[Federal Register Volume 68, Number 229 (Friday, November 28, 2003)]
[Notices]
[Pages 66892-66898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29658]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48822; File No. SR-OPRA-2003-01]


Options Price Reporting Authority; Notice of Filing of and Order 
Approving on a Temporary Basis Not To Exceed 120 Days a Proposed 
Amendment to the Plan for Reporting of Consolidated Options Last Sale 
Reports and Quotation Information and Amendments No. 1 and 2 Thereto To 
Revise the Manner in which the Options Price Reporting Authority 
Engages in Capacity Planning and Allocates Its Available System 
Capacity Among the Parties to the Plan

November 21, 2003.

I. Introduction

    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 11Aa3-2 thereunder,\2\ notice is hereby given 
that on April 15, 2003 the Options Price Reporting Authority (``OPRA'') 
submitted to the Securities and Exchange Commission (``Commission'') an 
amendment to the Plan for Reporting of Consolidated Options Last Sale 
Reports and Quotation Information

[[Page 66893]]

(``OPRA Plan'' or ``Plan'').\3\ The proposed amendment would revise the 
manner in which OPRA engages in capacity planning and allocates 
capacity among the exchanges that are parties to the Plan. On July 16, 
2003, OPRA submitted Amendment No. 1 to the proposal.\4\ On October 12, 
2003, OPRA submitted Amendment No. 2 to the proposal.\5\ This order 
approves the proposal as modified by Amendments No. 1 and 2 for a 
temporary period not to exceed 120 days, and solicits comment on the 
proposal, as amended by Amendments No. 1 and 2.\6\ The text of the 
proposed Plan amendment, as amended, is available at OPRA, the 
Commission's Public Reference Room, and on the Commission's Web site.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 240.11Aa3-2.
    \3\ OPRA is a national market system plan approved by the 
Commission pursuant to Section 11A of the Act and Rule 11Aa3-2 
thereunder. 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 participants to the OPRA Plan 
are the American Stock Exchange LLC (``Amex''), the Chicago Board 
Options Exchange, Inc. (``CBOE''), the International Securities 
Exchange, Inc. (``ISE''), the Pacific Exchange, Inc. (``PCX''), and 
the Philadelphia Stock Exchange, Inc. (``Phlx'').
    \4\ See letter from Michael L. Meyer, Counsel to OPRA, Schiff, 
Hardin & Waite, to Deborah Flynn, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated July 15, 2003, 
replacing in its entirety the initial proposal filed on April 15, 
2003 (``Amendment No. 1''). In Amendment No. 1, OPRA provides 
additional discussion of the proposed Capacity Guidelines that 
describe the function, authority, and procedures of the Independent 
System Capacity Advisor (``ISCA'') and clarified in the proposed 
Plan's language and corresponding discussion that the selection of 
the ISCA is subject to being filed with the Commission as an 
amendment to the Plan, to be put into effect upon filing.
    \5\ See letter from Michael L. Meyer, Counsel to OPRA, Schiff, 
Hardin & Waite, to Deborah Flynn, Assistant Director, Division, 
Commission, dated October 15, 2003 (``Amendment No. 2''). In 
Amendment No. 2, OPRA specifies in the proposed Plan's language and 
the proposed Capacity Guidelines the ISCA's obligation to maintain 
the confidentiality of the information entrusted to it by OPRA's 
participants in the capacity planning process.
    \6\ 17 CFR 240.11Aa3-2(c)(4).
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II. Description and Purpose of the Amendment

    Under the proposed Plan amendment, OPRA proposes to revise the 
manner in which OPRA engages in capacity planning and allocates its 
available system capacity among the exchanges that are parties to the 
Plan. OPRA also proposes to amend Subsections I(a) and I(b) of the OPRA 
Plan to make it clear that participation in OPRA is limited to those 
self-regulatory organizations (``SROs'') that are engaged in the 
business of providing a market for the trading of securities options 
and other eligible securities under the OPRA Plan.
    The principal purpose of the proposed amendment is to revise the 
OPRA Plan in response to the Commission's Order instituting public 
administrative proceedings against four of OPRA's participant exchanges 
(Amex, CBOE, PCX and Phlx, referred to collectively as the ``respondent 
exchanges'') pursuant to Section 19(h)(1) of the Act,\7\ and 
specifically in response to Section IV.B.c. of the Order (the 
``Undertaking''). The Undertaking requires each of the four respondent 
exchanges, acting jointly with all other options exchanges,\8\ to 
modify the structure and operation of OPRA in various ways that would 
eliminate much of the need for joint and collective action in the 
capacity planning and allocation process. The three specific 
requirements of the Undertaking and the manner in which the proposed 
amendment is intended to satisfy these requirements are described 
below.
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    \7\ Order Instituting Public Administrative Proceedings Pursuant 
to Section 19(h)(1) of the Act, Making Findings and Imposing 
Remedial Sanctions. Securities Exchange Act Release No. 43268, dated 
September 11, 2000 and Administrative Proceeding File 3-10282 
(``Order'').
    \8\ ISE is not a respondent exchange subject to the Order. 
Nevertheless, as a party to the OPRA Plan, ISE participated fully in 
all of the discussions that led to the approval of the proposed 
amendment, and it joined with the other parties in approving the 
proposed amendment and authorizing its filing with the Commission.

