[Federal Register Volume 67, Number 51 (Friday, March 15, 2002)]
[Notices]
[Pages 11727-11730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6256]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45532; File No. SR-OPRA-2002-01]


Options Price Reporting Authority; Notice of Filing of a Proposal 
To Establish Terms Governing the Provision by OPRA of a Best Bid and 
Offer for Each of the Options Series Included in OPRA's Market Data 
Service, and Governing Its Use by Vendors

March 11, 2002.
    Pursuant to Rule 11Aa3-2 under the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 26, 2002, the 
Options Price Reporting Authority (``OPRA''),\2\ submitted to the 
Securities and Exchange Commission (``Commission'') an amendment to the 
Plan for Reporting of Consolidated Options Last Sale Reports and 
Quotation Information (``OPRA Plan''). The amendment would add to the 
OPRA Plan terms governing the provision by OPRA of a best bid and offer 
(``BBO'') for each of the options series included in OPRA's market data 
service, and governing the use of the BBO by vendors. The Commission is 
publishing this notice to solicit comments on the proposed amendment 
from interested persons.
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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, 15 U.S.C. 
78k-1, and Rule 11Aa3-2 thereunder, 17 CFR 240.11Aa3-2. See 
Securities Exchange Act Release No. 17638 (March 18, 1981), 22 
S.E.C. Docket 484 (March 31, 1981). The OPRA Plan provides for the 
collection and dissemination of last sale and quotation information 
on options that are traded on the participant exchanges. The five 
signatories to the OPRA Plan that currently operate an options 
market are the American Stock Exchange, the Chicago Board Options 
Exchange, the International Securities Exchange, the Pacific 
Exchange, and the Philadelphia Stock Exchange. The New York Stock 
Exchange is a signatory to the OPRA Plan, but sold its options 
business to the Chicago Board Options Exchange in 1997. See 
Securities Exchange Act Release No. 38542 (April 23, 1997), 62 FR 
23521 (April 30, 1997).
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I. Description and Purpose of the Amendment

    The proposed amendment would establish in the OPRA Plan, and in BBO 
Guidelines that would be a part of the OPRA Plan, terms governing the 
provision by OPRA of a consolidated BBO service that would show the 
best

[[Page 11728]]

bid and offer for each options series that is included in OPRA's market 
data service. The BBO for a given options series would show the number 
of contracts included in the best bid and best offer for that series 
subject to a minimum of ten contracts, and would identify the exchange 
where the best bid is being quoted and where the best offer is being 
quoted. In accordance with the proposed OPRA Plan amendment, OPRA 
vendors would be required to include only the consolidated BBO for any 
series of options included in the market data they provide to their 
customers (together with last sale reports for each such series of 
options), instead of having to show all bids and offers in all markets 
for each such series as they are currently required to do.
    Under the proposed OPRA Plan amendment, the BBO for any series of 
options would be the highest bid and the lowest offer currently being 
quoted on any of OPRA's participant exchanges. In the case of options 
traded on two or more participant exchanges, if the same best bid or 
offer is quoted on more than one exchange, the exchange that is quoting 
at that price for the largest number of options contracts would be 
identified as the exchange that is quoting the best bid or offer, and 
if the same best bid or offer for the same number of options contracts 
is quoted on more than one exchange, the exchange that was first in 
time to quote that bid or offer for that number of contracts would be 
identified as the BBO. Thus, the BBO would be prioritized, in order, on 
the basis of price, size, and time.
    The proposed BBO Guidelines provide that the minimum price 
increment for purposes of the BBO is no less than five cents, and that 
the minimum size increment for purposes of the BBO is no less than ten 
contracts.\3\ This means that in order to displace the current BBO by 
improving the price at which an options series is quoted, the price 
improvement must be at least five cents per contract, and in order to 
displace the current BBO by increasing the number of contracts covered 
by a quote at the same price as the current BBO, the new bid or offer 
must be for at least ten contracts more than the current BBO. This 
would not preclude markets from entering bids and offers that improve 
the current BBO by less than five cents (to the extent such quotes may 
be permitted under applicable exchange rules) or that increase the 
number of contracts by less than ten. However, in order to displace the 
disseminated BBO, the price or size improvement must equal or exceed 
these minimums.
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    \3\ The minimum price variation for option quotes under the 
rules of OPRA's participant exchanges is currently five cents for 
options trading under $3.00 per share per option contract; See, 
e.g., American Stock Exchange Rule 952.
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    The adoption by OPRA of these minimum price and size increments 
occurred after OPRA received input from its vendors and subscribers, 
who view a BBO service that would enable OPRA to offer a meaningful 
options market data service as a significant benefit. Additionally, 
OPRA believes that the proposed BBO would require significantly less 
data processing and transmission capacity on the part of vendors and 
subscribers than is required by OPRA's full market data service. In 
this respect, OPRA anticipates that the BBO service would mitigate the 
huge increase in message traffic represented by OPRA's full service 
over the past several years, and the concomitant increase in the 
capacity required of vendors' and subscribers' systems in order to 
handle the full service. By proposing minimum price and size increments 
for purposes of the BBO at five cents and ten contracts respectively, 
OPRA believes that it has attempted to strike a balance between the 
need to show meaningful price and size improvement, and the need to 
keep the capacity demands of the BBO service at a level that is 
significantly less than the capacity demands of OPRA's full service.
    OPRA states that its full market data service would continue to 
include all disseminated bids and offers from all of OPRA's participant 
exchanges and this information would continue to be available to 
vendors of, and subscribers to, the full service. OPRA believes that 
since major vendors may be expected to continue to offer the full OPRA 
service, and since most if not all broker-dealer subscribers would 
likely continue to subscribe to the full service in order to be able to 
fulfill their best execution obligations to customers, broker-dealers 
would have access to the same complete market data as they do today. 
For this reason, OPRA believes that the new BBO service should be 
viewed as an alternative to the full service for those persons who do 
not require the full service, and who therefore do not need to maintain 
the large systems needed to handle the full service.
    The text of the amendment is set forth below. Text additions are in 
italics, deletions are in brackets:

