[Federal Register Volume 66, Number 55 (Wednesday, March 21, 2001)]
[Rules and Regulations]
[Pages 15792-15793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7008]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-44078; File No. S7-17-00]
RIN 3235-AH96


Firm Quote and Trade-Through Disclosure Rules for Options

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; extension of compliance date.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') is 
extending the compliance date for Rule 11Ac1-7 of the Securities 
Exchange Act of 1934. Rule 11Ac1-7 requires a broker-dealer to disclose 
to its customer when the customer's order for listed options is 
executed at a price inferior to a better published quote, unless the 
transaction was effected on a market that participates in an 
intermarket linkage plan approved by the Commission. This rule was 
published on December 1, 2000 (65 FR 75439).

DATES: Effective Date: The effective date for Rule 11Ac1-7, 
(Sec. 240.11Ac1-7) published on December 1, 2000 (65 FR 75439), remains 
February 1, 2001.
    Compliance Date: The compliance date for Rule 11Ac1-7 
(Sec. 240.11Ac1-7) is extended from April 1, 2001 to October 1, 2001.

FOR FURTHER INFORMATION CONTACT: Jennifer Colihan, Special Counsel, at 
(202) 942-0735, Division of Market Regulation, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-1001.

SUPPLEMENTARY INFORMATION: On November 17, 2000, the Commission adopted 
Rule 11Ac1-7 \1\ (``Rule'') under the Securities Exchange Act of 1934 
(``Exchange Act'') to require a broker-dealer to disclose to its 
customer when the customer's order for listed options is executed at a 
price inferior to a better published quote (``intermarket trade-
through''), and to disclose the better published quote available at 
that time.\2\ This disclosure must be made in writing at or before the 
completion of the transaction, and may be provided in conjunction with 
the confirmation statement routinely sent to investors. However, a 
broker-dealer is not required to disclose to its customer an 
intermarket trade-through if the broker-dealer effects the transaction 
on an exchange that participates in an approved linkage plan that 
includes provisions reasonably designed to limit customers' orders from 
being executed at prices that trade through a better published quote. 
In addition, broker-dealers will not be required to provide the 
disclosure required by the Rule if the customer's order is executed as 
part of a block trade.
---------------------------------------------------------------------------

    \1\ 17 CFR 240.11Ac1-7.
    \2\ See Securities Exchange Act Release No. 43591 (November 17, 
2000), 65 FR 75439 (December 1, 2000) (``Adopting Release'').
---------------------------------------------------------------------------

    In the Adopting Release, the Commission noted that it would 
reconsider the compliance date if the options exchanges continued to 
make substantial progress towards implementing a linkage plan.\3\ The 
Commission notes that while progress has been made toward implementing 
the linkage plan approved by the Commission in July 2000,\4\ efforts in 
this regard have not yet resulted in a linkage that can be implemented 
before the compliance date of April 1, 2001. Specifically, the options 
markets have achieved their goal of narrowing the selection of linkage 
providers to three

[[Page 15793]]

and are on schedule to make the final selection. In addition, on March 
12, 2001, the Linkage Plan participants filed an amendment to the 
Linkage Plan to conform the Linkage Plan to the minimum requirements 
set forth by the Commission in adopting Rule 11Ac1-7 and therefore, to 
allow broker-dealers effecting transactions on their markets to be 
eligible for an exemption from the disclosure requirements of Rule 
11Ac1-7 once implementation is completed. In a letter dated February 
20, 2001, the Securities Industry Association requested, on behalf of 
its member firms, that the Commission extend the compliance date of the 
rule.\5\
---------------------------------------------------------------------------

    \3\ Id.
    \4\ See Securities Exchange Act Release No. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000) (``Linkage Plan'').
    \5\ See letter from Marc E. Lackritz, President, Securities 
Industry Association, to Annette Nazareth, Director, Division of 
Market Regulation, Commission, dated February 20, 2001 (explaining 
the difficulty broker-dealers face in their efforts to comply with 
Rule 11Ac1-7 before an options linkage is fully implemented).
---------------------------------------------------------------------------

    Because the Commission believes that options exchanges have 
continued to make substantial progress towards implementing a linkage, 
it is extending the compliance date of Rule 11Ac1-7 for six months, to 
October 1, 2001. The extension is intended to allow the options markets 
to make a final selection of the vendor to build the linkage, and 
provide the options exchanges with time to integrate their internal 
systems into the linkage system, once built. The Commission believes 
that good cause exists to extend the compliance date so that the 
options markets can implement a linkage before imposing the disclosure 
requirements of the Rule on broker-dealers.
    The Commission finds, in accordance with Section 553(b)(3)(A) of 
the Administrative Procedures Act,\6\ that extending the compliance 
date relates solely to agency organization, procedure, or practice, and 
does not relate to a substantive rule. Accordingly, notice, opportunity 
for public comment, and publication prior to the extension is 
unnecessary.
---------------------------------------------------------------------------

    \6\ 5 U.S.C. 553(b)(3)(A).

---------------------------------------------------------------------------
    By the Commission.

    Dated: March 15, 2001.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-7008 Filed 3-20-01; 8:45 am]
BILLING CODE 8010-01-P