[Federal Register Volume 64, Number 178 (Wednesday, September 15, 1999)]
[Notices]
[Pages 50126-50128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23991]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41843]
Securities Exchange Act of 1934; Application Pursuant to Section
11A(a)(3)(B) of the Securities Exchange Act of 1934; Order
September 8, 1999.
Notice is hereby given that the American Stock Exchange LLC
(``AMEX''), the Chicago Board Options Exchange, Inc. (``CBOE''), the
Pacific Exchange Inc. (``PCX''), and the Philadelphia Stock Exchange,
Inc. (``PHLX'') have sought an order pursuant to Section 11A(a)(3)(B)
of the Securities Exchange Act of 1934 (the ``Act'') \1\ expressly
authorizing them and the New York Stock Exchange (``NYSE''), by and
through their members, affiliated member associations, the Securities
Industry Automation Corp. (``SIAC''),\2\ the Options Price Reporting
Authority (``OPRA''),\3\ and the International Securities Exchange
(``ISE'') (``Participants''),\4\ to act jointly in planning, developing
and discussing approaches and strategies with respect to options quote
message traffic to (1) recommend and propose, individually or jointly,
self-regulatory organization or Commission rules or plan amendments in
connection therewith, or (2) undertake other options quote message
traffic mitigation strategies.
---------------------------------------------------------------------------
\1\ Section 11A(a)(3)(B) authorizes the Commission, in
furtherance of its statutory directive, to facilitate the
establishment of a national market system, by rule or order, ``to
authorize or require self-regulatory organizations to act jointly
with respect to matters as to which they share authority under [the
Act] in planning, developing, operating or regulating a national
market system (or a subsystem thereof) or one or more facilities
thereof.''
\2\ SIAC is a registered exclusive securities information
processor and is owned by the AMEX and the NYSE. Securities Exchange
Act Release No. 12035 (Jan. 22, 1976), 41 FR 4372.
\3\ OPRA is an association governed by a committee consisting of
representatives of the four national securities exchanges authorized
by the Commission to list options for trading (the AMEX, the CBOE,
the PCX, and the PHLX) and the NYSE (which no longer lists options
for trading and whose role in these matters accordingly may be
limited). In 1976, the Commission granted its registration as a
securities information processor. Securities Exchange Act Release
No. 12035 (Jan. 22, 1976), 41 FR 4372. OPRA was formed and operates
pursuant to a plan approved by the Commission on March 18, 1981, as
amended. Securities Exchange Act Release No. 17638, as amended. See,
e.g, Securities Exchange Act Release No. 40767 (Dec. 16, 1998), 63
FR 69354.
\4\ The ISE, which has filed an application with the Commission
to register as a national securities exchange, also will be
participating in the SRI study. Securities Exchange Act Release No.
41439 (May 24, 1999), 64 FR 29367 (Jun. 1, 1999).
---------------------------------------------------------------------------
[[Page 50127]]
I. Background
SIAC, which manages the gathering, processing, and dissemination of
option exchanges' bid and quote information for OPRA, and Stanford
Research, Inc. Consulting (``SRI'') are conducting a study to address
issues raised by an anticipated increase in options message traffic.
OPRA has experienced substantial and accelerating growth in peak
message rates. SIAC and SRI attribute this growth to the listing of new
options (including the listing of new options series), the development
of new products, and the growth in on-line trading.
There also are a number of anticipated market events that OPRA
believes and SIAC and SRI estimate could result in a seven-fold
increase in peak message traffic above normal baseline forecasts. These
market events include decimalization and the increase in multiple
listings, as well as the anticipated entry into the options markets of
the ISE and the related increase in multiple listings.
This anticipated increase in options quote message traffic has
implications for the options industry and the continued maintenance of
fair and orderly markets for investors. For example, it creates issues
for OPRA concerning its data management and processing capacity. It
also creates issues for OPRA's data recipients and vendors concerning
whether they have the infrastructure to receive and disseminate OPRA
data. Finally, it creates issues concerning the quality of the market
data OPRA likely will be able to generate.
The SIAC and SRI project study is intended to: (1) Identify
potential options quote message traffic mitigation strategies and quote
triage approaches; (2) gauge the feasibility of those strategies
through options industry interviews; and (3) analyze and evaluate
various approaches.
The project structure includes a Project Steering Committee with
representatives of self-regulatory organizations, as well as other
participants in the securities markets or industry, and the Commission
staff. It is expected that SIAC and SRI will gather information from
the membership of the Project Steering Committee and that self-
regulatory organizations will work together to assist SRI in conducting
the study.
