[Federal Register Volume 65, Number 98 (Friday, May 19, 2000)]
[Notices]
[Pages 31950-31952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12601]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42779; File No. SR-OPRA-00-04]


Options Price Reporting Authority; Notice of Filing and Order 
Granting Accelerated Effectiveness of Amendment to OPRA Plan Adopting a 
Temporary Capacity Allocation Plan

May 12, 2000.
    Pursuant to Rule 11Aa3-2 under the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 9, 2000, 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 (``OPRA Plan''). The proposed OPRA Plan amendment 
would extend the current temporary capacity allocation plan for peak 
usage periods through the close of trading on May 25, 2000, to minimize 
the likelihood that during this period the total number of messages 
generated by the OPRA participant exchanges will exceed the processor's 
(i.e., Securities Industry Automation Corporation (``SIAC'')) aggregate 
message handling capacity. In addition, to accommodate the anticipated 
entry into OPRA of the International Securities Exchange (``ISE''), the 
amendment has been modified to reallocate OPRA systems capacity during 
peak usage periods among the options exchanges to include ISE. If, as 
expected, the ISE becomes a participant in OPRA, the amendment, as 
modified, would proportionally reduce the existing allocations to the 
Amex, CBOE, PCX, and Phlx, based on each OPRA participant's relative 
share of total OPRA systems capacity, to allocate systems capacity to 
the ISE. The Commission is publishing this notice and order to solicit 
comments from interested persons on the proposed OPRA Plan amendment, 
as modified, and to grant accelerated approval to the proposed OPRA 
Plan amendment, as modified, on a temporary basis, for 120 days.
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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 Act and Rule 11Aa3-2 
thereunder. See Securities Exchange Act Release No. 17638 (Mar. 18, 
1981).
    The OPRA 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 that 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

    As discussed above, OPRA proposes to extend the temporary period 
during which the message handling capacity of its processor is 
allocated among the participant exchanges, currently scheduled to end 
on May 13, 2000,\3\ for an additional twelve days, through the close of 
trading on May 25, 2000. Through May 25, 2000, the processor's 
aggregate message-handling capacity, estimated by the processor to be 
3,540 messages per second,\4\ will be allocated among the participants 
by automatically limiting the number of messages that each participant 
may input to the processor as follows:

    \3\ The Commission approved three consecutive temporary capacity 
allocation plans that were proposed by OPRA Participants. See 
Securities Exchange Act Release Nos. 42328 (January 11, 2000), 65 FR 
2988 (January 19, 2000) (order approving File No. SR-OPRA-00-01); 
42362 (January 28, 2000), 65 FR 5919 (February 7, 2000) (order 
approving File No. SR-OPRA-00-02); and 42493 (March 3, 2000), 65 
FR12597 (March 9, 2000) (order approving File No. SR-OPRA-00-03). In 
addition, the Commission has sought public comment on two 
alternative formulas for allocating OPRA systems capacity during 
peak usage periods. See Securities Exchange Act Release No. 42755 
(May 4, 2000), 65 FR 30148 (May 10, 2000) (File No. 4-434).
    \4\ The proposed OPRA Plan amendment incorrectly referred to 
3,518 messages per second. It had been modified here pursuant to 
OPRA's verbal request. Telephone conversation between Joseph 
Corrigan, Executive Director, OPRA, and Deborah Flynn, Senior 
Special Counsel, Division of Market Regulation, Commission, on May 
9, 2000.
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American Stock Exchange: 1,024 messages per second
Chicago Board Options Exchange: 1,366 messages per second
Pacific Exchange: 635 messages per second
Philadelphia Stock Exchange: 515 messages per second

