:
    (1) Federal eRulemaking Portal: http://www.regulations.gov.
    (2) Fax:<PHONE_NUMBER>.
    (3) Mail: Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue, SE., Washington, DC 20590-0001.
    (4) Hand Delivery: Same as mail address above, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is<PHONE_NUMBER>.
    To avoid duplication, please use only one of these four methods.
See the ``Public Participation and Request for Comments'' portion of
the SUPPLEMENTARY INFORMATION section below for instructions on
submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions on this proposed
rule, call or e-mail Lieutenant Commander (LCDR) Eva Van Camp, Coast
Guard; telephone<PHONE_NUMBER>; e-mail<EMAIL_ADDRESS>If you
have questions on viewing or submitting material to the docket, call
Renee V. Wright, Program Manager, Docket Operations, telephone 202-366-
9826.

SUPPLEMENTARY INFORMATION:

Public Participation and Request for Comments

    We encourage you to participate in this rulemaking by submitting
comments and related materials. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have provided.

Submitting Comments

    If you submit a comment, please include the docket number for this
rulemaking (USCG-2009-0139), indicate the specific section of this
document to which each comment applies, and provide a reason for each
suggestion or recommendation. You may submit your comments and material
online (via http://www.regulations.gov) or by fax, mail, or hand
delivery, but please use only one of these means. If you submit a
comment online via http://www.regulations.gov, it will be considered
received by the Coast Guard when you successfully transmit the comment.
If you fax, hand deliver, or mail your comment, it will be considered
as having been received by

the Coast Guard when it is received at the Docket Management Facility.
We recommend that you include your name and a mailing address, an e-
mail address, or a telephone number in the body of your document so
that we can contact you if we have questions regarding your submission.
    To submit your comment online, go to http://www.regulations.gov,
select the Advanced Docket Search option on the right side of the
screen, insert ``USCG-2009-0139'' in the Docket ID box, press Enter,
and then click on the balloon shape in the Actions column. If you
submit your comments by mail or hand delivery, submit them in an
unbound format, no larger than 8\1/2\ by 11 inches, suitable for
copying and electronic filing. If you submit comments by mail and would
like to know that they reached the Facility, please enclose a stamped,
self-addressed postcard or envelope. We will consider all comments and
material received during the comment period and may change the rule
based on your comments.

Viewing Comments and Documents

    To view comments, as well as documents mentioned in this preamble
as being available in the docket, go to http://www.regulations.gov,
select the Advanced Docket Search option on the right side of the
screen, insert USCG-2009-0139 in the Docket ID box, press Enter, and
then click on the item in the Docket ID column. You may also visit the
Docket Management Facility in Room W12-140 on the ground floor of the
Department of Transportation West Building, 1200 New Jersey Avenue,
SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through
Friday, except Federal holidays. We have an agreement with the
Department of Transportation to use the Docket Management Facility.

Privacy Act

    Anyone can search the electronic form of comments received into any
of our dockets by the name of the individual submitting the comment (or
signing the comment, if submitted on behalf of an association,
business, labor union, etc.). You may review a Privacy Act notice
regarding our public dockets in the January 17, 2008, issue of the
Federal Register (73 FR 3316).

Public Meeting

    We do not now plan to hold a public meeting. But you may submit a
request for one on or before June 15, 2009 using one of the four
methods specified under ADDRESSES. Please explain why you believe a
public meeting would be beneficial. If we determine that one would aid
this rulemaking, we will hold one at a time and place announced by a
later notice in the Federal Register.

Background and Purpose

    During Hurricanes Katrina and Gustav, multiple barges and vessels
were moored next to or nearby floodwalls surrounding the city of New
Orleans. Following the 2008 hurricane season, the Coast Guard
determined there are areas in the New Orleans area that are at high
risk of potential damage to floodwalls. If a vessel breaks away and
hits a floodwall, there is the possibility for the vessel to damage the
floodwall and cause a breach resulting in flooding of areas of New
Orleans. This regulated navigation area is needed to protect the
floodwalls within the Inner Harbor Navigation Canal (IHNC) and Harvey
Canal from potential hazards associated with vessels being in this area
during a storm.