By letter dated August 26, 1999, the AMEX, CBOE, PCX, and PHLX have
asked the Commission to authorize expressly by order such joint
discussions and joint action by the Participants, consistent with
Section 11A of the Act.\5\
---------------------------------------------------------------------------
\5\ Letter from Colleen Mahoney to Jonathan Katz, dated August
26, 1999, attached as Exhibit A.
---------------------------------------------------------------------------
II. Discussion
Section 11A(a)(2) of the Act directs the Commission, having due
regard for the public interest, the protection of investors and the
maintenance of fair and orderly markets, to use its authority under the
Act to facilitate the establishment of a national market system for
securities. In exercising its authority to facilitate the establishment
of a national market system, the Commission must protect the public
interest in maintaining fair and orderly markets in the face of new
technology and other significant market developments.\6\ As part of its
authority to facilitate the establishment of a national market system,
Congress gave the Commission the authority to authorize or require by
order the self-regulatory organizations ``to act jointly * * * in
planning, * * * operating, or regulating a national market system.''
\7\ This authority is intended, among other things, to enable the
Commission to require joint activity that otherwise might be asserted
to have an impact on competition, where the activity serves the public
interest and the interests of investors. Pursuant to its Section
11A(a)(2) and Section 11A(a)(3)(B) authority, on March 18, 1981, the
Commission approved the OPRA Plan.
---------------------------------------------------------------------------
\6\ See generally, Section 11A(a)(1)(B) of the Act, 15 U.S.C.
78k-1(a)(1)(B) and Section 11A(a)(1)(C) of the Act, 15 U.S.C. 78k-
1(a)(1)(C).
\7\ Section 11A(a)(3)(B) of the Act, 15 U.S.C. 78k-1(a)(3)(B).
---------------------------------------------------------------------------
The Commission is concerned about the increase of options quote
message traffic that may result from various anticipated events in the
options markets. The proposed SICA/SRI study will provide important
information about how to address this increase in options quote message
traffic. To achieve the goals of the study, it will be essential for
the Participants to work jointly with each other and with SIAC and SRI
to provide relevant information and to discuss the feasibility of
strategies to avoid quote traffic congestion, including quote
mitigation strategies and increasing capacity, and individual or joint
action with respect to such strategies for ultimate approval and
implementation. The Commission believes that such joint discussions and
joint action are unlikely to have adverse effects on competition and
that any incidental effects on competition will be outweighed by their
benefits to the public interest and the interests of investors. In this
respect, the Commission notes that the parties seeking this Order have
represented that the joint discussions contemplated by this Order will
be limited to strategies to avoid quote traffic congestion, including
quote mitigation strategies and strategies to increase capacity, in
response to the increase in options quote message traffic. In addition,
this Order covers only discussions in the presence of Commission staff
or actions that are approved by the Commission. For that reason, the
Commission staff will attend all joint discussions and will participate
in developing approaches in response to anticipated increases in
options quote message traffic.
The Commission finds that the public interest in maintaining fair
and orderly markets is furthered by requiring the Participants to work
jointly to evaluate issues resulting from increased message traffic and
to develop and recommend strategies to address problems resulting from
that increase. The Commission notes that there are various contexts in
which market participants are required by law to cooperate to achieve
certain national market system objectives. The Commission expects that
this cooperation will continue and does not require additional
authorization by the Commission. The Commission is issuing this Order
only because of recent and expected changes in the options markets, the
need for prompt development of appropriate response to those changes,
and the concerns expressed by some Participants about their ability to
meet collectively to address this situation.
Accordingly, the Commission has determined to issue an order
directing the Participants to cooperate with each other and to conduct
joint discussions and to take such joint action as is necessary or
advisable to plan and develop recommended strategies and approaches
with respect to anticipated increases in options quote message
traffic.\8\
---------------------------------------------------------------------------
\8\ The Commission reaches this conclusion without in any way
considering or deciding whether the conduct expressly authorized by
this Order is within the scope of the Commission's March 1981 Order
approving the OPRA plan, as amended.
