[Federal Register: October 28, 2004 (Volume 69, Number 208)]
[Notices]
[Page 62920-62921]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28oc04-96]
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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