Discussion of Proposed Rule

    All floating vessels are prohibited from being within an area in
the IHNC from Mile Marker 22 (west of Chef Menteur Pass) on the Gulf
Intracoastal Waterway, west through the Gulf Intracoastal Waterway and
Inner Harbor Navigation Canal out to Lake Ponchartrain and the
Mississippi River in New Orleans, LA. This regulated navigation area
would also apply to part of the Harvey Canal, between Lapalco Boulevard
Bridge and the intersection of the Harvey Canal and the Algiers
Alternate Route of the Intracoastal Waterway. This rule would be in
effect 24 hours prior to expected gale force winds (Yankee Port
Condition) through post storm landfall or other hurricane or tropical
storm conditions as determined by the Captain of the Port New Orleans,
LA.

Regulatory Analyses

    We developed this proposed rule after considering numerous statutes
and executive orders related to rulemaking. Below we summarize our
analyses based on 13 of these statutes or executive orders.

Regulatory Planning and Review

    This proposed rule is not a significant regulatory action under
section 3(f) of Executive Order 12866, Regulatory Planning and Review,
and does not require an assessment of potential costs and benefits
under section 6(a)(3) of that Order. The Office of Management and
Budget has not reviewed it under that Order.

Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have
considered whether this proposed rule would have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000.
    The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed
rule would not have a significant economic impact on a substantial
number of small entities. This proposed rule would affect the following
entities, some of which might be small entities: The owners or
operators of vessels intending to moor, transit or anchor in the
defined area effective 24 hours prior to expected gale force winds
(Yankee Port Condition) through post storm landfall or other hurricane
or tropical storm conditions as determined by the Captain of the Port
New Orleans, LA.
    This regulated navigation area would not have a significant
economic impact on a substantial number of small entities for the
following reasons. This regulated navigation area would be activated 24
hours prior to expected gale force winds (Yankee Port Condition)
through post storm landfall or other hurricane or tropical storm
conditions as determined by the Captain of the Port New Orleans, LA.
Vessels intending to moor, transit, or anchor in the defined area are
subject to enforcement. Vessel traffic could find an alternate route
for transit or depart the area before the regulated navigation area
goes into effect.
    If you think that your business, organization, or governmental
jurisdiction qualifies as a small entity and that this rule would have
a significant economic impact on it, please submit a comment (see
ADDRESSES) explaining why you think it qualifies and how and to what
degree this rule would economically affect it.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
rule would affect your small business, organization, or governmental
jurisdiction and you have questions concerning its provisions or
options for compliance, please contact LCDR Eva Van Camp. The Coast
Guard will not retaliate against small entities that question or
complain about this

proposed rule or any policy or action of the Coast Guard.

Collection of Information

    This proposed rule would call for no new collection of information
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

Federalism

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on State or local
governments and would either preempt State law or impose a substantial
direct cost of compliance on them. We have analyzed this proposed rule
under that Order and have determined that it does not have implications
for federalism.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or Tribal government, in
the aggregate, or by the private sector of $100,000,000 or more in any
one year. Though this proposed rule would not result in such an
expenditure, we do discuss the effects of this rule elsewhere in this
preamble.

Taking of Private Property

    This proposed rule would not effect a taking of private property or
otherwise have taking implications under Executive Order 12630,
Governmental Actions and Interference with Constitutionally Protected
Property Rights.

Civil Justice Reform

    This proposed rule meets applicable standards in sections 3(a) and
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden.

Protection of Children

    We have analyzed this proposed rule under Executive Order 13045,
Protection of Children from Environmental Health Risks and Safety
Risks. This rule is not an economically significant rule and would not
create an environmental risk to health or risk to safety that might
disproportionately affect children.

Indian Tribal Governments

    This proposed rule does not have Tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it would not have a substantial direct effect on
one or more Indian Tribes, on the relationship between the Federal
Government and Indian Tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian Tribes.

