[Federal Register Volume 69, Number 42 (Wednesday, March 3, 2004)]
[Notices]
[Pages 10080-10081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4717]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49322; File No. SR-OPRA-2003-01]


Options Price Reporting Authority; Order Granting Permanent 
Approval to an 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

February 26, 2004.
    On April 15, 2003, the Options Price Reporting Authority (``OPRA'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to section 11A of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 11Aa3-2 thereunder,\2\ an amendment to the Plan 
for Reporting of Consolidated Options Last Sale Reports and Quotation 
Information (``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 and October 12, 2003, respectively, OPRA submitted 
Amendments No. 1 and 2 to the proposal.\4\ On November 21, 2003, the 
Commission issued notice of and approved the proposal, as amended, on a 
temporary basis not to exceed 120 days, and solicited comment on the 
proposal.\5\ The Commission received no comments on the proposal, as 
amended. This order approves the OPRA Plan amendment, as amended, on a 
permanent basis.
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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 six participants to the OPRA Plan are 
the American Stock Exchange LLC (``Amex''), the Boston Stock 
Exchange, Inc. (``BSE''), the Chicago Board Options Exchange, Inc. 
(``CBOE''), the International Securities Exchange, Inc., the Pacific 
Exchange, Inc. (``PCX''), and the Philadelphia Stock Exchange, Inc. 
(``Phlx'').
    \4\ See letters from Michael L. Meyer, Counsel to OPRA, Schiff, 
Hardin & Waite, to Deborah Flynn, Assistant Director, Division of 
Market Regulation, Commission, dated July 15, 2003 (``Amendment No. 
1'') and October 15, 2003 (``Amendment No. 2'').
    \5\ See Securities Exchange Act Release No. 48822 (November 21, 
2003), 68 FR 66892 (November 28, 2003).
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    The proposed Plan amendment would 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. In addition, 
proposed amendments to the OPRA Plan would 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.\6\ Furthermore, the functions and objectives of OPRA 
would be specifically set forth in the OPRA Plan, most particularly in 
the preamble to the Plan and in Section III(b) thereof. The proposed 
amendment would make 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.
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    \6\ The proposed amendment would 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, 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, to modify the structure and operation of OPRA in various 
ways that would eliminate undesirable joint and collective action in 
the capacity planning and allocation process. See 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'').
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    Under the proposed amendment to the OPRA Plan, OPRA 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 Independent System Capacity Advisor 
(``ISCA''), which would maintain these individual capacity projections 
and requests in confidence. The Plan would require the ISCA to maintain 
the confidentiality of this information, consistent with the provisions 
of section III(g) of the Plan.\7\ Furthermore, 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.\8\
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    \7\ See Amendment No. 2, supra note 4.
    \8\ Guideline No. 1 of the 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. In addition to the confidentiality requirements imposed 
on the ISCA, the proposal would 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. The proposal would also 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.
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    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.
    Moreover, future Plan amendments, including amendments to the 
proposed 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, OPRA selected the 
Options Clearing Corporation (``OCC'') to act as the ISCA.
    After careful review, the Commission finds that the proposed OPRA 
Plan amendment, as amended by Amendments No. 1 and 2, is consistent

[[Page 10081]]

with the requirements of the Act and the rules and regulations 
thereunder.\9\ 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 consistent with 
section 11A of the Act \10\ and Rule 11Aa3-2 thereunder,\11\ 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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    \9\ 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).
    \10\ 15 U.S.C. 78k-1.
    \11\ 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 to the ISCA requests for 
capacity based on such projections is designed to eliminate joint 
action by the OPRA participants in determining the amount of total 
capacity to be procured and the allocation of such capacity. The 
Commission notes that the proposal requires 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 in any manner that is 
inconsistent with its obligation to hold the information in confidence. 
The Commission believes that these requirements provide additional 
assurances that each exchange's non-public business information would 
remain segregated and 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.
    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 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.\12\
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    \12\ The Commission notes that the BSE recently joined OPRA and 
began operation of a fully electronic options exchange (``Boston 
Options Exchange'' or ``BOX''). See Securities Exchange Act Release 
No. 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (SR-BSE-
2002-15).
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    Accordingly, to permit the exchanges to commence capacity planning 
without the need for joint action, as required by the 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 permanent basis.
    It is therefore ordered, pursuant to section 11A of the Act,\13\ 
and Rule 11Aa3-2 thereunder,\14\ that the proposed OPRA Plan amendment, 
as modified by Amendments No. 1 and 2, (SR-OPRA-2003-01) is hereby 
approved on a permanent basis.
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    \13\ 15 U.S.C. 78k-1.
    \14\ 17 CFR 240.11Aa3-2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4717 Filed 3-2-04; 8:45 am]
BILLING CODE 8010-01-P