The respondent exchanges must establish a system for procuring and 
allocating options market data transmission capacity that eliminates 
joint action by the participants in OPRA in determining the amount of 
total capacity procured and the allocation thereof, and provides that 
each participant in OPRA would independently determine the amount of 
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capacity it would obtain.

    The proposed amendment to the OPRA Plan (reflected in proposed new 
Section III(g) and related definitions) would require each party to the 
Plan from time to time to independently project the capacity it would 
need and to privately submit requests for capacity based on its 
projections to an ISCA, which would maintain these individual capacity 
projections and requests in confidence. The proposed definition of the 
ISCA in Section II(m) of the Plan would require the ISCA to maintain 
the confidentiality of this information, consistent with the provisions 
of Section III(g) of the Plan.\9\ Revised Section III(g) of the Plan 
would clarify that confidential capacity-related information obtained 
by the ISCA would not be used by the ISCA in any of its other business 
activities in a manner that may result in the information being made 
available to any of the parties to the Plan, or to use it in any manner 
that is otherwise inconsistent with the ISCA's obligation to hold the 
information in confidence.\10\ The ISCA may share this information with 
the parties only in the form of aggregate capacity requests that do not 
identify the individual capacity requests of any of the parties. The 
ISCA would then determine how and when to modify the OPRA System in 
order to provide to each party the capacity it has requested and how 
the cost of such modifications is to be allocated among the parties all 
in accordance with and subject to the proposed Capacity Guidelines that 
are incorporated in the Plan as part of the proposed amendment. Under 
the proposed amendment, each party would be entitled to the capacity it 
has requested and would be obligated to authorize and fund the 
modifications of the OPRA System in accordance with the ISCA's 
determinations and the specific cost allocation provisions of the 
proposed Capacity Guidelines.
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    \9\ See Amendment No. 2, supra note .
    \10\ Id.
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    The proposed Capacity Guidelines describe the function and 
authority of the ISCA and its procedures in greater detail than in the 
Plan itself. Under the procedures specified in the proposed Capacity 
Guidelines, the ISCA would promptly review the capacity projections and 
requests it receives from the parties, would discuss proposed 
modifications with OPRA's Policy and Technical Committees and the OPRA 
Processor, and would discuss with each party that has requested 
additional capacity the ISCA's estimate of the cost to that party of 
providing the capacity it requested. In every case, the ISCA would 
report to OPRA concerning any modifications to the OPRA System that it 
believes are called for in response to the parties' aggregate 
projections and requests. In these discussions and reports, no 
information from any party would be disclosed to any other party except 
in the form of aggregate projections or requests. In addition, OPRA 
proposes in Guideline No. 1 of the Capacity Guidelines to require the 
ISCA to maintain internal safeguards and procedures adequate to assure 
that the requirements of the Plan pertaining to the confidentiality of 
information provided to the ISCA would be satisfied.\11\ Under the 
proposed amendment to the Plan, the person designated to act as the 
ISCA, before it begins to act in that capacity, would be required to 
furnish a written description

