[Federal Register Volume 69, Number 121 (Thursday, June 24, 2004)]
[Notices]
[Pages 35397-35398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49885; File No. 4-429]


Joint Industry Plan; Order Approving Joint Amendment No. 10 to 
the Plan for the Purpose of Creating and Operating an Intermarket 
Options Linkage Relating to the Handling of Principal Acting as Agent 
Orders

June 17, 2004.

I. Introduction

    On February 18, 2004, March 1, 2004, March 23, 2004, April 20, 
2004, April 23, 2004, and April 27, 2004, the International Securities 
Exchange, Inc. (``ISE''), American Stock Exchange, LLC (``Amex''), 
Chicago Board Options Exchange, Inc. (``CBOE''), Pacific Exchange, Inc. 
(``PCX''), Philadelphia

[[Page 35398]]

Stock Exchange, Inc. (``Phlx''), and Boston Stock Exchange, Inc. 
(``BSE'') (collectively the ``Participants'') respectively submitted to 
the Securities and Exchange Commission (``SEC'' or ``Commission'') 
Amendment No. 10 to the Plan for the Purpose of Creating and Operating 
an Intermarket Options Linkage (the ``Linkage Plan'').\1\ The amendment 
proposes to modify the manner in which a member of a Participant may 
send Principal Acting as Agent Orders (``P/A Orders'') that are larger 
than the Firm Customer Quote Size (``FCQS'').
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    \1\ 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 separate requests by the 
Phlx, PCX and BSE, 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), 43574 (November 16, 2000), 65 FR 70851 
(November 28, 2000) and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
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    The proposed amendment to the Plan was published in the Federal 
Register on May 19, 2004.\2\ No comments were received on the proposed 
amendment. This order approves the proposed amendment to the Plan.
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    \2\ See Securities Exchange Act Release No. 49689 (May 12, 
2004), 69 FR 28953.
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II. Description of the Proposed Amendment

    In Joint Amendment No. 10, the Participants explain that currently, 
the Linkage Plan provides a market maker with two ways to handle 
principal acting as agent (``P/A'') Orders \3\ that are larger than the 
Firm Customer Quote Size (``FCQS'').\4\ First, the market maker may 
send a P/A Order larger than the FCQS representing the entire customer 
order for manual processing at the receiving Participant. Second, the 
market maker may send an initial P/A Order for up to the FCQS. If the 
market maker then seeks to send another P/A Order, it must send an 
order for the lesser of the entire remaining size of the underlying 
customer order or 100 contracts.
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    \3\ A P/A Order is an order for the principal account of a 
Market Maker that is authorized to represent Customer orders, 
reflecting the terms of a related unexecuted Customer order for 
which the Market Maker is acting as agent. See Section 2(16)(a) of 
the Linkage Plan.
    \4\ The FCQS is the minimum size for which an exchange must 
provide an execution in its automatic execution system for a P/A 
Order, if the exchange's automatic execution system is available. 
See Section 2(11) of the Linkage Plan.
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    Proposed Joint Amendment No. 10 addresses the handling of P/A 
orders if the market maker chooses the second alternative, the sending 
of multiple P/A Orders. As currently drafted, the Linkage Plan does not 
recognize the possibility that a Participant's disseminated quotation 
may be for less than either the remaining size of the customer order or 
100 contracts. Thus, the proposed Amendment specifies that a market 
maker sending a second P/A Order may limit such order to the lesser of: 
The remaining size of the customer order; 100 contracts; or the size of 
the receiving Participant's disseminated quotation.
    In addition, the Participants believe that there is a practical 
issue if multiple exchanges are displaying the same bid or offer. In 
that case, the Linkage Plan is unclear as to whether a market maker 
must send the entire order to one Participant or can send orders to 
multiple Participants, as long as they are for the size of the entire 
order, or 100 contracts, in the aggregate. The Amendment clarifies the 
Linkage Plan to specify that a market maker may send P/A Orders to 
multiple exchanges, as long as all such orders, in the aggregate, are 
for the lesser of the entire remaining size of the customer order or 
100 contracts. However, a market maker may limit the size of any single 
additional order to the size of the receiving market's disseminated 
quotation.
    Finally, the proposed Amendment modifies the provisions of the 
Linkage Plan relating to the time period within which a receiving 
Participant must inform the sending Participant of the amount of the 
order executed and the amount, if any, that was canceled, and the time 
period for which a sending Participant must wait while the receiving 
Participant continues to disseminate the same price at the national 
best bid or offer before sending a second P/A Order. Currently, the 
applicable time period for each such circumstance is 15 seconds. The 
proposed Amendment would permit the Options Linkage Authority to 
determine different applicable time periods for both circumstances, 
subject to approval by the Commission.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
amendment to the Plan seeking to extend the current pilot 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 \5\ and 
Rule 11Aa3-2 thereunder,\6\ in that it should help to clarify the 
Participant's obligations in handling P/A Orders, which should 
facilitate the efficient and active trading of P/A Orders through the 
Linkage in furtherance of the goals of a national market system.
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    \5\ 15 U.S.C. 78k-1.
    \6\ 17 CFR 240.11Aa3-2.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act \7\ and 
Rule 11Aa3-2 thereunder,\8\ that the proposed Joint Amendment No. 10 is 
hereby approved.
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    \7\ 15 U.S.C. 78k-1.
    \8\ 17 CFR 240.11Aa3-2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14301 Filed 6-23-04; 8:45 am]
BILLING CODE 8010-01-P