Energy Effects

    We have analyzed this proposed rule under Executive Order 13211,
Actions Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use. We have determined that it is not a ``significant
energy action'' under that order because it is not a ``significant
regulatory action'' under Executive Order 12866 and is not likely to
have a significant adverse effect on the supply, distribution, or use
of energy. The Administrator of the Office of Information and
Regulatory Affairs has not designated it as a significant energy
action. Therefore, it does not require a Statement of Energy Effects
under Executive Order 13211.

Technical Standards

    The National Technology Transfer and Advancement Act (NTTAA) (15
U.S.C. 272 note) directs agencies to use voluntary consensus standards
in their regulatory activities unless the agency provides Congress,
through the Office of Management and Budget, with an explanation of why
using these standards would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., specifications of materials, performance, design, or
operation; test methods; sampling procedures; and related management
systems practices) that are developed or adopted by voluntary consensus
standards bodies.
    This proposed rule does not use technical standards. Therefore, we
did not consider the use of voluntary consensus standards.

Environment

    We have analyzed this proposed rule under Department of Homeland
Security Management Directive 023-01 and Commandant Instruction
M16475.lD, which guide the Coast Guard in complying with the National
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and
have made a preliminary determination that this action is one of a
category of actions which do not individually or cumulatively have a
significant effect on the human environment. Therefore, this rule is
categorically excluded, under section 2.B.2. Figure 2-1, paragraph
34(g), of the Instruction and neither an environmental assessment nor
an environmental impact statement is required. This rule involves the
establishing, disestablishing, or changing a regulated navigation area.
A preliminary ``Environmental Analysis Check List'' supporting this
determination is available in the docket where indicated under the
``Public Participation and Request for Comments'' section of this
preamble. We seek any comments or information that may lead to the
discovery of a significant environmental impact from this proposed
rule.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard proposes
to amend 33 CFR Part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

    1. The authority citation for part 165 continues to read as
follows:

    Authority:  33 U.S.C. 1226, 1231; 46 U.S.C. Chapter 701, 3306,
3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5;
Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security
Delegation No. 0170.1.

    2. Add Sec.  165.816 to read as follows

Sec.  165.816  Regulated Navigation Area: New Orleans Area of
Responsibility, New Orleans, LA

    (a) Regulated navigation area. The following is a regulated
navigation area for the Inner Harbor Navigation Canal from Mile Marker
22 (west of Chef Menteur Pass) on the Gulf Intracoastal Waterway, west
through the Gulf Intracoastal Waterway and Inner Harbor Navigation
Canal out to Lake Ponchartrain and the Mississippi River in New
Orleans, LA. This regulated navigation area also applies to part of the
Harvey Canal, between Lapalco Boulevard Bridge and the intersection of
the Harvey Canal and the Algiers Alternate Route of the Intracoastal
Waterway. It will be in effect 24 hours prior to expected gale force
winds (Yankee Port Condition) through post storm landfall, or other
hurricane or tropical storm conditions as determined by the Captain of
the Port New Orleans, LA.
    (b) Unless otherwise authorized by the Captain of the Port New
Orleans, LA, all floating vessels are prohibited from being in the
Inner Harbor Navigation Canal from Mile Marker 22 (west of Chef Menteur
Pass) on the Gulf Intracoastal Waterway, west through the Gulf
Intracoastal Waterway and Inner

Harbor Navigation Canal out to Lake Ponchartrain and the Mississippi
River in New Orleans, LA. Also, all floating vessels are prohibited
from the Harvey Canal between Lapalco Boulevard Bridge and the
intersection of the Harvey Canal and the Algiers Alternate Route of the
Intracoastal Waterway.
    (c) These designated areas shall not be used a safe haven.
    (d) Definitions. As used in this section.
    (1) The COTP means The Captain of the Port New Orleans, LA.
    (2) Person in Charge includes any owner, agent, pilot, master,
officer, operator, supervisor, crewmember, dispatcher, or other person
navigating, controlling, directing, or otherwise responsible for the
movement, action, securing or security of any vessel, barge, tier,
fleet, or fleeting facility subject to the regulation in this section.
    (e) Waivers: (1) The COTP may, upon written request, except as
allowed in paragraph (3) of this subsection, waive any regulation in
this section if it is found that the purposed operation can be
conducted safely under the terms of that waiver.
    (2) Each written request for a waiver must state the need for the
waiver and describe the proposed operation.
    (3) Under unusual circumstances due to time constraints the person
in charge may orally request an immediate waiver from the COTP. The
written request must be submitted within five working days of the oral
request.
    (4) The COTP may at any time terminate any waiver issued under this
subsection.
    (f) The COTP will notify the maritime community of periods during
which this regulated navigation area will be enforced by providing
advance notice through a Marine Safety Information Bulletin and Safety
Broadcast Notice to Mariners.