[[Page 66894]]

of these internal safeguards and procedures to the Commission.\12\
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    \11\ Id.
    \12\ Id.
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    The proposed Capacity Guidelines also provide that, in allocating 
OPRA's capacity-related costs among the parties, the first $5 million 
of costs in any year would be allocated as currently provided under the 
OPRA Plan, based on the relative trading volume of each of the parties. 
Costs above this amount would be allocated in a fair and equitable 
manner as determined by the ISCA. The $5 million amount would be 
subject to adjustment on an annual basis, if approved by 75% of the 
parties.
    A prospective new options exchange would have to inform the ISCA, 
at least 6 months prior to the time it proposes to commence trading, of 
the initial amount of system capacity it would need. The costs of 
providing initial system capacity to an applicant in accordance with 
its request, as determined by the ISCA, would be included in the 
applicant's Participation Fee payable under Section 1(b) of the OPRA 
Plan. Also, under Guideline No. 6 of the proposed Capacity Guidelines, 
if the new party has not received the capacity it has requested at the 
time it has commenced trading options, and to the extent there is any 
excess capacity available in the system that has not been provided to 
any of the parties, the ISCA would be able to allocate to the new party 
all or a portion of any such excess capacity in order to provide the 
new party with the amount of capacity determined by the ISCA to be 
sufficient to satisfy the reasonable needs of the new party until it 
has been provided with the capacity it initially requested.
    The proposed Capacity Guidelines would permit the ISCA to provide 
less than all of the capacity requested by the parties if the ISCA 
determines that: (1) The capacity requests of one or more of the 
parties are unreasonable, or (2) it is not reasonable to develop or 
maintain a system that has capacity sufficient to satisfy the requests 
of the parties.\13\ The ISCA would be authorized to allocate system 
capacity among the parties under circumstances when available capacity 
is insufficient to provide each party with the capacity it has 
requested; however, the ISCA would not be authorized to require any 
party to give up any capacity previously provided to it at the party's 
request, other than in response to a major systems failure or other 
catastrophe.\14\ In addition, the ISCA's authority to modify the OPRA 
System and to obligate the parties to pay the costs of such 
modifications would be limited as follows: (i) The ISCA could not 
authorize a modification to the OPRA System that, together with other 
capacity increases previously authorized by the ISCA, represents an 
increase in the total capacity of the System in excess of 15,000 
messages per second over the immediately preceding twelve months unless 
at least 75% of the parties consent to such increase; (ii) the ISCA 
could not authorize a modification to the OPRA System if the Processor 
disagrees with any material aspect of the manner or scope of the 
modification unless at least 75% of the parties consent to such 
modification; and (iii) the ISCA could not authorize a modification to 
the OPRA System that makes major changes to the System, such as 
changing the types of servers used in the System or changing the 
communication protocols used in the network unless at least 75% of the 
parties consent to such modification.
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    \13\ Guideline No. 1, Capacity Guidelines.
    \14\ Guideline No. 6, Capacity Guidelines.
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    As a limited exception to the allocation of System capacity in 
accordance with the parties' requests and the ISCA's determinations, a 
provision is made in proposed new Section III(h) of the Plan for a 
party, on an anonymous basis, to offer to acquire additional capacity 
from, or make excess capacity available to, another party. Furthermore, 
to promote the most efficient utilization of available capacity, OPRA 
proposes in Section III(g) of the Plan to provide for the continued 
utilization of a ``dynamic throttle,'' so as to automatically make 
available to a party with an immediate need for additional capacity, on 
a short-term interruptible basis, any unused capacity that may then be 
available. A party receiving additional capacity by operation of the 
dynamic throttle would be required to pay for it at an above-cost rate, 
so as to discourage parties from submitting unrealistically low 
capacity requests in the belief that some unused capacity of other 
parties would always be available to them.
    Furthermore, under the proposed amendment, future Plan amendments, 
including amendments to the proposed new provisions of the Plan 
pertaining to capacity planning and allocation, would continue to 
require the unanimous approval of the parties. However, decisions 
relating to the selection or termination of the ISCA, certain changes 
to the authority of the ISCA, and changes to the Capacity Guidelines 
may be authorized by a vote of 75% of the parties. In addition, the 
selection of the ISCA would be required to be filed with the Commission 
as an amendment to OPRA's national market system plan.
    In accordance with this requirement, this filing reflects OPRA's 
selection of the Options Clearing Corporation (``OCC'') to act as the 
ISCA upon the effectiveness of the proposed amendment to the Plan. OCC 
is a registered clearing agency that, while nominally owned by the five 
options exchanges, is an independent entity that is not controlled by 
any exchange. Each of the five exchanges owns a 20% interest in OCC, so 
that, on the basis of stock ownership alone, no exchange has a 
controlling interest. However, OPRA believes that OCC's independence is 
assured in ways that go beyond stock ownership. Pursuant to the bylaws 
of OCC, its 16-person Board of Directors consists of one Director from 
each of the five exchanges, nine representatives of OCC clearing member 
firms, one Public Director, and one Management Director. The exchanges 
have no voice in the selection of Member Directors, the Public 
Director, or the Management Director. Thus each exchange has only a 
6.25% representation on the OCC Board, and all of the exchanges 
together represent only 31.25% of the Board.
    OPRA believes that OCC's independence has long been recognized by 
the exchanges and by the Commission. This is reflected not only in the 
selection of OCC to act as the ISCA by the unanimous vote of all five 
exchanges, but in OCC's other roles as the central issuer and clearing 
agency for options traded on five competing exchanges, as the developer 
and manager of the intermarket options linkage facility pursuant to the 
Options Intermarket Linkage Plan,\15\ and as the arbiter of the 
eligibility of underlying stocks for options trading pursuant to the 
Options Listing Procedures Plan.\16\ OCC serves in these capacities 
with the approval of all five exchanges and with the Commission's 
approval, which OPRA believes stands as an acknowledgement of OCC's 
independence.