    ISE is scheduled to begin trading on May 26, 2000 \5\ and is 
expected prior to that date to become a participant in OPRA. To date, 
the OPRA participants have been unable to agree to a method by which to 
allocate existing capacity to ISE. Because there has been no increase 
in overall OPRA systems capacity that would accommodate ISE's capacity 
needs, the 60 messages per second that ISE has requested for its first 
month of operation will have to be allocated to ISE by reducing the 
other OPRA participants current allocation levels. To facilitate the 
allocation of existing capacity to ISE, the Commission is modifying the 
proposed OPRA Plan amendment to provide for a promotional distribution 
of capacity to ISE based on each OPRA participant's relative share of 
total OPRA system capacity if, as expected, ISE becomes a participant 
in OPRA.
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    \5\ ISE was registered as a national securities exchange for 
options trading on February 24, 2000. See Securities Exchange Act 
Release No. 42455, 65 FR 11387 (March 2, 2000).
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    Specifically, the proposed allocation plan, which will be in effect 
on a temporary basis for 120 days, would operate as follows during peak 
usage periods:
     The existing allocation scheme would remain in place 
through May 25, 2000.
     Assuming, as anticipated, that ISE is a participant in 
OPRA, from May 26 until June 25, 2000, ISE would be allocated 55 
messages per second,\6\ with the other exchanges' existing allocation 
reduced proportionally. To provide ISE with a capacity allocation of 55 
messages per second during its first month of operation, the following 
allocation among the exchanges would result: 1,008 messages per second 
to the Amex (a reduction of 16 messages per second); 1,345 messages per 
second to the CBOE (a reduction of 21 messages per second); 625 
messages per second to the PCX ( a reduction of 10 messages per 
second); 507 messages per second to the Phlx (a reduction of 8 messages 
per second); and 55 messages per second to ISE.
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    \6\ Although ISE initially requested from OPRA a capacity 
allocation during peak periods of 60 messages per second, the 
Commission is allocating 55 messages per second to it during its 
first month of operation. The Commission believes that the ISE, like 
the other options exchanges, will need to undertake efforts to 
encourage its market makers to quote as efficiency as possible to 
stay within the 55 messages per second cap.
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     Assuming, as anticipated, that ISE is a participant in 
OPRA, beginning June 26, 2000, ISE's allocation would be increased by 
55 messages per second every 30 days for as long as this Order is in 
effect (i.e., 110, 165, and 220 messages per second for ISE's second, 
third, and fourth months of operation, respectively). The same 
proportional reduction in the current level of capacity allocated to 
the existing markets would provide the additional allocation for ISE.
    In the event that additional capacity becomes available to the OPRA 
system

[[Page 31951]]

during the 120 days that this order is in effect, and the OPRA 
participants fail to agree to a new allocation plan to reflect the 
higher capacity available, the additional capacity would be distributed 
in the same proportions as allocated under this Order. If, at any time, 
the OPRA participants submit to the Commission a proposed OPRA Plan 
amendment that is consistent with the Act, the Commission will act to 
replace and supersede this temporary order with that proposal.

II. Implementation of the Plan Amendment

    OPRA believes the proposed extension of the temporary capacity 
allocation program through May 25, 2000, is needed to avoid delays and 
queues in the dissemination of options market information. The 
availability to brokers, dealers and investors of information with 
respect to quotations for and transactions in securities, is necessary 
to achieve the objective of Section 11(A)(a)(1)(C)(iii) of the Act.\7\ 
Accordingly, OPRA requests that the Commission permit the extension of 
the proposed allocation program to be put into effect summarily upon 
publication of notice of this filing, pursuant to paragraph (c)(4) of 
Rule 11Aa3-2 under the Act.\8\ Based on a finding by the Commission 
that such action, as modified for the reasons described in Section IV 
below, is necessary or appropriate in the public interest, for the 
protection of investors or the maintenance of fair and orderly markets, 
to remove impediments to, and perfect the mechanisms of, a national 
market system, or is otherwise in furtherance of the purposes of the 
Act.
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    \7\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \8\ 17 CFR 240.11 Aa3-2(c)(4).
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submission 
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 OPRA Plan amendment 
that are filed with the Commission, and all written communications 
relating to the proposed OPRA Plan amendment 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 No. SR-OPRA-00-04 and should be 
submitted by June 9, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Plan Amendment

