[Federal Register Volume 70, Number 171 (Tuesday, September 6, 2005)]
[Notices]
[Page 53030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4835]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52350; File No. 4-429]


Joint Industry Plan; Order Approving Amendment No. 17 to the Plan 
for the Purpose of Creating and Operating an Intermarket Option Linkage 
Regarding Modifying the 80/20 Test for Determining Limitations on 
Principal Order Access to Linkage

August 26, 2005.

I. Introduction

    On April 20, 2005, May 20, 2005, May 12, 2005, April 13, 2005, 
April 27, 2005 and May 11, 2005, the American Stock Exchange LLC 
(``Amex''), the Boston Stock Exchange, Inc. (``BSE''), the Chicago 
Board Options Exchange, Incorporated (``CBOE''), the International 
Securities Exchange (``ISE''), the Pacific Exchange, Inc. (``PCX''), 
and the Philadelphia Stock Exchange, Inc. (``Phlx'') (collectively, 
``Participants''), respectively, filed with the Securities and Exchange 
Commission (``Commission'') Joint Amendment No. 17 to the Plan for the 
Purpose of Creating and Operating an Intermarket Option Linkage 
(``Linkage Plan'').\1\ In Joint Amendment No. 17, the Participants 
propose to modify the 80/20 Test to determine limitations on Principal 
Order \2\ access to Linkage.\3\
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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 (``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 70851 (November 28, 2000); 43574 
(November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 
(February 5, 2004), 69 FR 7029 (February 12, 2004).
    \2\ A ``Principal Order'' is an order for the principal account 
of an eligible market maker that does not relate to a customer order 
the market maker is holding. See Section 2(16)(b) of the Linkage 
Plan.
    \3\ Specified in Section 8(b)(iii) of the Linkage Plan.
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    The proposed amendment to the Linkage Plan was published in the 
Federal Register on July 27, 2005.\4\ No comments were received on the 
proposed amendment. This order approves the proposed amendment to the 
Linkage Plan.
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    \4\ See Securities Exchange Act Release No. 52074 (July 20, 
2005), 70 FR 43469.
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II. Description and Purpose of the Proposed Amendment

    The purpose of the Joint Amendment is to modify the 80/20 Test 
contained in Section 8(b)(iii) of the Linkage Plan, which provides that 
market makers should send Principal Orders through the Linkage on a 
limited basis and not as a primary aspect of their business. The 80/20 
Test implements this general principle by prohibiting a market maker 
from sending Principal Orders in an eligible option class if, in the 
last calendar quarter, the market maker's Principal Order contract 
volume is disproportionate to the market maker's contract volume 
executed against customer orders in its own market.
    The Participants have expressed concern that the application of the 
80/20 Test has resulted in anomalies for market makers with limited 
volume in an eligible option class. Specifically, if a market maker has 
very little overall trading volume in an option, the execution of one 
or two Principal Orders during a calendar quarter could result in the 
market maker failing to meet the 80/20 Test. This would bar the market 
maker from using the Linkage to send Principal Orders for the following 
calendar quarter. The Participants contend that it was not their intent 
to bar market makers with limited volume from sending Principal Orders 
through the Linkage in these circumstances since such trading clearly 
was not ``a primary aspect of their business.'' Thus, in Joint 
Amendment No. 17, the Participants propose to create a de minimis 
exemption from the 80/20 Test for market makers that have total 
contract volume of less than 1,000 contracts in an options class for a 
calendar quarter.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
amendment to the Linkage Plan seeking to create a de minimis exception 
to the 80/20 Test 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 \10\ and Rule 11Aa3-2 thereunder,\11\ in 
that it will increase the availability of Linkage to members of the 
Participants by limiting the applicability of the 80/20 Test in 
situations where market makers have minimal trading volume in a 
particular options class.
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    \10\ 15 U.S.C. 78k-1.
    \11\ 17 CFR 240.11Aa3-2.
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    The Commission recognizes that the Participants do not believe that 
it is necessary to bar market makers with limited volume from sending 
Principal Orders through the Linkage, as such trading does not raise 
concerns that a member is sending such orders as ``a primary aspect of 
their business.'' The Commission believes that the de minimis exemption 
from the 80/20 Test proposed by the Participants for market makers that 
have total contract volume of less than 1,000 contracts in an options 
class for a calendar quarter should ensure that market makers with 
relatively low volume in a particular options class can send a 
reasonable number of Principal Orders without being barred by 
application of the 80/20 Test from using the Linkage in the following 
calendar quarter.

IV. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act \12\ 
and Rule 11Aa3-2 thereunder,\13\ that the proposed Joint Amendment No. 
17 is hereby approved. 
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    \12\ 15 U.S.C. 78k-1.
    \13\ 17 CFR 240.11Aa3-2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4835 Filed 9-2-05; 8:45 am]
BILLING CODE 8010-01-P