[Federal Register Volume 67, Number 51 (Friday, March 15, 2002)]
[Notices]
[Pages 11727-11730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6256]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-45532; File No. SR-OPRA-2002-01]
Options Price Reporting Authority; Notice of Filing of a Proposal
To Establish Terms Governing the Provision by OPRA of a Best Bid and
Offer for Each of the Options Series Included in OPRA's Market Data
Service, and Governing Its Use by Vendors
March 11, 2002.
Pursuant to Rule 11Aa3-2 under the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 26, 2002, the
Options Price Reporting Authority (``OPRA''),\2\ submitted to the
Securities and Exchange Commission (``Commission'') an amendment to the
Plan for Reporting of Consolidated Options Last Sale Reports and
Quotation Information (``OPRA Plan''). The amendment would add to the
OPRA Plan terms governing the provision by OPRA of a best bid and offer
(``BBO'') for each of the options series included in OPRA's market data
service, and governing the use of the BBO by vendors. The Commission is
publishing this notice to solicit comments on the proposed amendment
from interested persons.
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\1\ 17 CFR 240.11Aa3-2.
\2\ OPRA is a national market system plan approved by the
Commission pursuant to Section 11A of the Exchange Act, 15 U.S.C.
78k-1, and Rule 11Aa3-2 thereunder, 17 CFR 240.11Aa3-2. 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 five
signatories to the OPRA Plan that currently operate an options
market are the American Stock Exchange, the Chicago Board Options
Exchange, the International Securities Exchange, the Pacific
Exchange, and the Philadelphia Stock Exchange. The New York Stock
Exchange is a signatory to the OPRA Plan, but sold its options
business to the Chicago Board Options Exchange in 1997. See
Securities Exchange Act Release No. 38542 (April 23, 1997), 62 FR
23521 (April 30, 1997).
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I. Description and Purpose of the Amendment
The proposed amendment would establish in the OPRA Plan, and in BBO
Guidelines that would be a part of the OPRA Plan, terms governing the
provision by OPRA of a consolidated BBO service that would show the
best
[[Page 11728]]
bid and offer for each options series that is included in OPRA's market
data service. The BBO for a given options series would show the number
of contracts included in the best bid and best offer for that series
subject to a minimum of ten contracts, and would identify the exchange
where the best bid is being quoted and where the best offer is being
quoted. In accordance with the proposed OPRA Plan amendment, OPRA
vendors would be required to include only the consolidated BBO for any
series of options included in the market data they provide to their
customers (together with last sale reports for each such series of
options), instead of having to show all bids and offers in all markets
for each such series as they are currently required to do.
Under the proposed OPRA Plan amendment, the BBO for any series of
options would be the highest bid and the lowest offer currently being
quoted on any of OPRA's participant exchanges. In the case of options
traded on two or more participant exchanges, if the same best bid or
offer is quoted on more than one exchange, the exchange that is quoting
at that price for the largest number of options contracts would be
identified as the exchange that is quoting the best bid or offer, and
if the same best bid or offer for the same number of options contracts
is quoted on more than one exchange, the exchange that was first in
time to quote that bid or offer for that number of contracts would be
identified as the BBO. Thus, the BBO would be prioritized, in order, on
the basis of price, size, and time.
The proposed BBO Guidelines provide that the minimum price
increment for purposes of the BBO is no less than five cents, and that
the minimum size increment for purposes of the BBO is no less than ten
contracts.\3\ This means that in order to displace the current BBO by
improving the price at which an options series is quoted, the price
improvement must be at least five cents per contract, and in order to
displace the current BBO by increasing the number of contracts covered
by a quote at the same price as the current BBO, the new bid or offer
must be for at least ten contracts more than the current BBO. This
would not preclude markets from entering bids and offers that improve
the current BBO by less than five cents (to the extent such quotes may
be permitted under applicable exchange rules) or that increase the
number of contracts by less than ten. However, in order to displace the
disseminated BBO, the price or size improvement must equal or exceed
these minimums.
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\3\ The minimum price variation for option quotes under the
rules of OPRA's participant exchanges is currently five cents for
options trading under $3.00 per share per option contract; See,
e.g., American Stock Exchange Rule 952.
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The adoption by OPRA of these minimum price and size increments
occurred after OPRA received input from its vendors and subscribers,
who view a BBO service that would enable OPRA to offer a meaningful
options market data service as a significant benefit. Additionally,
OPRA believes that the proposed BBO would require significantly less
data processing and transmission capacity on the part of vendors and
subscribers than is required by OPRA's full market data service. In
this respect, OPRA anticipates that the BBO service would mitigate the
huge increase in message traffic represented by OPRA's full service
over the past several years, and the concomitant increase in the
capacity required of vendors' and subscribers' systems in order to
handle the full service. By proposing minimum price and size increments
for purposes of the BBO at five cents and ten contracts respectively,
OPRA believes that it has attempted to strike a balance between the
need to show meaningful price and size improvement, and the need to
keep the capacity demands of the BBO service at a level that is
significantly less than the capacity demands of OPRA's full service.