    After careful review, the Commission finds that the proposed OPRA 
Plan amendment, as modified, is consistent with the requirements of the 
Act and the rules and regulations thereunder.\9\ Specifically, the 
Commission believes that the proposed amendment, as modified, which 
allocated the limited capacity of the OPRA system among the options 
markets during peak usage periods, is consistent with Rule 11Aa3-2 
under the Act \10\ 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. The Commission notes that the 
aggregate message traffic generated by the options exchanges is rapidly 
approaching the outside limit, and at times surpasses, OPRA's systems 
capacity. OPRA's processor has informed the Commission that current 
plans to enhance OPRA's systems are not expected to be completed before 
the end of the second quarter of this year, at the earliest. 
Consequently, the Commission is concerned that, absent a program to 
allocate systems capacity among the options markets that is put in 
place immediately, systems queuing of options quotes may be the norm, 
to the detriment of all investors and other participants in the option 
markets. The Commission believes that the agreed-upon extension of the 
current allocation plan is a reasonable means for addressing potential 
strains on capacity that may occur between now and May 25, 2000.
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    \9\ In approving this proposed OPRA Plan amendment, the 
Commission has considered its impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \10\ 17 CFR 240.11Aa3-2.
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    The Commission believes that the reallocation of OPRA systems 
capacity to provide an allocation to ISE is appropriate if, as 
expected, the ISE becomes a participant in OPRA, particularly in light 
of the temporary nature of the allocation plan, which will be in effect 
for no more than 120 days. In fact, several factors make it likely that 
this temporary plan will be superceded prior to its expiration date. 
First, if at any time the OPRA participant exchanges files with the 
Commission a capacity allocation plan for peak usage periods that is 
consistent with the Act, the Commission will act to substitute that 
proposal for this plan. Second, the Commission recently requested 
comment on its proposed amendment to the OPRA Plan to adopt an 
objective capacity allocation formula.\11\ The Commission notes that 
the comment period on that proposal expires on June 9, 2000. Approving 
this interim measure on a temporary basis will permit the comment 
letters received by the Commission to be carefully considered before 
deciding whether to take final action on the proposal. Finally, the 
enhancements to the OPRA system are expected to increase systems 
capacity from 3,540 messages per second to 8,000 messages per second. 
That increase will create incentives for the OPRA participants to 
reevaluate this capacity allocation plan and submit to the Commission a 
modified capacity allocation plan consistent with the Act.
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    \11\ See Securities Exchange Act Release No. 42755 (May 4, 
2000), 65 FR 30148 (May 10, 2000) (File No. 4-434).
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    The Commission further believes that the proposed amendment to the 
OPRA Plan to reallocate OPRA system capacity among the options 
exchanges, including ISE, on a temporary basis is necessary to 
accommodate ISE's entry into the market. The Commission rarely invokes 
its authority to modify proposed amendments to national market system 
plans, but believes that exigent circumstances including, the inability 
of the OPRA participants to agree to an allocation that includes ISE, 
the potential harm to investors should queuing occur, and the 
desirability of permitting ISE to begin trading, mandate the 
Commission's action. Specifically, the Commission finds that it is 
necessary and appropriate to approve the proposed allocation plan, as 
modified,\12\ to be in effect for no more than 120 days, to ensure that 
all potential barriers to entry are removed prior to ISE's commencement 
of trading.
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    \12\ The Commission has authority to approve any proposed 
National Market System Plan amendment ``with such changes or subject 
to such conditions as the Commission may deem necessary or 
appropriate,'' and to do so by order.
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    The Commission finds good cause to accelerate the proposed OPRA 
Plan amendment prior to the thirtieth day after the date of publication 
in the Federal Register. The Commission notes that the proposed OPRA 
Plan amendment is intended to allocate OPRA system capacity for a short 
period of time, 120 days, to mitigate potential disruption to the 
orderly dissemination of options market information caused by the 
inability of the OPRA system to handle the anticipated quote message

[[Page 31952]]

traffic. The Commission believes that approving the proposed capacity 
allocation will provide the options exchanges and OPRA with an 
immediate, short-term solution to a pressing problem, while giving the 
Commission and the options markets additional time to evaluate, and 
possibly implement, other quote mitigation strategies. In addition, the 
limited time frame of this capacity allocation program provides the 
Commission and the options exchanges with greater flexibility to modify 
the program, as necessary, to ensure the fairness of the allocation 
process to all of the options markets going forward. The Commission 
finds, therefore, that granting accelerated approval of the proposed 
OPRA Plan amendment, as modified, is appropriate and consistent with 
Section 11A of the Act.\13\
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    \13\ 15 U.S.C. 78k-1.
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V. Conclusion

    It is therefore ordered, pursuant to Rule 11Aa3-2 of the Act,\14\ 
that the proposed OPRA Plan amendment, as modified, (SR-OPRA-00-04) is 
approved on an accelerated basis until September 9, 2000.
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    \14\ 17 CFR 240.11Aa3-2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-12601 Filed 5-18-00; 8:45 am]
BILLING CODE 8010-01-M