    \15\ Securities Exchange Act Release Nos. 43086 (July 28, 2000), 
65 FR 48023 (August 4, 2000) (order approving the Linkage Plan 
submitted by Amex, CBOE, and ISE); 43574 (November 16, 2000), 65 FR 
70850 (November 28, 2000) (order approving PCX as participant in the 
Options Intermarket Linkage Plan); and 43573 (November 16, 2000), 65 
FR 70851 (November 28, 2000) (order approving Phlx as a participant 
in the Options Intermarket Linkage Plan).
    \16\ See Securities Exchange Act Release No. 44521 (July 6, 
2001), 66 FR 36809 (July 13, 2001) (order approving a proposed 
options listing procedures plan by Amex, CBOE, ISE, OCC, PCX, and 
Phlx).
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The respondent exchanges must establish a system for gathering and 
disseminating business information from and to participants of OPRA 
such that all nonpublic information specific to a participant in OPRA 
shall remain segregated and confidential from other

[[Page 66895]]

participants (except for information that may be shared in connection 
with joint activities permitted as necessary to fulfill the functions 
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and objectives of OPRA as stated in the Plan).

    As noted in the discussion above, the proposed amendment would 
require each party's individual capacity projections and requests to be 
submitted to the ISCA in confidence, and the ISCA would be expressly 
prohibited from sharing this information with any of the other parties, 
except in the form of aggregate information that does not identify the 
individual capacity requests of any of the other parties. The ISCA 
would be required under Section II(m) of the Plan to maintain the 
confidentiality of this information, consistent with the provisions of 
Section III(g) of the Plan, which would specify that confidential 
capacity-related information obtained by the ISCA would not be used by 
the ISCA in any of its other business activities in a manner that may 
result in the information being made available to any of the parties to 
the Plan, or to use it in any manner that is otherwise inconsistent 
with the ISCA's obligation to hold the information in confidence.\17\ 
Furthermore, Guideline No. 1 of the proposed Capacity Guidelines would 
require the ISCA to maintain internal safeguards and procedures 
adequate to assure that the requirements of the Plan pertaining to the 
confidentiality of information provided to the ISCA would be 
satisfied.\18\ A written description of these internal safeguards and 
procedures would have to be furnished to the Commission before the ISCA 
begins to act in that capacity.\19\
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    \17\ See Amendment No. 2, supra note 5.
    \18\ Id.
    \19\ Id.
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    In addition, OPRA proposes to amend Section III(b) of the Plan to 
make explicit the requirement that each person who performs 
administrative functions for OPRA, including its Executive Director and 
other officials and its processor, shall agree that any nonpublic 
business information pertaining to any party shall be held in 
confidence and not be shared with the other parties, except for 
information that may be shared in connection with permitted joint 
activities. Finally, OPRA proposes to make explicit in the preamble to 
the Plan that the parties themselves are each obligated to take 
reasonable steps to insure that their nonpublic business information 
remains segregated and confidential from the other parties, except for 
information that may be shared in connection with permitted joint 
activities.

The respondent exchanges must set forth a statement of OPRA's functions 
and objectives as permitted under the Exchange Act, and provide for 
rules and procedures that limit any joint action with respect to OPRA 
by the participants in OPRA to circumstances in which such joint action 
is necessary in order to fulfill the stated functions and objectives.