OPRA states that its full market data service would continue to
include all disseminated bids and offers from all of OPRA's participant
exchanges and this information would continue to be available to
vendors of, and subscribers to, the full service. OPRA believes that
since major vendors may be expected to continue to offer the full OPRA
service, and since most if not all broker-dealer subscribers would
likely continue to subscribe to the full service in order to be able to
fulfill their best execution obligations to customers, broker-dealers
would have access to the same complete market data as they do today.
For this reason, OPRA believes that the new BBO service should be
viewed as an alternative to the full service for those persons who do
not require the full service, and who therefore do not need to maintain
the large systems needed to handle the full service.
The text of the amendment is set forth below. Text additions are in
italics, deletions are in brackets:
III. Definitions
* * * * *
(g) ``Quotation information'' means bids, offers, or related
information pertaining to quotations in eligible securities, including
information consisting of the BBO (as defined below) for eligible
securities.
* * * * *
(s) ``BBO'' (``Best Bid and Offer'') means at any time the highest
bid and the lowest offer for a given options series that is then
available in one or more of the options markets maintained by the
parties, as determined and disseminated by OPRA in accordance with
``BBO Guidelines'' adopted by the parties. The adoption of the initial
BBO Guidelines shall require the approval of all of the parties;
thereafter the BBO Guidelines may be amended from time to time by the
affirmative vote of at least 75% of the parties, subject in all cases
to being filed with and approved by the Commission.
* * * * *
V. Collection and Dissemination of Options Last Sale Reports and
Quotation Information
* * * * *
(c) Dissemination of Last Sale Reports, Quotation Information and
Other Information.
(i) The OPRA System shall provide for the uniform,
nondiscriminatory dissemination of consolidated options information, on
fair and reasonable terms over a network or networks to vendors,
subscribers and other approved persons. [Last sale reports and
quotation] Such information [with respect to eligible securities] shall
[be disseminated only through the OPRA System,] include consolidated
last sale reports and consolidated quotation information for all series
of options for which the parties are required to provide current market
information to OPRA in accordance with paragraphs (a)-(b) of this
Section V. Not later than ______ 2002,\4\ or upon the earlier
completion of modifications to the OPRA System necessary to enable the
System to carry the BBO, such information shall also include [and only]
the BBO for all such [reports] series of options. Once the BBO is
available through the OPRA System, OPRA may offer a complete options
market data service consisting of the BBO combined with consolidated
last sale reports and quotation information, or OPRA may offer a
limited service consisting of the BBO combined with consolidated last
sale reports only while separately continuing to offer last sale
[[Page 11729]]
reports and complete quotation information. Only such consolidated
market information and related information, together with other
information that satisfies the conditions of paragraph (iv) of this
Section V(c) or is approved by OPRA, shall be disseminated through the
System.
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\4\ OPRA represents that it will specify the date when the BBO
service will be in production by the filing of a subsequent
amendment to this proposal. See letter from Joseph P. Corrigan,
Executive Director, OPRA, to Deborah Flynn, Assistant Director,
Division of Market Regulation, Commission, dated February 25, 2002.
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* * * * *
VII. Vendors, Subscribers and Other Approved Persons
* * * * *
(b) Agreements. Agreements for the furnishing of options [last sale
reports and/or quotation] information shall be designed to insure that
such information is disseminated in an orderly, reliable and timely
fashion, and that it is available only to approved vendors, subscribers
and other approved persons. Such agreements may impose reasonable and
nondiscriminatory charges for the privilege of receiving such
information. OPRA may, in its discretion, contract separately for the
dissemination of last sale reports and quotation information, or it may
offer last sale reports and quotation information together in a single
contract. As provided in Section V(c), upon the availability of a BBO
through the OPRA System OPRA may contract separately for last sale
reports combined with the BBO, or it may offer last sale reports,
quotation information and the BBO together in a single contract. OPRA
may also contract separately for access to information and facilities
pertaining to FCO securities or index option securities.
