[Federal Register Volume 66, Number 191 (Tuesday, October 2, 2001)]
[Rules and Regulations]
[Page 50103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24575]



[[Page 50103]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-44852; 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.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
extending the compliance date for Rule 11Ac1-7 under the Securities 
Exchange Act of 1934 (``Exchange Act''). 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 
price, 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 (66 FR 75439).

DATES: Effective Date: The effective date for Rule 11Ac1-7, published 
on December 1, 2000 (65 FR 75439), remains February 1, 2001.
    Compliance Date: On March 15, 2001, the Commission extended the 
compliance date for Rule 11Ac1-7 (Sec. 240.11Ac1-7) from April 1, 2001 
to October 1, 2001 (66 FR 15792). The Commission now extends the 
compliance date from October 1, 2001 to April 1, 2002.

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 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 price. 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.
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    \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'').
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    In the Adopting Release, the Commission noted that it would 
consider granting exemptive relief to broker-dealers from the 
disclosure requirements of the Rule if the options exchanges continued 
to make substantial progress towards implementing a linkage plan.\3\ On 
March 15, 2001, the Commission extended the compliance date from April 
1, 2001 to October 1, 2001, noting that while progress had been made 
toward implementing the linkage plan approved by the Commission in 
July,\4\ the exchanges' efforts had not yet resulted in a linkage that 
could be implemented before the compliance date of April 1, 2001.
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    \3\ Id.
    \4\ See Securities Exchange Act Release No. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000) (``Linkage Plan'').
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    The Commission believes that the options exchanges have continued 
to make substantial progress on implementing the linkage. Specifically, 
on March 23, 2001, the options markets selected The Options Clearing 
Corporation (``The OCC'') as the linkage provider. The OCC has advised 
the Commission that it expects to have finalized the technical 
specifications for the linkage by early November 2001. Each of the 
options exchanges is currently evaluating its internal systems to 
determine the modifications, development, and testing that will be 
needed to accommodate the linkage.
    In addition, on June 27, 2001, the Commission approved an amendment 
to the Linkage Plan proposed by the options exchanges that satisfies 
the minimal requirements of the Trade-Through Disclosure Rule and, once 
implemented, would except broker-dealers who effect transactions on any 
of the linked markets from making the required disclosures under the 
Trade-Through Disclosure Rule.\5\ Finally, each of the options 
exchanges has filed proposed rule changes intended to incorporate the 
requirements of the Linkage Plan.\6\
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    \5\ See Securities Exchange Act Release No. 44482, 66 FR 35470 
(July 5, 2001). Specifically, the amendment: (1) Limits participants 
from trading through, not only the quotes of other linkage plan 
participants, but also, the quotes of exchanges that are not 
participants in an approved linkage plan; (2) requires plan 
participants to actively surveil their markets for trades executed 
at prices inferior to those publicly quoted on other exchanges; and 
(3) makes clear that the failure of a market with a better quote to 
complain within a specified period of time that its quote was 
traded-through may affect potential liability, but does not signify 
that a trade-through has not occurred.
    \6\ See File Nos. SR-Amex-2001-64; SR-CBOE-2001-46; SR-ISE-2001-
23; SR-PCX-2001-30; and SR-Phlx-2001-78.
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    Therefore, the Commission finds that good cause exists at this time 
to extend the compliance date for six months, to April 1, 2002, to 
allow the options exchanges to make further advancements towards 
implementing 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 Procedure Act,\7\ 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 are unnecessary.
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    \7\ 5 U.S.C. 553(b)(3)(A).

    By the Commission.
    Dated: September 26, 2001.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-24575 Filed 10-1-01; 8:45 am]
BILLING CODE 8010-01-P