[Federal Register Volume 68, Number 22 (Monday, February 3, 2003)]
[Notices]
[Pages 5313-5314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2481]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47274; File No. 4-429]


Joint Industry Plan; Order Approving Joint Amendment No. 5 to the 
Options Intermarket Linkage Plan To Provide a Process for Potential New 
Options Exchanges To Have Interim Access to Linkage Information

January 29, 2003.

I. Introduction

    On November 8, 2002, November 14, 2002, November 15, 2002, November 
26, 2002, and December 6, 2002, the Philadelphia Stock Exchange, Inc. 
(``Phlx''), International Securities Exchange, Inc. (``ISE''), Chicago 
Board Options Exchange, Inc. (``CBOE''), American Stock Exchange LLC 
(``Amex''), and Pacific Exchange, Inc. (``PCX'') (collectively the 
``Participants'') respectively submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission'') in accordance with section 11A 
of the Securities Exchange Act of 1934 (``Act'') \1\ and rule 11Aa3-2 
thereunder,\2\ a proposed amendment to the Options Intermarket Linkage 
Plan (the ``Plan'').\3\ The amendment proposes to provide a process for 
potential new options exchanges to have interim access to Linkage 
information to help such exchanges prepare to join the Plan.
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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 proposed by the Amex, CBOE, and ISE. See 
Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 
48023 (August 4, 2000). Subsequently, upon request by the Phlx and 
PCX, the Commission issued orders to permit these exchanges to 
participate in 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).
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    The proposed amendment to the Plan was published in the Federal 
Register on December 26, 2002.\4\ No comments were received on the 
proposed amendment. This order approves the proposed amendment to the 
Plan.
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    \4\ See Securities Exchange Act Release No. 47027 (December 18, 
2002), 67 FR 78834.
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II. Description of the Proposed Amendment

    Currently, the Plan allows a new exchange to join the Linkage by 
executing the Plan, filing an amendment to the Plan including 
themselves as a participant, and paying the then-applicable 
participation fee if that exchange is already a participant in The 
Options Clearing Corporation and is a party to the Plan for Reporting 
of Consolidated Options Last Sale Reports and Quotation Information 
(``OPRA Plan'').\5\ Proposed Amendment No. 5 will provide conditional 
interim access to Linkage information by permitting an applicant to 
have access to Linkage documentation, testing and other necessary 
Linkage facilities once the Commission has published for comment the 
applicant's proposed rules governing the trading of standardized 
options.
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    \5\ 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). 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 AMEX, CBOE, ISE, PCX, and Phlx. 
The New York Stock Exchange is a signatory to the OPRA Plan, but 
sold its options business to the CBOE in 1997. See Securities 
Exchange Act Release No. 38542 (April 23, 1997), 62 FR 23521 (April 
30, 1997).
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    Proposed Amendment No. 5 also requires that the applicant affirm 
that it is seriously pursuing the establishment of an options market 
and pay a refundable deposit towards the participation fee. Once an 
applicant is granted interim access, such access will remain in effect 
for one year. If the applicant has not yet joined the Linkage after 
this time period, it can request an additional period of access, and 
the Linkage participants will not unreasonably deny such a request.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
amendment to the Plan is consistent with the requirements of the Act 
and the rules and regulations thereunder. Specifically, the Commission 
finds that the proposed amendment to the Plan is consistent with 
section 11A of the Act \6\ and rule 11Aa3-2 thereunder,\7\ in that it 
is appropriate in the public interest, for the protection of investors 
and the maintenance of fair and orderly markets.
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    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 240.11Aa3-2.
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    The current provisions of the Plan effectively require that an 
applicant exchange have rules for the trading of options approved by 
the Commission before it can become a participant in the Linkage. While 
the Commission believes that this is a reasonable requirement for full 
participation in the Linkage, this structure does not recognize that an 
entity proposing to develop an options market reasonably needs access 
to Linkage information, particularly technical information, in order to 
build its market and prepare for Linkage participation. The proposed 
Amendment will provide an applicant with conditional interim access to 
Linkage information before it is able to meet the requirements for full 
participation.
    The Commission recognizes, however, that new entrants to the 
Linkage will require the existing Participants to expend time and 
resources working with an applicant on both technical and policy 
issues. Therefore, the Commission believes that it is reasonable to 
place requirements on applicants that act as a safeguard to limit 
access to serious applicants fully committed to pursuing the 
development of an options market.
    To this end, Amendment No. 5 proposes that in order to be eligible 
for interim access to the Linkage, proposed rules governing the trading 
of standardized options of an applicant must be published for comment 
by the Commission and the applicant must affirm that it is seriously 
pursuing the establishment of an options market. An applicant also must 
pay a refundable

[[Page 5314]]

deposit towards the participation fee. The Commission believes that 
these requirements are reasonably tailored to ensure that only serious 
applicants are given access to sensitive Linkage information before 
becoming a full participant.
    Amendment No. 5 also proposes to limit the duration of interim 
access to one year. The Commission believes that this time frame is 
reasonable, and anticipates that one year will be sufficient for most 
applicants to be prepared to join the Linkage as full participants. The 
Commission notes that in the event that an applicant has not joined the 
Linkage after one year, Amendment No. 5 provides that it can request an 
additional period of access, and the Linkage participants will not 
unreasonably deny such a request.
    In sum, the Commission believes that implementation of Amendment 
No. 5 will generally enhance competition by providing a potential new 
options market with earlier access to Linkage-related material and 
thus, facilitate its ability to prepare to join the Linkage.

IV. Conclusion

    It is therefore ordered, pursuant to section 11A of the Act \8\ and 
rule 11Aa3-2 thereunder,\9\ that the proposed Linkage Plan amendment is 
approved.
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    \8\ 15 U.S.C. 78k-1.
    \9\ 17 CFR 240.11Aa3-2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(29).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-2481 Filed 1-31-03; 8:45 am]
BILLING CODE 8010-01-P