[Federal Register Volume 63, Number 229 (Monday, November 30, 1998)]
[Notices]
[Pages 65828-65829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31814]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40701; File No. SR-OPRA-98-1]


Options Price Reporting Authority; Order Granting Approval of 
Amendment to OPRA Plan Adopting a New Rider to OPRA's Vendor Agreement 
Permit Vendors to Utilize Electronic Contracts

November 23, 1998.

I. Introduction

    On September 18, 1998, the Options Price Reporting Authority 
(``OPRA'')\1\ submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Rule 11Aa3-2 under the 
Securities Exchange Act of 1934 (``Exchange Act''), an amendment to the 
Plan for Reporting of Consolidated Options Last Sale Reports and 
Quotation Information (``Plan''). The proposed amendment adds a new 
Electronic Contract Rider (``Rider'') to OPRA's Vendor Agreement that 
would permit OPRA's vendors to utilize electronic contracts with 
certain categories of Internet or other on-line customers in 
satisfaction of the requirement of the Vendor Agreement for written 
agreements between vendors and their customers.
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    \1\ OPRA is a National Market System Plan approved by the 
Commission pursuant to Section 11A of the Exchange Act and Rule 
11Aa3-2 thereunder. See Exchange Act Release No. 17638 (March 18, 
1981).
    The Plan provides for the collection and dissemination of last 
sale and quotation information on options that are traded on the 
member exchanges. The five exchanges which agreed to the OPRA Plan 
are the American Stock Exchange (``AMEX''); the Chicago Board 
Options Exchange (``CBOE''); the New York Stock Exchange (``NYSE''); 
the Pacific Exchange (``PCX''); and the Philadelphia Stock Exchange 
(``Phlx'').
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    The proposed amendment was published for comment in the Federal 
Register on October 20, 1998.\2\ No comments were received on the 
proposal. This order approves the proposal.
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    \2\ See Exchange Act Release No. 40547 (October 13, 1998) 63 FR 
56051.
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II. Description and Purpose of the Amendment

    The purpose of the proposed amendment is to allow OPRA vendors who 
wish to offer Internet or other on-line access to options market 
information to Nonprofessional Subscribers or PC Dial-Up customers to 
make use of electronic contracts in satisfaction of the requirement of 
the Vendor Agreement that there be written agreements between OPRA's 
Vendors and these categories of customers. This amendment is proposed 
in response to requests from an increasing number of OPRA vendors 
(including some whose activities as vendors are in support of their 
primary function as electronic brokers) to be able to conduct all of 
their business with customers electronically, including contract 
administration.
    The Rider imposes several conditions on the use of these electronic 
contracts by vendors. As a threshold matter, a vendor is permitted to 
use these electronic contracts only if the vendor's other agreements 
with its customers may be entered into electronically. In addition, the 
vendor is required to submit for OPRA's approval an ``Attachment A'' 
that describes the procedures and systems the vendor intends to utilize 
in administering its electronic contracts. The Rider requires vendors 
to use the forms of electronic contracts (one for Nonprofessional 
Subscribers and one for Dial-Up Customers), except that vendors are 
permitted to use their own forms of electronic contracts for Dial-Up 
Customers, subject to the approval of OPRA. In this respect the Rider 
is comparable to the existing Vendor Agreement, which requires the use 
of a specified form of written Nonprofessional Subscriber Agreement and 
requires OPRA's approval of each form of Dial-Up Agreement.
    The Rider imposes certain requirements on vendors concerning the 
manner in which they present electronic contracts to their customers 
and how customers may indicate their assent to these contracts. These 
requirements are intended to assure that customers are given an 
opportunity to read the full text of each contract before they are 
asked to assent to it, and that procedures are in place to verify the 
identity of the customers who enter into agreements electronically and 
to confirm the terms of the electronic contracts to which they have 
agreed. Vendors are required to maintain detailed records of all 
electronic contracts entered into, and to make such records available 
for OPRA's inspection. Finally, each time a customer accesses the 
Options Information Service, the vendor must give the customer notice 
concerning the electronic contract and must make the text of that 
contract available for the customer's review.
    Vendors are also required to indemnify OPRA against loss in the

