[Federal Register Volume 69, Number 208 (Thursday, October 28, 2004)]
[Notices]
[Pages 62920-62921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50561; File No. 4-429]


Joint Industry Plan; Order Approving Joint Amendment No. 13 to 
the Options Intermarket Linkage Plan Regarding Natural Size

October 19, 2004.

I. Introduction

    On May 10, 2004, May 11, 2004, June 22, 2004, July 21, 2004, August 
12, 2004, and August 16, 2004, the International Securities Exchange, 
Inc. (``ISE''), the Chicago Board Options Exchange, Inc. (``CBOE''), 
the American Stock Exchange LLC (``Amex''), the Pacific Exchange, Inc. 
(``PCX''), the Philadelphia Stock Exchange, Inc. (``Phlx''), and the 
Boston Stock Exchange, Inc. (``BSE'') (collectively, the 
``Participants''), respectively, filed with

[[Page 62921]]

the Securities and Exchange Commission (``Commission'') an amendment 
(``Joint Amendment No. 13'') to the Plan for the Purpose of Creating 
and Operating an Intermarket Option Linkage (the ``Linkage Plan'').\1\ 
In Joint Amendment No. 13, the Participants propose to modify the 
definitions of Firm Customer Quote Size (``FCQS'') and Firm Principal 
Quote Size (``FPQS'') to accommodate the ``natural size'' of 
quotations. The Linkage Plan currently requires that the Participants 
be firm for both Principal Acting as Agent and Principal Orders for at 
least 10 contracts. The proposed Amendment would permit exchanges to be 
firm for the actual size of their quotation, even if this amount is 
less than 10 contracts.
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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 Amex, CBOE, and ISE. See 
Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 
48023 (August 4, 2000). Subsequently, Phlx, PCX, and BSE joined 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 Linkage Plan was published in the 
Federal Register on August 24, 2004.\2\ No comments were received on 
the proposed amendment. This order approves the proposed amendment to 
the Linkage Plan.
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    \2\ See Securities Exchange Act Release No. 50211 (August 18, 
2004), 69 FR 52050.
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II. Description of the Proposed Amendment

    Proposed Joint Amendment No. 13 seeks to change the definitions of 
both FCQS and FPQS. While the proposed Amendment would maintain a 
general requirement that the FCQS and FPQS be at least 10 contracts, 
that requirement would not apply if a Participant were disseminating a 
quotation of fewer than 10 contracts. In that case, the Participant may 
establish a FCQS or FPQS equal to its disseminated size, or ``natural 
size.''
    Under the proposed amendment, as with Linkage orders today, if the 
order is of a size eligible for automatic execution, the receiving 
exchange must provide automatic execution of the Linkage order. If this 
is not the case (for example, the receiving exchange's automatic 
execution system is not engaged), the receiving exchange may allow the 
order to drop to manual handling. However, the receiving exchange still 
must provide a manual execution for at least the FCQS or FPQS, as 
appropriate (in this case, the size of its disseminated quotation of 
less than 10 contracts).

III. Discussion

    After careful consideration, the Commission finds that the proposed 
amendment to the Linkage 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 Linkage Plan is 
consistent with Section 11A of the Act \3\ and Rule 11Aa3-2 
thereunder,\4\ 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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    \3\ 15 U.S.C. 78k-1.
    \4\ 17 CFR 240.11Aa3-2.
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    The Commission notes that the Participants adopted the current 
definitions of FCQS and FPQS, which impose a ``10-up'' requirement, at 
a time when all the Participants had rules requiring that their minimum 
quotation size be for at least 10 contracts. Consequently, an exchange 
receiving a customer limit order for fewer than 10 contracts would 
disseminate the price of the customer limit order with a size of 10 
contracts and the specialist or the trading crowd would be responsible 
to make up the difference. Since implementation of the Linkage Plan, 
several of the Participants have modified their rules to permit them to 
disseminate the ``natural size'' of customer limit orders that are of a 
size less than 10 contracts.\5\ Proposed Joint Amendment No. 13 should 
conform the minimum quotation requirements contained in the Linkage 
Plan to be consistent with the Participants' rules regarding the 
dissemination of the size associated with customer limit orders. The 
Commission believes that conforming the requirements of the Linkage 
Plan to the requirements adopted by the Participants, which permit them 
to disseminate an order's ``natural size,'' should provide greater 
transparency to investors and the marketplace and better reflect the 
true state of liquidity in the marketplace.
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    \5\ See Securities Exchange Act Release Nos. 46325 (August 8, 
2002), 67 FR 53376 (August 15, 2002) (SR-Phlx-2002-15); 46029 (June 
4, 2002), 67 FR 40363 (June 12, 2002) (SR-PCX-2002-30); 45067 
(November 16, 2001), 66 FR 58766 (November 23, 2001) (SR-CBOE-2001-
56); 47959 (May 30, 2003), 68 FR 34441 (June 9, 2003) (SR-CBOE-2002-
05); and 48957 (December 18, 2003), 68 FR 75294 (December 30, 2003) 
(SR-Amex-2003-24).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act \6\ and 
Rule 11Aa3-2 thereunder,\7\ that the proposed Joint Amendment No. 13 is 
approved. 
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    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 240.11Aa3-2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(29).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E4-2877 Filed 10-27-04; 8:45 am]
BILLING CODE 8010-01-P