[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