---------------------------------------------------------------------------
It is hereby ordered, pursuant to Section 11A(a)(3)(B) of the Act,
that the AMEX, CBOE, NYSE, PCX, and PHLX, on their own behalf and
acting through their members, affiliated member associations, SIAC, and
OPRA, are directed to act jointly in planning, developing, and
discussing approaches and strategies with respect to options quote
message traffic (including, in particular, by participating in the SRI
study) to (1) recommend and propose,
[[Page 50128]]
individually or jointly, self-regulatory organization or Commission
rules or plan amendments in connection therewith, or (2) undertake
other strategies to avoid quote traffic congestion, including options
quote traffic mitigation strategies and strategies to increase
capacity. To the extent this Order may be construed as reflecting a
Commission finding that a particular discussion or action has no
adverse effect on competition, or that any such adverse effect is
outweighed by the benefits to the public interest and the interests of
investors, that finding is limited to discussions in the presence of
the Commission staff or actions formally approved by the Commission.\9\
---------------------------------------------------------------------------
\9\ In issuing this Order, the Commission intends to address
only the circumstances the Order expressly discusses. The Commission
believes that it would be inappropriate to draw any inference from
this Order concerning the Commission's views as to any conduct or
circumstance not addressed by the Order. In particular, other than
as described in this Order, the Commission expresses no conclusion
on any issue concerning joint conduct, whether occurring before or
after the date of this Order, or concerning the circumstances under
which the Commission would view such joint conduct as in the public
interest and the interests of investors.
---------------------------------------------------------------------------
It is hereby further ordered that this Order will be effective
until such time as the Commission adopts such rules or plan amendments
or September 1, 2000, whichever is earlier.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
Exhibit A
August 26, 1999.
Jonathan Katz, Secretary, Securities and Exchange Commission, 450
Fifth Street, NW, Washington, DC 20549
Dear Mr. Katz: The Securities Industry Automation Corp.
(``SIAC'') and Stanford Research, Inc. Consulting (``SRI'') have
been asked to conduct a study at the request of the Options Price
Reporting Authority (``OPRA'') to address issues raised by an
anticipated increase in options message traffic.
On behalf of the American Stock Exchange LLC, the Chicago Board
Options Exchange, Inc., the Pacific Exchange, Inc. and the
Philadelphia Stock Exchange, Inc., all of which are participants in
OPRA, we hereby request that the Securities and Exchange Commission
exercise its authority under Section 11A of the Securities Exchange
Act of 1934 (the ``Act'') to issue an order expressly authorizing
the self-regulatory organizations, including without limitation the
OPRA participants, on their own behalf and through their members and
member associations, to act jointly with each other and with SIAC in
planning, developing and discussing applications and strategies with
respect to options quote message traffic, in order to individually
or jointly recommend and propose individual or joint self-regulatory
organization or Commission rules or plan amendments in connection
therewith or to undertake other options traffic mitigation
strategies.
On March 18, 1981 the Commission approved the OPRA Plan. See
Securities Exchange Act Release No. 17638 (March 18, 1981). The OPRA
Plan, as amended, was developed:
in response to directives of the Securities and Exchange Commission
that provision be made for the consolidated reporting of
transactions in eligible options contracts * * * and in response to
the finding set forth in [the Act], 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.
The OPRA Plan was designed to enable the OPRA participants,
through OPRA, to ``make all policy decisions under the Plan,
including, but not limited to * * * setting standards governing the
method and format for reporting options last sale reports and
quotation information by [the national exchanges, among others].''
See Securities Exchange Act Release No. 34-40767 (Dec. 16, 1998), 63
Fed. Reg. 69354. The SIAC/SRI conducted study is intended to address
strategies for dealing with the anticipated increase in options
quote message traffic, and, accordingly, will require consideration
of policies and standards for managing quotation message traffic.
The OPRA participants believe that their joint action in
connection with the SIAC/SRI study is encompassed by the approved
OPRA Plan. Nonetheless, we request that the Commission authorize
expressly, by separate order, such joint discussions and joint
action by the self-regulatory organizations, including without
limitation the OPRA participants, on their own behalf and through
their members and member associations, consistent with Section 11A
of the Act, in order to eliminate any possible question that might
arise as to the authority of the OPRA participants on their own
behalf and through their members to cooperate with each other and
with SIAC and SRI to conduct joint discussions and to take such
joint action as is necessary or advisable to plan and develop
recommended strategies and approaches with respect to anticipated
increases in options quote message traffic or undertake other
options traffic mitigation strategies.
We have enclosed a draft order that has been the subject of
discussions with Commission staff.
Sincerely,
Colleen P. Mahoney
Enclosure
[FR Doc. 99-23991 Filed 9-14-99; 8:45 am]
BILLING CODE 8010-01-M