[Federal Register Volume 64, Number 202 (Wednesday, October 20, 1999)]
[Notices]
[Pages 56543-56545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27368]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42002; File No. SR-OPRA-99-1]
Options Price Reporting Authority; Notice of Filing of Amendment
to OPRA Plan Adopting a Participation Fee Payable by Each New Party to
the Plan
October 13, 1999.
Pursuant to Rule 11Aa3-2 under the Securities Exchange Act of 1934
(``Exchange Act''),\1\ notice is hereby given that on August 16, 1999,
the Options Price Reporting Authority (``OPRA'') \2\ submitted to the
Securities and Exchange Commission (``SEC'' or ``Commission'') an
amendment to the Plan for Reporting of Consolidated Options Last Sale
Reports and Quotation Information (``Plan''). The amendment adds
provisions applicable to a participation fee payable by each
[[Page 56544]]
new party to the Plan and codifies procedures applicable to the
admission of new parties to the Plan. The Commission is publishing this
notice to solicit comments from interested persons on the proposed Plan
amendment.
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\1\ 17 CFR 240.11Aa3-2.
\2\ 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 Securities Exchange Act Release No. 17638
(Mar. 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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I. Description and Purpose of the Amendment
Currently, the OPRA Plan provides that any national securities
exchange or registered securities association whose rules governing the
trading of standardized options have been approved by the Commission
may become a party to the Plan, provided it agrees to conform to the
terms and conditions of the Plan. However, the Plan is silent
concerning procedural aspects of the application process, and it is
likewise silent concerning what, if any, participation fee must be paid
by an exchange at the time it becomes a party to the Plan. The purpose
of the amendment is to incorporate in the Plan certain application
forms and procedures used to apply to become a party to the Plan and to
obtain interim access to the OPRA system and to the OPRA Processor for
planning and testing purposes even before an applicant becomes a party
to the Plan. The amendment also proposes to add to the OPRA Plan
provisions for a one-time participation fee payable by each new party
to the Plan.
OPRA believes it is appropriate to require new parties to the Plan
to pay a one time participation fee, in recognition of the significant
value to a new party of participation in OPRA. Absent such a
participation fee, this value would in effect be contributed to the new
party by the existing parties to the Plan, who have been responsible
for the development of OPRA's systems and infrastructure. In fact, the
OPRA Plan at one time did include provisions that required all new
parties to pay a one-time participation fee based on a share of OPRA's
unamortized ``start-up'' cost at the time of admission. However, during
most of OPRA's history, unamortized start-up or developmental costs
have been at or close to zero, because these costs are generally
expensed as they are incurred, and those costs that were capitalized
were amortized over a five year period. Thus a participation fee based
on unamortized start-up costs most of the time was unrealistically low
or even zero. Accordingly this provision was eliminated from the Plan
in 1995, when a number of other changes were made to financial
provisions of the Plan. At that time, OPRA anticipated formulating a
more appropriate way to determine what should be the participation fee
for new parties and amending the Plan at a later date to reflect such a
fee. In the absence of any applications from new participants until
recently, OPRA has not focused on this issue until now.
In response to the application recently received from the
International Securities Exchange (``ISE'') and in anticipation of the
receipt of additional applications from other new exchanges, OPRA has
now considered the question that was left open when the original
participation fee provisions were removed from the Plan. Because there
are so many factors that may be relevant to a determination of the
amount to be paid by an exchange seeking to be a party to the Plan,
OPRA has concluded that instead of requiring the same fixed amount to
be paid by every applicant regardless of the nature of its proposed
options market, the Plan should provide flexibility by setting forth a
general statement of the factors that may be taken into account in
determining the amount of the fee. The actual amount of the fee in each
separate instance would then be determined by the parties in discussion
with the applicant under the general oversight of the Commission. This
same approach is reflected in the Plans of other registered securities
information processors, such as the Consolidated Tape Association
(``CTA'') and the consolidated Quotation system (``CQ''), and it
provides the flexibility needed to allow all of the interested parties
to reach agreement on the amount of the participation fee within an
appropriately structured process.\3\
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\3\ See Section III(c) of the Second Restatement of the CTA Plan
as restated December 1995, and Section III(c) of the Restatement of
the CQ Plan as restated December 1995.
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Therefore, OPRA proposes to amend the OPRA Plan to provide that
each new party to the Plan will pay to the other parties a
participation fee ``that attributes an appropriate value to the assets,
both tangible and intangible, that OPRA has created and will make
available to the new party.'' The Plan will then list the factors that
may be considered in arriving at this value, as follows: an independent
valuation assigned to the grant of access; previous valuations approved
by the parties; an assessment of costs already contributed by the
existing parties to the creation and continuation of OPRA facilities;
the new party's reasonably anticipated demands on the OPRA system
capacity; an assessment of costs reasonably expected to be incurred by
the OPRA Processor in modifying the OPRA system and network to
accommodate the new party; and such other historical and entry-cost
factors as reasonably may be included in an assessment of the value of
participation. The language proposed to be included in the OPRA Plan in
this respect is virtually identical to language currently included in
the CTA and CQ Plans, as referenced above.
Once the Plan is amended as proposed herein, OPRA anticipates
discussing directly with each applicant how the enumerated factors
should apply to a determination of the amount of the participation fee
to be paid by that applicant, in an effort to reach agreement as to the
amount of the fee. If an applicant does not agree with the amount of
the participation fee proposed to be charged by OPRA, OPRA will provide
notice to the Commission of the failure to agree, and acknowledges that
the subject of the amount of the participation fee would be subject to
review by the Commission, pursuant to Section 11A(b)(5) of the Exchange
Act.\4\
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\4\ 17 CFR 240.11A(b)(5).
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The proposed Plan amendments also clarify what has been OPRA's past
practice by providing that a person proposing to operate an options
market may apply to become a party even before the entity is registered
as a national securities exchange or registered securities association
or before the options rules of an existing exchange or association are
approved by the Commission. Such an applicant may also apply for
limited access to OPRA for planning and testing purposes by submitting
a separate application for such access and by making a refundable
deposit in the amount of $100,000, to be applied to payment of the
agree-upon participation fee when the applicant becomes a party or, if
the application is withdrawn, or if for any other reason the applicant
does not become a party, to be refunded to the applicant after
reimbursing OPRA for any costs incurred by it or its processor in
processing the application and testing with the applicant. The text of
the proposed Plan amendment and the application forms proposed to be
used for these purposes are available at the principal offices of OPRA
and at the Commission.
II. Implementation of the Plan Amendment
OPRA intends to make the proposed amendments to the OPRA Plan
reflected in this filing (i.e., the participation fee and the
application forms) effective concurrently, immediately upon the
approval of the amendment by the Commission, pursuant to Rule 11Aa3-2
under the Exchange Act. As soon as the
[[Page 56545]]
amendments are effective, OPRA intends to commence discussions with ISE
concerning the amount of the participation fee.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed Plan
amendment is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549-0609. Copies of the submission, all subsequent amendments,
and 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 withheld from the public in accordance with
the provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of the filing
also will be available at the principal offices of OPRA. All
submissions should refer to file number SR-OPRA-99-1 and should be
submitted by November 10, 1999.
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. 99-27368 Filed 10-19-99; 8:45 am]
BILLING CODE 8010-01-M