    The functions and objectives of OPRA are specifically set forth in 
the OPRA Plan as it is proposed to be amended, most particularly in the 
preamble to the Plan and in Section III(b) thereof. These functions and 
objectives include: (1) Determining the manner in which last sale 
reports, quotation information, and other market information will be 
collected, consolidated, and disseminated in satisfaction of the 
requirements of the Act and establishing the formats for such 
consolidated information; (2) contracting for and maintaining 
facilities to support these activities, prescribing forms of contracts 
to be entered into by vendors, subscribers, and other persons, and 
making policy determinations pertaining to such contracts; (3) 
establishing standards concerning the qualifications of different 
categories of recipients of consolidated information; (4) determining 
fees to be paid for access to consolidated information as permitted 
under the Act; (5) determining policy questions pertaining to OPRA's 
budgetary and other financial matters; (6) managing the capacity of the 
OPRA System in accordance with determinations made by the ISCA as 
described above; and (7) otherwise making all policy decisions 
necessary in furtherance of the objectives of the Act. The proposed 
amendment makes explicit in the preamble to the Plan that joint action 
by the parties to the Plan is limited to those matters as to which they 
share authority under the Plan, and then only to circumstances where 
such joint action is necessary in order to fulfill the functions and 
objectives of OPRA as stated in the Plan.
    In addition to the above described amendments pertaining directly 
to OPRA's capacity planning and allocation functions and conforming 
definitional and editorial modifications, OPRA also proposes to amend 
subsections I(a) and I(b) of the OPRA Plan to make it clear that a 
party to the OPRA Plan ceases to be a party at such time as it ceases 
to maintain a market for the trading of standardized options. This 
aspect of the amendment is directed at the anomalous situation that 
recently confronted OPRA when the New York Stock Exchange, Inc. 
(``NYSE''), after it disposed of its entire options trading program and 
thereby ceased to have any interest in the activities of OPRA, 
nevertheless remained a party to the OPRA Plan with the same voting 
rights and other rights of participation in OPRA as every other party 
to the Plan.
    Although the situation pertaining to the status of the NYSE as a 
party to the OPRA Plan was recently resolved when the NYSE voluntarily 
withdrew from OPRA, the current parties to the Plan believe it is 
necessary to amend the Plan to clarify the status under the Plan of 
exchanges that continue to have rules governing the trading of options 
even though they no longer are involved in options trading. The parties 
believe it is especially important to clarify the matter of eligibility 
to be a party to the Plan in light of the other amendments to the OPRA 
Plan that are proposed herein dealing with capacity planning and 
capacity allocation. The parties believe that only those exchanges that 
actually maintain a market for the trading of standardized options 
should have a voice in these critical capacity-related issues.
    The parties to the OPRA Plan believe it is consistent with Section 
11A of the Act \20\ and Rule 11Aa3-2 thereunder \21\ to limit 
participation in OPRA to those SROs that provide a market in the types 
of securities that are covered by the OPRA Plan. OPRA believes that 
subparagraph (a)(3)(B) of Section 11A \22\ authorizes the Commission, 
``in furtherance of the directive in paragraph (2) of this subsection 
[which includes the directive to assure the availability to brokers, 
dealers and investors of information with respect to quotations for and 
transactions in securities] * * * to authorize or require [SROs] to act 
jointly with respect to matters as to which they share authority under 
this title in planning, developing, operating, or regulating a national 
market system (or a subsystem thereof) or one of more facilities 
thereof.'' [Emphasis supplied.] Similarly, OPRA believes that paragraph 
(b)(3) of Rule 11Aa3-2 under the Act \23\ authorizes SROs ``to act 
jointly in (i) planning, developing, and operating any national market 
subsystem or facility contemplated by a national market system plan * * 
* or (iii) implementing or administrating an effective national market 
system plan.'' OPRA believes that if an SRO does not share authority 
for national market system activities in respect of a particular type 
of security

[[Page 66896]]

