[Federal Register: March 3, 2004 (Volume 69, Number 42)]
[Notices]
[Page 10080-10081]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr04-132]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49322; File No. SR-OPRA-2003-01]
Options Price Reporting Authority; Order Granting Permanent
Approval to an Amendment to the Plan for Reporting of Consolidated
Options Last Sale Reports and Quotation Information and Amendments No.
1 and 2 Thereto To Revise the Manner in Which the Options Price
Reporting Authority Engages in Capacity Planning and Allocates Its
Available System Capacity Among the Parties to the Plan
February 26, 2004.
On April 15, 2003, the Options Price Reporting Authority (``OPRA'')
submitted to the Securities and Exchange Commission (``Commission''),
pursuant to section 11A of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 11Aa3-2 thereunder,\2\ an amendment to the Plan
for Reporting of Consolidated Options Last Sale Reports and Quotation
Information (``OPRA Plan'' or ``Plan'').\3\ The proposed amendment
would revise the manner in which OPRA engages in capacity planning and
allocates capacity among the exchanges that are parties to the Plan. On
July 16, 2003 and October 12, 2003, respectively, OPRA submitted
Amendments No. 1 and 2 to the proposal.\4\ On November 21, 2003, the
Commission issued notice of and approved the proposal, as amended, on a
temporary basis not to exceed 120 days, and solicited comment on the
proposal.\5\ The Commission received no comments on the proposal, as
amended. This order approves the OPRA Plan amendment, as amended, on a
permanent basis.
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\1\ 15 U.S.C. 78k-1.
\2\ 17 CFR 240.11Aa3-2.
\3\ OPRA is a national market system plan approved by the
Commission pursuant to Section 11A of the Act and Rule 11Aa3-2
thereunder. 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 six participants to the OPRA Plan are
the American Stock Exchange LLC (``Amex''), the Boston Stock
Exchange, Inc. (``BSE''), the Chicago Board Options Exchange, Inc.
(``CBOE''), the International Securities Exchange, Inc., the Pacific
Exchange, Inc. (``PCX''), and the Philadelphia Stock Exchange, Inc.
(``Phlx'').
\4\ See letters from Michael L. Meyer, Counsel to OPRA, Schiff,
Hardin & Waite, to Deborah Flynn, Assistant Director, Division of
Market Regulation, Commission, dated July 15, 2003 (``Amendment No.
1'') and October 15, 2003 (``Amendment No. 2'').
\5\ See Securities Exchange Act Release No. 48822 (November 21,
2003), 68 FR 66892 (November 28, 2003).
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The proposed Plan amendment would revise the manner in which OPRA
engages in capacity planning and allocates its available system
capacity among the exchanges that are parties to the Plan. In addition,
proposed amendments to the OPRA Plan would make it clear that
participation in OPRA is limited to those self-regulatory organizations
(``SROs'') that are engaged in the business of providing a market for
the trading of securities options and other eligible securities under
the OPRA Plan.\6\ Furthermore, the functions and objectives of OPRA
would be specifically set forth in the OPRA Plan, most particularly in
the preamble to the Plan and in Section III(b) thereof. The proposed
amendment would make explicit in the preamble to the Plan that joint
action by the parties to the Plan is limited to those matters as to
which they share authority under the Plan, and then only to
circumstances where such joint action is necessary in order to fulfill
the functions and objectives of OPRA as stated in the Plan.
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\6\ The proposed amendment would revise the OPRA Plan in
response to the Commission's Order instituting public administrative
proceedings against four of OPRA's participant exchanges (Amex,
CBOE, PCX and Phlx, referred to collectively as the ``respondent
exchanges'') pursuant to Section 19(h)(1) of the Act, and
specifically in response to Section IV.B.c. of the Order (the
``Undertaking''). The Undertaking requires each of the four
respondent exchanges, acting jointly with all other options
exchanges, to modify the structure and operation of OPRA in various
ways that would eliminate undesirable joint and collective action in
the capacity planning and allocation process. See Order Instituting
Public Administrative Proceedings Pursuant to Section 19(h)(1) of
the Act, Making Findings and Imposing Remedial Sanctions. Securities
Exchange Act Release No. 43268, dated September 11, 2000 and
Administrative Proceeding File 3-10282 (``Order'').
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Under the proposed amendment to the OPRA Plan, OPRA would require
each party to the Plan from time to time to independently project the
capacity it would need and to privately submit requests for capacity
based on its projections to an Independent System Capacity Advisor
(``ISCA''), which would maintain these individual capacity projections
and requests in confidence. The Plan would require the ISCA to maintain
the confidentiality of this information, consistent with the provisions
of section III(g) of the Plan.\7\ Furthermore, confidential capacity-
related information obtained by the ISCA would not be used by the ISCA
in any of its other business activities in a manner that may result in
the information being made available to any of the parties to the Plan,
or to use it in any manner that is otherwise inconsistent with the
ISCA's obligation to hold the information in confidence.\8\
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\7\ See Amendment No. 2, supra note 4.