III. Definitions

* * * * *
    (g) ``Quotation information'' means bids, offers, or related 
information pertaining to quotations in eligible securities, including 
information consisting of the BBO (as defined below) for eligible 
securities.
* * * * *
    (s) ``BBO'' (``Best Bid and Offer'') means at any time the highest 
bid and the lowest offer for a given options series that is then 
available in one or more of the options markets maintained by the 
parties, as determined and disseminated by OPRA in accordance with 
``BBO Guidelines'' adopted by the parties. The adoption of the initial 
BBO Guidelines shall require the approval of all of the parties; 
thereafter the BBO Guidelines may be amended from time to time by the 
affirmative vote of at least 75% of the parties, subject in all cases 
to being filed with and approved by the Commission.
* * * * *

V. Collection and Dissemination of Options Last Sale Reports and 
Quotation Information

* * * * *
    (c) Dissemination of Last Sale Reports, Quotation Information and 
Other Information.
    (i) The OPRA System shall provide for the uniform, 
nondiscriminatory dissemination of consolidated options information, on 
fair and reasonable terms over a network or networks to vendors, 
subscribers and other approved persons. [Last sale reports and 
quotation] Such information [with respect to eligible securities] shall 
[be disseminated only through the OPRA System,] include consolidated 
last sale reports and consolidated quotation information for all series 
of options for which the parties are required to provide current market 
information to OPRA in accordance with paragraphs (a)-(b) of this 
Section V. Not later than ______ 2002,\4\ or upon the earlier 
completion of modifications to the OPRA System necessary to enable the 
System to carry the BBO, such information shall also include [and only] 
the BBO for all such [reports] series of options. Once the BBO is 
available through the OPRA System, OPRA may offer a complete options 
market data service consisting of the BBO combined with consolidated 
last sale reports and quotation information, or OPRA may offer a 
limited service consisting of the BBO combined with consolidated last 
sale reports only while separately continuing to offer last sale

[[Page 11729]]

reports and complete quotation information. Only such consolidated 
market information and related information, together with other 
information that satisfies the conditions of paragraph (iv) of this 
Section V(c) or is approved by OPRA, shall be disseminated through the 
System.
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    \4\ OPRA represents that it will specify the date when the BBO 
service will be in production by the filing of a subsequent 
amendment to this proposal. See letter from Joseph P. Corrigan, 
Executive Director, OPRA, to Deborah Flynn, Assistant Director, 
Division of Market Regulation, Commission, dated February 25, 2002.
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* * * * *