Agreements with vendors shall provide that last sale reports and
quotation information may be received by vendors only for the purpose
of (A) developing a data base that enables the vendor to respond to
inquiries from interrogation devices or other devices located in the
office of approved subscribers that are capable of displaying last sale
reports of transactions in, and/or quotations for, eligible securities
as they occur; (B) reporting changes in last sale reports and quotation
information through display devices located in the office of approved
subscribers; and (C) providing last sale reports and/or quotation
information to approved subscribers and to such other persons and in
such other forms as OPRA may approve. In furtherance of the foregoing
purposes, vendor agreements shall include provisions relating to the
following:
(i) There shall be uniform specifications governing the manner in
which last sale reports and quotation information are transmitted by or
on behalf of OPRA to vendors. Such specifications may be different for
different categories of eligible securities;
(ii) There shall be standards governing the services provided by
vendors to subscribers which shall require that such services
facilitate dissemination of last sale reports and quotation information
in a manner that is consistent with applicable rules and regulations of
the Securities and Exchange Commission and that is not discriminatory
or contrary to the orderly operation and regulation of options markets;
(iii) Vendors shall not exclude reports or otherwise discriminate
on the basis of the market in which a transaction or quotation took
place, and the equipment used in connection with the display or
retrieval of last sale reports or quotation information shall be
capable of displaying all such reports or information regardless of the
market where a transaction or quotation took place, and, unless
exempted, shall identify such market, provided, however, that
agreements with vendors may provide that the requirements of this
paragraph (b)(iii) will be deemed to be satisfied if a vendor's market
data service includes last sale reports together with the BBO, or last
sale reports together with all bids and offers furnished by OPRA, for
each eligible security included in the service, notwithstanding that
the service may also include additional unconsolidated information in
respect of such security.
All agreements entered into between the parties and persons
receiving last sale reports and/or quotation information shall provide
that the respective reports and information covered thereunder remain
the property of the respective party on or in whose market the reported
transaction or quotation took place, and all contracts shall be
executed, and the fees collectable thereunder shall be billed and
collected, on behalf of all parties, except that OPRA may provide for
certain contracts pertaining exclusively to FCO securities or index
option securities to be executed, and certain fees pertaining to such
eligible securities to be billed and collected, on behalf of those
parties that provide a market in such eligible securities.
* * * * *
Options Price Reporting Authority
BBO Guidelines
Section V(c)(i) of the OPRA Plan provides for the dissemination by
OPRA of, among other things, a consolidated BBO. Section III(s) of the
OPRA Plan defines the BBO as the highest bid and lowest offer for a
series of options available in one or more of the options markets
maintained by the parties, as determined in accordance with ``BBO
Guidelines'' adopted by the parties to the Plan. The BBO Guidelines as
currently in effect are as follows:
1. Price/Time Priority. The BBO is determined on the basis of the
best price (highest bid and lowest offer) quoted first in time by a
market, provided that in order to displace the current best bid or
offer, a quote must improve the current quote by no less than five
cents.
2. Size Included in BBO. The BBO will include the actual size of
the included bid and offer, subject to a minimum size of 10 contracts.
A bid or offer at the same price as the current BBO but for a size
larger than the current BBO by no less than ten contracts will displace
the current BBO.
3. Market Identifier. The BBO as disseminated by OPRA will include
identification of the market quoting the best bid or best offer
comprising the BBO in accordance with these Guidelines.
4. Crossed or Locked Markets. Crossed or locked markets may be
shown as the BBO.
5. Excluded Quotes. Whenever quotes in a market are identified by
that market as not being firm, those quotes will be excluded for
purposes of determining the BBO. In addition, if, based on information
provided by an exchange, the OPRA Processor determines that the
exchange is experiencing system problems resulting in the unreliability
of its quotes, the Processor will exclude those quotes from the BBO
determination until it determines that these problems have been
resolved.
II. Implementation of Plan Amendment
OPRA believes that its BBO service will be implemented upon the
approval of the proposed OPRA Plan amendment (including its proposed
BBO Guidelines) and promptly as practicable upon completion by OPRA's
processor of the systems modifications necessary for its
implementation. According to OPRA, its processor, the Securities
Industry Automation Corporation (``SIAC''), is not now in a position to
estimate when that work may be completed, since that depends upon
certain technical decisions that have not yet been made by OPRA.
However, OPRA has represented to the Commission that once SIAC is able
to provide such an estimate, OPRA will amend this filing to include the
latest date when the BBO service will go into production.\5\ In
addition, the introduction of OPRA's BBO service
[[Page 11730]]
will likely necessitate certain changes to OPRA's forms of Vendor
Agreement and Subscriber Agreements to make them conform to the revised
requirements of the Plan, and perhaps to OPRA's fee structure. OPRA
intends to file any such proposed amended agreements and fee changes
with the Commission in one or more separate filings that may need to
become effective prior to the implementation of the BBO service.
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\5\ Id.
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III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed OPRA
Plan amendment is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. Copies of the submission, all subsequent amendments, and
all written statements with respect to the proposed plan amendment that
are filed with the Commission, and all written communications relating
to the proposed plan amendment between the Commission and any person,
other than those withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of the filing
will also be available at the principal offices of OPRA. All
submissions should refer to File No. SR-OPRA-2002-01 and should be
submitted by April 5, 2002.
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(29).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6256 Filed 3-14-02; 8:45 am]
BILLING CODE 8010-01-P