[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Notices]
[Pages 79171-79172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32643]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47028; File No. 4-429]


Joint Industry Plan; Notice of Filing of Joint Amendment No. 4 to 
the Options Intermarket Linkage Plan Relating to Satisfaction Orders, 
Trade-Throughs and Other Nonsubstantive Changes

December 18, 2002.
    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 11Aa3-2 thereunder,\2\ notice is hereby given 
that

[[Page 79172]]

on September 24, 2002, October 1, 2002, October 9, 2002, November 6, 
2002, and November 26, 2002, the International Stock Exchange, Inc. 
(``ISE''), the Pacific Exchange, Inc. (``PCX''), the Chicago Board 
Options Exchange, Inc. (``CBOE''), the Philadelphia Stock Exchange, 
Inc. (``Phlx''), and the American Stock Exchange LLC (``Amex'') 
(collectively, the ``Participants''), respectively, filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') an 
amendment (``Joint Amendment No. 4'') to the Options Intermarket 
Linkage Plan (``Linkage Plan'').\3\
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 240.11Aa3-2.
    \3\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by Amex, CBOE, and 
ISE. See Securities Exchange Act Release No. 43086 (July 28, 2000), 
65 FR 48023 (August 4, 2000). Subsequently, Phlx and PCX joined the 
Linkage Plan. See Securities Exchange Act Release Nos. 43573 
(November 16, 2000), 65 FR 70850 (November 28, 2000) and 43574 
(November 16, 2000), 65 FR 70851 (November 28, 2000). On June 27, 
2001 and May 30, 2002, respectively, the Commission approved 
amendments to the Linkage Plan. See Securities Exchange Act Release 
Nos. 44482 (June 27, 2001), 66 FR 35470 (July 5, 2001) and 46001 
(May 30, 2002), 67 FR 38687 (June 5, 2002).
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    In proposed Joint Amendment No. 4, the Participants propose to 
limit the liability for trade-throughs for the last seven minutes of 
the trading day to the filling of 10 contracts per exchange, per 
transaction. The proposed Linkage Plan Amendment also would: (1) 
Decrease the time period a member must wait after sending a linkage 
order to a market before that member can trade through that market from 
30 seconds to 20 seconds; (2) prohibit linkage fees for executing 
satisfaction orders; and (3) make other nonsubstantive revisions to the 
Linkage Plan. The Commission is publishing this notice to solicit 
comments from interested persons on proposed Joint Amendment No. 4 to 
the Linkage Plan.

I. Description and Purpose of the Proposed Amendment

    The primary purpose of proposed Joint Amendment No. 4 is to effect 
three substantive changes to the Linkage Plan. In addition, the 
proposed amendment corrects a typographical error in the Linkage Plan, 
makes a technical change to the requirements for Linkage orders, 
changes the name of one Participant and the address of another 
Participant.
    First, the proposed amendment would establish special provisions 
for filling Satisfaction Orders (as defined in the Linkage Plan) during 
the final seven minutes of the trading day. The Participants represent 
that as they have worked towards implementing the Linkage, members of 
various exchanges have raised concerns regarding their obligation to 
fill Satisfaction Orders (which result after a trade-through) at the 
close of trading in the underlying security. Specifically, these 
members are concerned that they may not have time to hedge the 
positions they acquire.\4\ Thus, the Participants propose to limit 
liability for trade-throughs for the last five minutes of the trading 
day in the underlying security to the filling of 10 contracts per 
exchange, per transaction. The Participants believe this proposal will 
protect small customer orders, yet establish a reasonable limit for 
their members' liability. The Participants represent this proposal will 
not affect a member's potential liability under an exchange's 
disciplinary rule for engaging in a pattern or practice of trading 
through other markets under Section 8(c)(i)(C) of the Linkage Plan.
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    \4\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Annette Nazareth, Director, Division of 
Market Regulation, Commission, dated November 19, 2002.
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    Second, the proposed amendment would reduce the amount of time a 
member must wait after sending a Linkage order to a market before that 
member can trade through that market. Specifically, the Participants 
propose to decrease this time period from 30 seconds to 20 seconds. The 
Linkage Plan will retain the requirement that a Participant respond to 
a Linkage order within 15 seconds of receipt of that order.\5\
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    \5\ However, because the Linkage is highly automated and an 
exchange should receive a response to a Linkage Order within a 
second after it is sent, the Participants do not believe it is 
necessary to wait 15 seconds for such a response. Especially in 
fast-moving markets like the options market, the Participants 
believe that waiting five seconds for the response will provide an 
opportunity for the transmittal of responses to orders, while also 
allowing their members to execute orders on their own exchanges in a 
timely manner.
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    Finally, the Participants propose to establish a general 
prohibition against Linkage fees for executing Satisfaction Orders. 
While each Participant will be able to propose non-discriminatory fees 
for Principal and Principal Acting as Agent Orders (as defined in the 
Linkage Plan), the Participants do not believe it would be appropriate 
to charge a fee for Satisfaction Orders. An exchange will receive a 
Satisfaction Order only when it has traded through customer orders on 
another exchange. The Participants see no basis to allow an exchange 
that traded through another market to impose a fee on the aggrieved 
party to satisfy that party's customers.

II. Implementation of the Plan Amendment

    The Participants propose to make the proposed amendment to the 
Linkage Plan reflected in this filing effective when the Commission 
approves the amendment.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed 
Linkage 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 submissions, all subsequent amendments, all 
written statements with respect to the proposed Linkage Plan amendment 
that are filed with the Commission, and all written communications 
relating to the proposed Linkage Plan amendment between the Commission 
and any person, other than those that may be withheld from the public 
in accordance with the provisions of 5 U.S.C. 552, will be available 
for inspection and copying at the Commission's Public Reference Room. 
Copies of such filings will also be available for inspection and 
copying at the principal offices of the Amex, CBOE, ISE, Phlx, and PCX. 
All submissions should refer to File No. 4-429 and should be submitted 
by January 17, 2003.

    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).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-32643 Filed 12-26-02; 8:45 am]
BILLING CODE 8010-01-P