VII. Vendors, Subscribers and Other Approved Persons

* * * * *
    (b) Agreements. Agreements for the furnishing of options [last sale 
reports and/or quotation] information shall be designed to insure that 
such information is disseminated in an orderly, reliable and timely 
fashion, and that it is available only to approved vendors, subscribers 
and other approved persons. Such agreements may impose reasonable and 
nondiscriminatory charges for the privilege of receiving such 
information. OPRA may, in its discretion, contract separately for the 
dissemination of last sale reports and quotation information, or it may 
offer last sale reports and quotation information together in a single 
contract. As provided in Section V(c), upon the availability of a BBO 
through the OPRA System OPRA may contract separately for last sale 
reports combined with the BBO, or it may offer last sale reports, 
quotation information and the BBO together in a single contract. OPRA 
may also contract separately for access to information and facilities 
pertaining to FCO securities or index option securities.
    Agreements with vendors shall provide that last sale reports and 
quotation information may be received by vendors only for the purpose 
of (A) developing a data base that enables the vendor to respond to 
inquiries from interrogation devices or other devices located in the 
office of approved subscribers that are capable of displaying last sale 
reports of transactions in, and/or quotations for, eligible securities 
as they occur; (B) reporting changes in last sale reports and quotation 
information through display devices located in the office of approved 
subscribers; and (C) providing last sale reports and/or quotation 
information to approved subscribers and to such other persons and in 
such other forms as OPRA may approve. In furtherance of the foregoing 
purposes, vendor agreements shall include provisions relating to the 
following:
    (i) There shall be uniform specifications governing the manner in 
which last sale reports and quotation information are transmitted by or 
on behalf of OPRA to vendors. Such specifications may be different for 
different categories of eligible securities;
    (ii) There shall be standards governing the services provided by 
vendors to subscribers which shall require that such services 
facilitate dissemination of last sale reports and quotation information 
in a manner that is consistent with applicable rules and regulations of 
the Securities and Exchange Commission and that is not discriminatory 
or contrary to the orderly operation and regulation of options markets;
    (iii) Vendors shall not exclude reports or otherwise discriminate 
on the basis of the market in which a transaction or quotation took 
place, and the equipment used in connection with the display or 
retrieval of last sale reports or quotation information shall be 
capable of displaying all such reports or information regardless of the 
market where a transaction or quotation took place, and, unless 
exempted, shall identify such market, provided, however, that 
agreements with vendors may provide that the requirements of this 
paragraph (b)(iii) will be deemed to be satisfied if a vendor's market 
data service includes last sale reports together with the BBO, or last 
sale reports together with all bids and offers furnished by OPRA, for 
each eligible security included in the service, notwithstanding that 
the service may also include additional unconsolidated information in 
respect of such security.
    All agreements entered into between the parties and persons 
receiving last sale reports and/or quotation information shall provide 
that the respective reports and information covered thereunder remain 
the property of the respective party on or in whose market the reported 
transaction or quotation took place, and all contracts shall be 
executed, and the fees collectable thereunder shall be billed and 
collected, on behalf of all parties, except that OPRA may provide for 
certain contracts pertaining exclusively to FCO securities or index 
option securities to be executed, and certain fees pertaining to such 
eligible securities to be billed and collected, on behalf of those 
parties that provide a market in such eligible securities.
* * * * *

Options Price Reporting Authority

BBO Guidelines

    Section V(c)(i) of the OPRA Plan provides for the dissemination by 
OPRA of, among other things, a consolidated BBO. Section III(s) of the 
OPRA Plan defines the BBO as the highest bid and lowest offer for a 
series of options available in one or more of the options markets 
maintained by the parties, as determined in accordance with ``BBO 
Guidelines'' adopted by the parties to the Plan. The BBO Guidelines as 
currently in effect are as follows:
    1. Price/Time Priority. The BBO is determined on the basis of the 
best price (highest bid and lowest offer) quoted first in time by a 
market, provided that in order to displace the current best bid or 
offer, a quote must improve the current quote by no less than five 
cents.
    2. Size Included in BBO. The BBO will include the actual size of 
the included bid and offer, subject to a minimum size of 10 contracts. 
A bid or offer at the same price as the current BBO but for a size 
larger than the current BBO by no less than ten contracts will displace 
the current BBO.
    3. Market Identifier. The BBO as disseminated by OPRA will include 
identification of the market quoting the best bid or best offer 
comprising the BBO in accordance with these Guidelines.
    4. Crossed or Locked Markets. Crossed or locked markets may be 
shown as the BBO.
    5. Excluded Quotes. Whenever quotes in a market are identified by 
that market as not being firm, those quotes will be excluded for 
purposes of determining the BBO. In addition, if, based on information 
provided by an exchange, the OPRA Processor determines that the 
exchange is experiencing system problems resulting in the unreliability 
of its quotes, the Processor will exclude those quotes from the BBO 
determination until it determines that these problems have been 
resolved.

II. Implementation of Plan Amendment

    OPRA believes that its BBO service will be implemented upon the 
approval of the proposed OPRA Plan amendment (including its proposed 
BBO Guidelines) and promptly as practicable upon completion by OPRA's 
processor of the systems modifications necessary for its 
implementation. According to OPRA, its processor, the Securities 
Industry Automation Corporation (``SIAC''), is not now in a position to 
estimate when that work may be completed, since that depends upon 
certain technical decisions that have not yet been made by OPRA. 
However, OPRA has represented to the Commission that once SIAC is able 
to provide such an estimate, OPRA will amend this filing to include the 
latest date when the BBO service will go into production.\5\ In 
addition, the introduction of OPRA's BBO service

[[Page 11730]]

will likely necessitate certain changes to OPRA's forms of Vendor 
Agreement and Subscriber Agreements to make them conform to the revised 
requirements of the Plan, and perhaps to OPRA's fee structure. OPRA 
intends to file any such proposed amended agreements and fee changes 
with the Commission in one or more separate filings that may need to 
become effective prior to the implementation of the BBO service.
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    \5\ Id.
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed OPRA 
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, NW., Washington, 
DC 20549-0609. Copies of the submission, all subsequent amendments, and 
all written statements with respect to the proposed plan amendment that 
are filed with the Commission, and all written communications relating 
to the proposed 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 
will also be available at the principal offices of OPRA. All 
submissions should refer to File No. SR-OPRA-2002-01 and should be 
submitted by April 5, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(29).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6256 Filed 3-14-02; 8:45 am]
BILLING CODE 8010-01-P