[[Page 65829]]

event electronic contracts are held to be invalid or unenforceable by 
reason of their having been entered into or administered 
electronically. Because the law on electronic contracts is still 
developing, OPRA believes it is reasonable to ask those vendors who 
wish to use electronic contracts to assume any risk that such contracts 
may be found to be unenforceable or invalid.
    The Rider also provides OPRA with the right to modify or terminate 
the electronic contracts in the event of changes in the law or industry 
practice concerning electronic contracts or if OPRA determines that the 
required electronic contracts are likely to be held unenforceable or 
invalid for any reason. In light of the continuing evolution of the law 
of electronic contracts, OPRA believes it should be able to amend or 
withdraw permission to use electronic contracts if such contracts are 
likely to be held invalid or unenforceable or are otherwise found to be 
deficient.

III. Discussion

    After careful review, the Commission finds that the proposed 
amendment is consistent with the requirements of the Act and the rules 
and regulations thereunder.\3\ Specifically, the Commission believes 
that the proposed amendment, which accommodates the use of electronic 
contracts by vendors, is consistent with Rule 11Aa3-2 in that it will 
contribute to the maintenance of fair and orderly markets and remove 
impediments to and perfect the mechanisms of a national market system.
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    \3\ In approving this rule, the Commission has considered the 
proposed Plan Amendment's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    The Commission notes that the proposed amendment will require a 
number of conditions intended to ensure that OPRA's interests are 
protected, regardless of the type of contract used by its vendors. 
First, OPRA limits the use of electronic contracts to those vendors 
that allow their customers to enter into other agreements 
electronically. Second, vendors must submit for OPRA's approval an 
``Attachment A,'' describing the vendors' procedures and systems.\4\ 
Third, OPRA requires vendors to use OPRA's forms for electronic 
contracts, except that vendors may use their own forms for Dial-Up 
Customers, subject to OPRA's approval. Fourth, vendors must keep 
detailed records of all electronic contracts, and make such records 
available for review by OPRA. Fifth, the vendor must give the customer 
notice and make the text of the electronic contract available for the 
customer's review every time the customer accesses the Options 
Information Service. Sixth, vendors must indemnify OPRA against loss 
due to a determination that any electronic contract is invalid or 
unenforceable. Finally, the amendment also grants OPRA the right to 
modify or terminate the electronic contracts in the event of changes in 
the law or industry practice or if OPRA determines that the required 
electronic contracts are likely to be held unenforceable or invalid for 
any reason.
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    \4\ In its review of vendors' Attachment A, OPRA will consider 
``the reasonableness of the procedures that the vendor plans to use 
to identify its customers, to ensure that those customers are who 
they say they are, and to keep track of the exact form of agreement 
that is assented to by each customer'' in light of the then-current 
industry practices. OPRA will also review the security procedures 
that vendors will use. See Letter from Lisa Winger, Schiff, Hardin & 
Waite, to Deborah Flynn, Division of Market Regulation, Commission, 
dated October 21, 1998.
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    The Commission believes that, in the absence of substantial 
historical experience with electronic contracts and given the current 
unsettled state of the law in this area, it is reasonable for OPRA to 
take precautions, such as those proposed, to protect its interests. The 
Commission believes that the above-mentioned conditions imposed by OPRA 
on vendors desiring to use electronic contracts are reasonable and 
consistent with the Act. Accordingly, the Commission believes that the 
proposed amendment will provide additional flexibility to OPRA vendors 
by allowing them to use electronic contracts under certain 
circumstances while providing OPRA with the contractual protections 
that it requires.

IV. Conclusion

    It is therefore ordered, pursuant to Rule 11Aa3-2 of the Act, that 
the proposed Plan amendment (SR-OPRA-98-1) is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-31814 Filed 11-27-98; 8:45 am]
BILLING CODE 8010-01-M