because it does not provide a market for trading that type of security, 
then there appears to be no basis in the Act for authorizing or 
requiring that SRO to participate in that national market system.
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    \20\ 15 U.S.C. 78k-1.
    \21\ 17 CFR 240.11Aa3-2.
    \22\ 15 U.S.C. 78k-1(a)(3)(B).
    \23\ 17 CFR 240.11Aa3-2(b)(3).
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    Finally, the proposed amendment expands the types of persons to 
whom a party may disseminate proprietary information pertaining to 
quotations and transactions in its market as an exception to the 
requirement of the Plan that makes OPRA the exclusive channel for the 
dissemination of this information. Under Section V(c)(iii) of the 
current Plan, a party may disseminate its proprietary information 
outside of the OPRA System to its members for display on terminals used 
to enter or transmit orders or quotes to the party's market and to 
other parties, provided that those members who have access to a party's 
proprietary information must also have equivalent access to 
consolidated information provided by OPRA, and provided further that a 
party may not disseminate proprietary information outside of OPRA on 
any more timely basis than the same information is provided to OPRA. 
The proposed amendment to the Plan would allow a party to disseminate 
its proprietary information outside of the OPRA System to any person, 
provided that the requirements of the current Plan pertaining to 
equivalent access to consolidated data provided by OPRA and to the 
timeliness of providing data to OPRA would continue to apply. This 
proposed change reflects past experience with the electronic trading 
system of the ISE and the anticipated expanded use of electronic 
trading systems by other parties, all of which necessarily involve the 
dissemination of proprietary information over systems that are separate 
from the OPRA System. OPRA has come to recognize that persons in 
addition to members of a party who enter quotes or orders into a 
party's electronic market may benefit from having access to the party's 
electronic network. The proposed amendment is intended to facilitate 
this, while at the same time assuring that all persons who have access 
to a party's proprietary information would also have equivalent access 
to consolidated market information provided by OPRA.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed Plan amendment, as modified by 
Amendments No. 1 and 2, including whether the proposal and Amendments 
No. 1 and 2 are consistent with the Act. Specifically, the Commission 
requests comment on OPRA's proposal that the first $5 million of OPRA's 
capacity-related costs in any year would be allocated based on the 
relative trading volume of each of the parties, while OPRA's costs 
above $5 million, as proposed in Capacity Guideline No. 7, would be 
allocated by the ISCA, and, in particular, whether $5 million appears 
to be an appropriate ceiling before the ISCA may begin allocating 
OPRA's capacity-related costs. Furthermore, as part the of the ISCA's 
limitations on authority in proposed Capacity Guideline No. 5, the ISCA 
may not authorize a modification to the OPRA System that, together with 
other capacity increases previously authorized by the ISCA, represents 
an increase in the total capacity of the System in excess of 15,000 
messages per second over the immediately preceding twelve months unless 
at least 75% of the parties consent to such an increase. The Commission 
seeks comment on whether such a limitation is appropriate, and, if so, 
whether the 15,000 mps limitation imposed on the ISCA is reasonable, 
whether OPRA should use a higher threshold, and whether commenters 
recommend using a threshold percentage based on OPRA's capacity of the 
previous year instead of a specified amount.
    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 
proposal and Amendments No. 1 and 2 that are filed with the Commission, 
and all written communications relating to the proposal and Amendments 
No. 1 and 2 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-2003-01 and should be submitted by December 19, 2003.

IV. Discussion

    After careful review, the Commission finds that the proposed OPRA 
Plan amendment, as amended by Amendments No. 1 and 2, is sufficient 
under the Act and the rules and regulations thereunder for temporary 
approval of not more than 120 days.\24\ Specifically, the Commission 
believes that the proposed OPRA Plan amendment, which would revise the 
manner in which OPRA engages in capacity planning and the allocation of 
system capacity among the exchanges that are parties to the Plan, is 
sufficient under Section 11A of the Act \25\ and Rule 11Aa3-2 
thereunder \26\ for temporary approval not to exceed 120 days in that 
it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities.
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    \24\ In approving this proposed OPRA Plan amendment, the 
Commission has considered its impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78k-1.
    \26\ 17 CFR 240.11Aa3-2.
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    Specifically, the Commission believes that OPRA's proposal to 
require each party to the Plan to independently project the capacity it 
would need and to confidentially submit requests for capacity based on 
such projections to the ISCA is designed to eliminate joint action by 
the OPRA participants in determining the amount of total capacity 
procured and the allocation of such capacity. The Commission notes that 
the proposal would require that the ISCA maintain these individual 
capacity projections and requests in confidence, and not use such 
confidential, capacity-related information in any of its business 
activities that may result in the information being made available to 
any of the parties of the Plan, or to use such information in any 
manner that is inconsistent with its obligation to hold the information 
in confidence. Furthermore, the proposed Capacity Guidelines would 
require the ISCA to provide the Commission with a written description 
of its internal safeguards and procedures to ensure compliance with the 
Plan's confidentiality requirements prior to the time the ISCA first 
exercises its authority under the Plan. The Commission believes that 
these requirements provide additional assurance that each exchange's 
non-public business information would remain segregated would not be 
made available to its competitors. Furthermore, the Commission 
emphasizes that neither the Plan nor the Capacity Guidelines should be 
construed in any manner that would permit individual exchange capacity 
projections or requests or other confidential, capacity-related 
information to be shared with the other parties to the Plan.