\8\ Guideline No. 1 of the Capacity Guidelines would require the
ISCA to maintain internal safeguards and procedures adequate to
assure that the requirements of the Plan pertaining to the
confidentiality of information provided to the ISCA would be
satisfied. In addition to the confidentiality requirements imposed
on the ISCA, the proposal would amend Section III(b) of the Plan to
make explicit the requirement that each person who performs
administrative functions for OPRA, including its Executive Director
and other officials and its processor, shall agree that any
nonpublic business information pertaining to any party shall be held
in confidence and not be shared with the other parties, except for
information that may be shared in connection with permitted joint
activities. The proposal would also make explicit in the preamble to
the Plan that the parties themselves are each obligated to take
reasonable steps to insure that their nonpublic business information
remains segregated and confidential from the other parties, except
for information that may be shared in connection with permitted
joint activities.
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The ISCA would then determine how and when to modify the OPRA
System in order to provide to each party the capacity it has requested
and how the cost of such modifications is to be allocated among the
parties, all in accordance with, and subject to, the proposed Capacity
Guidelines that are incorporated in the Plan as part of the proposed
amendment.
Moreover, future Plan amendments, including amendments to the
proposed provisions of the Plan pertaining to capacity planning and
allocation, would continue to require the unanimous approval of the
parties. However, decisions relating to the selection or termination of
the ISCA, certain changes to the authority of the ISCA, and changes to
the Capacity Guidelines may be authorized by a vote of 75% of the
parties. In addition, the selection of the ISCA would be required to be
filed with the Commission as an amendment to OPRA's national market
system plan. In accordance with this requirement, OPRA selected the
Options Clearing Corporation (``OCC'') to act as the ISCA.
After careful review, the Commission finds that the proposed OPRA
Plan amendment, as amended by Amendments No. 1 and 2, is consistent
[[Page 10081]]
with the requirements of the Act and the rules and regulations
thereunder.\9\ Specifically, the Commission believes that the proposed
OPRA Plan amendment, which would revise the manner in which OPRA
engages in capacity planning and the allocation of system capacity
among the exchanges that are parties to the Plan, is consistent with
section 11A of the Act \10\ and Rule 11Aa3-2 thereunder,\11\ in 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.
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\9\ In approving this proposed OPRA Plan amendment, the
Commission has considered its impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78k-1.
\11\ 17 CFR 240.11Aa3-2.
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Specifically, the Commission believes that OPRA's proposal to
require each party to the Plan to independently project the capacity it
would need and to confidentially submit to the ISCA requests for
capacity based on such projections is designed to eliminate joint
action by the OPRA participants in determining the amount of total
capacity to be procured and the allocation of such capacity. The
Commission notes that the proposal requires that the ISCA maintain
these individual capacity projections and requests in confidence, and
not use such confidential, capacity-related information in any of its
business activities that may result in the information being made
available to any of the parties of the Plan, or in any manner that is
inconsistent with its obligation to hold the information in confidence.
The Commission believes that these requirements provide additional
assurances that each exchange's non-public business information would
remain segregated and would not be made available to its competitors.
Furthermore, the Commission emphasizes that neither the Plan nor the
Capacity Guidelines should be construed in any manner that would permit
individual exchange capacity projections or requests or other
confidential, capacity-related information to be shared with the other
parties to the Plan.
The Commission believes that the proposed Capacity Guidelines
adequately provide for the allocation of capacity to new parties to
OPRA. Under Guideline No. 2 of the proposed Capacity Guidelines, a
prospective new options exchange would have to inform the ISCA, at
least 6 months prior to the time it proposes to commence trading, of
the initial amount of system capacity it would need. The ISCA would
then aggregate this request for capacity with the requests received
from the existing exchanges. Also, under Guideline No. 6 of the
proposed Capacity Guidelines, if the new party has not received the
capacity it has requested at the time it has commenced trading options,
and to the extent there is any excess capacity available in the system
that has not been provided to any of the parties, the ISCA would be
able to allocate to the new party all or a portion of any such excess
capacity to provide the new party with the amount of capacity
determined by the ISCA to be sufficient to satisfy the reasonable needs
of the new party until it has been provided with the capacity it
initially requested. These provisions in the proposed Capacity
Guidelines, which specifically contemplate new entrants and provide a
mechanism for them to acquire capacity, together with the prohibitions
imposed on the ISCA from using confidential capacity-related
information in any of its other business activities that may result in
the information being made available to any of the parties to the Plan
or in any manner inconsistent with the ISCA's obligations to hold such
information in confidence, are designed to ensure that the existing
exchanges would not be able to restrain new entrants from joining OPRA
and acquiring the capacity that they require.\12\
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\12\ The Commission notes that the BSE recently joined OPRA and
began operation of a fully electronic options exchange (``Boston
Options Exchange'' or ``BOX''). See Securities Exchange Act Release
No. 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (SR-BSE-
2002-15).
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Accordingly, to permit the exchanges to commence capacity planning
without the need for joint action, as required by the Order, the
Commission believes it is necessary or appropriate in the public
interest, for the protection of investors or the maintenance of fair
and orderly markets, to remove impediments to, and perfect mechanisms
of, a national market system to approve the proposed amendment to the
OPRA Plan on a permanent basis.
It is therefore ordered, pursuant to section 11A of the Act,\13\
and Rule 11Aa3-2 thereunder,\14\ that the proposed OPRA Plan amendment,
as modified by Amendments No. 1 and 2, (SR-OPRA-2003-01) is hereby
approved on a permanent basis.
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\13\ 15 U.S.C. 78k-1.
\14\ 17 CFR 240.11Aa3-2.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4717 Filed 3-2-04; 8:45 am]
BILLING CODE 8010-01-P