    Dated: 29 April 2009.
J.R. Whitehead,
Admiral, U.S. Coast Guard, Commander, Eighth Coast Guard District.
[FR Doc. E9-11303 Filed 5-13-09; 8:45 am]


[Federal Register: December 30, 2009 (Volume 74, Number 249)]
[Notices]
[Page 69180-69182]
[DOCID:fr30de09-134]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61228; File No. SR-ISE-2009-106]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change To List and Trade Options
on the ETFS Gold Trust and the ETFS Silver Trust

December 22, 2009.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 10, 2009, the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') 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 prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend its rules to enable the listing and
trading on the Exchange of options on the ETFS Gold Trust and the ETFS
Silver Trust. 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

1. Purpose
    Recently, the U.S. Securities and Exchange Commission (``SEC'' or
``Commission'') authorized ISE to list and trade options on the SPDR
Gold Trust \3\ and on the iShares COMEX Gold Trust and the iShares
Silver Trust.\4\ Now, the Exchange proposes to list and trade options
on the ETFS Gold Trust and the ETFS Silver Trust.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 57894 (May 30,
2008), 73 FR 32061 (June 5, 2008) (SR-ISE-2008-12).
    \4\ See Securities Exchange Act Release No. 59055 (December 4,
2008), 73 FR 75148 (December 10, 2008) (SR-ISE-2008-58).
---------------------------------------------------------------------------

    Under current Rule 502(h), only Exchange-Traded Fund Shares, or
ETFs, that are traded on a national securities exchange and are defined
as an ``NMS'' stock under Rule 600 of Regulation NMS, and that (i)
represent interests in registered investment companies (or series
thereof) organized as open-end management investment companies, unit
investment trusts or similar entities that hold portfolios of
securities and/or financial instruments, including, but not limited to,
stock index futures contracts, options on futures, options on
securities and indices, equity caps, collars and floors, swap
agreements, forward contracts, repurchase agreements and reverse
repurchase agreements (the ``Financial Instruments''), and money market
instruments, including, but not limited to, U.S. government securities
and repurchase agreements (the ``Money Market Instruments'') comprising
or otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more other
registered investment companies that themselves hold such portfolios of
securities and/or Financial Instruments and Money Market Instruments)
or (ii) represent interests in a trust that holds a specified non-U.S.
currency or currencies deposited with the trust when aggregated in some
specified minimum number may be surrendered to the trust by the
beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if any,
declared and paid by the trust (``Funds'') or (iii) represent commodity
pool interests principally engaged, directly or indirectly, in holding
and/or managing portfolios or baskets of securities, commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities and/or non-U.S.
currency (``Commodity Pool ETFs'') or (iv) are issued by the SPDR[reg]
Gold Trust are eligible as underlying securities for options traded on
the Exchange or (v) represents an interest in a registered investment
company (``Investment Company'') organized as an open-end management
company or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent with
the Investment Company's investment objectives and policies, which is
issued in a specified aggregate minimum number in return for a deposit
of a specified portfolio of securities and/or a cash amount with a
value equal to the next determined net asset value (``NAV''), and when
aggregated in the same specified minimum number, may be redeemed at a
holder's request, which holder will be paid a specified portfolio of
securities and/or cash with a value equal to the next determined NAV
(``Managed Fund Share'').\5\ This rule change proposes to expand the
types of ETFs that may be approved for options trading on the Exchange
to include the ETFS Gold Trust and the ETFS Silver Trust.
---------------------------------------------------------------------------