[[Page 66897]]

    The Commission also believes that the proposed grant to the ISCA of 
the responsibility to allocate capacity-related costs above a $5 
million ceiling would allow the exchanges to avoid the difficult task 
of having to differentiate the costs and expenses attributable to 
capacity expansion from the costs and expenses attributable to 
maintaining and operating the OPRA system. However, as discussed above, 
the Commission specifically requests comment on whether $5 million 
would be an appropriate limit before the ISCA may begin allocating the 
capacity-related costs among the parties.
    The Capacity Guidelines provide that the ISCA is ordinarily 
expected to provide the parties with the systems capacity they have 
requested. However, the ISCA has some discretion to provide less than 
all the capacity requested if it determines that the capacity requests 
of one or more of the parties are unreasonable. A party's request may 
be found by the ISCA to be unreasonable if it concludes that a party 
does not have a reasonable need for all the capacity it has requested 
within the timeframe to which the request applies.
    In 1999, the Commission ordered the exchanges to discuss the 
feasibility of strategies to avoid quote traffic congestion, including 
quote mitigation strategies.\27\ In that Order the Commission 
recognized that increases in quote message traffic have implications 
not only for the options exchanges, but all users of options market 
data. Moreover, the increase in quote message traffic has accelerated 
since the Commission issued that order. As of September 2003, the 
exchanges' peak dissemination of messages per second was 15,000 
messages per second. As the options exchanges modify their trading 
rules to permit competing market makers to independently quote, it is 
anticipated that each exchange's demands on capacity will increase 
substantially. In addition, the Boston Stock Exchange (``BSE'') has 
proposed to operate a fully electronic options exchange, which would, 
if approved by the Commission, place further demands on capacity. For 
these reasons, the Commission believes that the ISCA may consider 
whether a party has made reasonable efforts to mitigate the amount of 
systems capacity that its market data requires of OPRA and other market 
participants in determining whether a party does not have a reasonable 
need for all the capacity it has requested.
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    \27\ See Securities Exchange Act Release No. 41843 (September 8, 
1999), 64 FR 50126 (September 15, 1999). In addition, the Commission 
staff sent a letter to each of the options exchanges stating that 
the exchanges should continue to work together to, among other 
things, implement strategies to mitigate quote message traffic. See 
letters from Annette L. Nazareth, Director, Division, Commission to 
Salvatore F. Sodano, Chairman and Chief Executive Officer, Amex; 
William J. Brodsky, Chairman and Chief Executive Officer, CBOE; 
David Krell, President and Chief Executive Officer, ISE; Philip D. 
DeFeo, Chairman and Chief Executive Officer, PCX; and Meyer S. 
Frucher, Chairman and Chief Executive Officer, Phlx, dated September 
13, 2000.
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    The Capacity Guidelines also provide that the ISCA may provide less 
than all the capacity requested if it determines that it is not 
reasonable to develop or maintain a system that has capacity sufficient 
to satisfy the request of the parties. In this regard, the Capacity 
Guidelines provide that the ISCA may determine that it is not 
reasonable to develop or maintain a system with all of the capacity 
that has been requested if it concludes that it is not technically 
feasible to do so, or that a significant number of OPRA vendors cannot 
or will not carry the amount of message traffic disseminated by such a 
system. Because of the implications that increases in message traffic 
have on all users of options market data, the Commission believes it is 
important that the ISCA consider the technical feasibility for all 
users of options market data, including vendors, brokers-dealers, and 
customers, to develop or maintain a system with all of the capacity 
that has been requested.
    In addition, the Commission notes that, under the proposed Capacity 
Guidelines, the ISCA would not be permitted to increase systems 
capacity in excess of 15,000 mps during a twelve-month period without 
the approval of 75% of the parties to the Plan. The Commission believes 
that some restriction on the ISCA's authority is important to prevent 
large increases in systems capacity, which could have a significant 
impact on down-stream users of OPRA data, such as vendors and broker-
dealers.
    Furthermore, the Plan amendment would require OPRA to file its 
selection of the ISCA with the Commission as an amendment to the Plan, 
which would become effective upon filing.\28\ This requirement would 
provide the Commission with the opportunity to review OPRA's choice of 
the ISCA. Under this Plan amendment, OPRA has proposed to select OCC to 
function as the ISCA. Because of OCC's status as an SRO, the Commission 
will be able to monitor its obligations under the Plan to maintain the 
exchanges' individual capacity projections and requests confidentially.
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    \28\ Although filed effective upon filing, the Commission may, 
at any time within 60 days of the filing of the amendment, summarily 
abrogate the amendment and require that such amendment be refiled in 
accordance with paragraph (b)(1) to Rule 11Aa3-2 under the Act and 
reviewed in accordance with paragraph (c)(2) of the Rule, if it 
appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors 
or the maintenance of fair and orderly markets, to remove 
impediments to, and perfect mechanisms of a national market system 
or otherwise in furtherance of the purposes of the Act. 17 CFR 
240.11Aa3-2(c)(3).
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    The Commission believes that the proposed Capacity Guidelines 
adequately provide for the allocation of capacity to new parties to 
OPRA. Under Guideline No. 2 of the proposed Capacity Guidelines, a 
prospective new options exchange would have to inform the ISCA, at 
least 6 months prior to the time it proposes to commence trading, of 
the initial amount of system capacity it would need. The ISCA would 
then aggregate this request for capacity with the requests received 
from the existing exchanges. Also, under Guideline No. 6 of the 
proposed Capacity Guidelines, if the new party has not received the 
capacity it has requested at the time it has commenced trading options, 
and to the extent there is any excess capacity available in the system 
that has not been provided to any of the parties, the ISCA would be 
able to allocate to the new party all or a portion of any such excess 
capacity in order to provide the new party with the amount of capacity 
determined by the ISCA to be sufficient to satisfy the reasonable needs 
of the new party until it has been provided with the capacity it 
initially requested. These provisions in the proposed Capacity 
Guidelines, which specifically contemplate new entrants and provide a 
mechanism for them to acquire capacity, together with the prohibitions 
imposed on the ISCA from using confidential capacity-related 
information in any of its other business activities that may result in 
the information being made available to any of the parties to the Plan 
or in any manner inconsistent with the ISCA's obligations to hold such 
information in confidence, are designed to ensure that the existing 
exchanges would not be able to restrain new entrants from joining OPRA 
and acquiring the capacity that they require.
    Finally, the Commission finds that it is appropriate to put the 
proposed OPRA Plan amendment, as modified by Amendments No. 1 and 2, 
into effect summarily upon publication of notice on a temporary basis 
not to exceed 120 days to permit OPRA to implement the capacity 
planning process at the soonest practicable time. Since September 2000, 
when the respondent exchanges entered into the Settlement Order with 
the

[[Page 66898]]

Commission \29\ and simultaneously, consented to the entry of a Final 
Judgment with the Department of Justice,\30\ the options exchanges have 
interpreted those actions to preclude them from engaging in joint 
capacity planning under the current OPRA Plan. Since that time, the 
exchanges' peak dissemination of OPRA data has increased from 
approximately 3,500 messages per second to more than 15,000 messages 
per second, as of September 30, 2003. As the existing options exchanges 
modify their trading rules to permit competing market makers to 
independently quote, it is anticipated that each exchange's demands on 
capacity will increase substantially. In addition, the BSE has proposed 
to operate a fully electronic options exchange, which would, if 
approved by the Commission, place further demands on capacity. 
Accordingly, to permit the exchanges to commence capacity planning 
without the need for joint action, as required by the Settlement Order, 
the Commission believes it is necessary or appropriate in the public 
interest, for the protection of investors or the maintenance of fair 
and orderly markets, to remove impediments to, and perfect mechanisms 
of, a national market system to approve the proposed amendment to the 
OPRA Plan on a temporary basis not to exceed 120 days so that options 
market data can continue to be disseminated on a timely basis.\31\
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    \29\ See Order, supra note 7.
    \30\ United States v. American Stock Exchange, LLC et al. 
(December 6, 2000), Civ. No. 00-CV-02174 (EGS).
    \31\ 17 CFR 240.11Aa3-2(c)(4).
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V. Conclusion

    It Is Therefore Ordered, pursuant to Section 11A of the Act,\32\ 
and Rule 11Aa3-2(c)(4) thereunder,\33\ that the proposed OPRA Plan 
amendment, as modified by Amendments No. 1 and 2, (SR-OPRA-2003-01) is 
approved on a temporary basis not to exceed 120 days.
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    \32\ 15 U.S.C. 78k-1.
    \33\ 17 CFR 240.11Aa3-2(c)(4).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29658 Filed 11-26-03; 8:45 am]
BILLING CODE 8010-01-P