    \5\ See ISE Rule 502(h).
---------------------------------------------------------------------------

    Apart from allowing the ETFS Gold Trust and the ETFS Silver Trust
to be underlyings for options traded on the Exchange as described
above, the listing standards for ETFs will remain unchanged from those
that apply under current Exchange rules. ETFs on which options may be
listed and traded must still be listed and traded on a national
securities exchange and must satisfy the other listing standards set
forth in ISE Rule 502(h).
    Specifically, in addition to satisfying the aforementioned listing
requirements, ETFs must meet (1) the criteria and guidelines under ISE
Rules 502(a) and (b) or (2) be available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a price
related to net asset value, and the issuer must be obligated to issue
Exchange-Traded Fund Shares in a

specified aggregate number even if some or all of the investment assets
and/or cash required to be deposited have not been received by the
issuer, subject to the condition that the person obligated to deposit
the investment assets has undertaken to deliver them as soon as
possible and such undertaking is secured by the delivery and
maintenance of collateral consisting of cash or cash equivalents
satisfactory to the issuer, as provided in the respective prospectus.
    The Exchange states that the current continued listing standards
for options on ETFs will apply to options on the ETFS Gold Trust and
the ETFS Silver Trust. Specifically, under ISE Rule 503(h), options on
Exchange-Traded Fund Shares may be subject to the suspension of opening
transactions as follows: (1) Following the initial twelve-month period
beginning upon the commencement of trading of the Exchange-Traded Fund
Shares, there are fewer than 50 record and/or beneficial holders of the
Exchange-Traded Fund Shares for 30 or more consecutive trading days;
(2) the value of the underlying silver or underlying gold is no longer
calculated or available; or (3) such other event occurs or condition
exists that in the opinion of the Exchange makes further dealing on the
Exchange inadvisable.
    Additionally, the ETFS Gold Trust and the ETFS Silver Trust shall
not be deemed to meet the requirements for continued approval, and the
Exchange shall not open for trading any additional series of option
contracts of the class covering the ETFS Gold Trust or the ETFS Silver
Trust, respectively, if the ETFS Gold Trust or the ETFS Silver Trust
ceases to be an ``NMS stock'' as provided for in ISE Rule 503(b)(5) or
the ETFS Gold Trust or the ETFS Silver Trust is halted from trading on
its primary market.
    The addition of the ETFS Gold Trust and the ETFS Silver Trust to
ISE Rule 502(h) will not have any effect on the rules pertaining to
position and exercise limits \6\ or margin.\7\
---------------------------------------------------------------------------

    \6\ See ISE Rules 412 and 414.
    \7\ See ISE Rule 1202.
---------------------------------------------------------------------------

    The Exchange represents that its surveillance procedures applicable
to trading in options the ETFS Gold Trust and the ETFS Silver Trust
will be similar to those applicable to all other options on other ETFs
currently traded on the Exchange. Also, the Exchange may obtain
information from the New York Mercantile Exchange, Inc. (``NYMEX'') (a
member of the Intermarket Surveillance Group) related to any financial
instrument that is based, in whole or in part, upon an interest in or
performance of gold or silver.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \8\ of the
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers
the objectives of Section 6(b)(5) \9\ in particular in that it 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 facilitating transactions in
securities, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system in a manner
consistent with the protection of investors and the public interest. In
particular, the Exchange believes that amending its rules to
accommodate the listing and trading of options on the ETFS Gold Trust
and the ETFS Silver Trust will benefit investors by providing them with
valuable risk management tools.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    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

    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 or other interested
parties.

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
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<EMAIL_ADDRESS>Please include
File Number SR-ISE-2009-106 on the subject line.

Paper Comments

     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-2009-106. 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 inspection and
copying 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 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 Number SR-ISE-2009-106 and should be
submitted on or before January 20, 2010.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30917 Filed 12-29-09; 8:45 am]

BILLING CODE 8011-01-P