[Federal Register: May 19, 2004 (Volume 69, Number 97)]
[Notices]
[Page 28954-28956]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my04-87]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49691; File No. 4-429]
Joint Industry Plan; Notice of Filing of Joint Amendment No. 11
to the Options Intermarket Linkage Plan Relating to the Handling of
Satisfaction Orders
May 12, 2004.
Pursuant to Section 11A of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 11Aa3-2 thereunder,\2\ notice is hereby given
that on February 18, 2004, March 1, 2004, March 23, 2004, April 20,
2004, April 23, 2004, and April 28, 2004, the International Securities
Exchange, Inc. (``ISE''), the American Stock Exchange LLC (``Amex''),
the Chicago Board Options Exchange, Inc. (``CBOE''), the Pacific
Exchange, Inc. (``PCX''), the Philadelphia Stock Exchange, Inc.
(``Phlx''), and the Boston Stock Exchange, Inc. (``BSE''),
(collectively, the ``Participants''), respectively, filed with the
Securities and Exchange Commission (``Commission'') an amendment
(``Joint Amendment No. 11'') to the Plan for the Purpose of Creating
and Operating an Intermarket
[[Page 28955]]
Option Linkage (``Linkage Plan'').\3\ In proposed Joint Amendment No.
11, the Participants propose to change the manner in which the
Participants and their members process Satisfaction Orders \4\ sent to
them following a Trade-Through.\5\ The Commission is publishing this
notice to solicit comments from interested persons on the proposed
Joint Amendment No. 11 to the Linkage Plan.
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\1\ 15 U.S.C. 78k-1.
\2\ 17 CFR 240.11Aa3-2.
\3\ 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 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). On June 27,
2001, May 30, 2002, February 3, 2003, June 25, 2003, and January 29,
2004, the Commission approved joint amendments to the Linkage Plan.
See Securities Exchange Act Release Nos. 44482 (June 27, 2001), 66
FR 35470 (July 5, 2001); 46001 (May 30, 2002), 67 FR 38687 (June 5,
2002); 47274 (January 29, 2003), 68 FR 5313 (February 3, 2003);
48055 (June 18, 2003), 68 FR 37689 (June 25, 2003); and 49146
(January 29, 2004), 69 FR 5618 (February 5, 2004).
\4\ A ``Satisfaction Order'' is an order sent through the
Linkage to notify a Participant of a Trade-Through and to seek
satisfaction of the liability arising from that Trade-Through. See
Section 2(16)(c) of the Linkage Plan.
\5\ A ``Trade-Through'' is defined as a transaction in an
options series at a price that is inferior to the National Best Bid
or Offer. See Section 2(29) of the Linkage Plan.
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I. Description and Purpose of the Amendment
The purpose of proposed Joint Amendment No. 11 is to change the
manner in which the Participants process Satisfaction Orders following
a Trade-Through. Pursuant to the Linkage Plan, if a disseminated quote
that is traded through represents a customer order, a member
representing that order may send a Satisfaction Order.\6\ Upon receipt
of the Satisfaction Order, the member that initiated the Trade-Through
can either fill the Satisfaction Order, or cause the price of the
transaction that constituted the Trade-Through to be corrected to a
price at which a Trade-Through would not have occurred.\7\ While the
Participants believe this process generally works well, the experience
with the Options Intermarket Linkage (``Linkage'') to date has led the
Participants to agree to three changes to Satisfaction Order
processing.
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\6\ See Section 7(a)(ii)(D) & 8(c)(ii)(B)(2) of the Linkage
Plan.
\7\ See Section 8(c)(ii)(A) of the Linkage Plan.
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First, the Linkage Plan currently permits a Participant to send a
Satisfaction Order for the full size of the customer order traded
through, regardless of the size of the transaction that caused the
Trade-Through (although the Participant receiving the Satisfaction
Order that elects to execute it must limit its execution to the size of
the Trade-Through).\8\ The amendment proposes that the size of the
Satisfaction Order be limited to the lesser of the size of the customer
order traded through and the size of the transaction that caused the
Trade-Through.
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\8\ See Section 8(c)(ii)(B) of the Linkage Plan.
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Second, the Plan currently permits a Participant that sends a
Satisfaction Order through Linkage to reject the receiving
Participant's execution of the Satisfaction Order (a ``fill'') within
30 seconds of being notified of the fill if the customer order that
underlies the Satisfaction Order either has been executed on the
sending exchange or has been canceled while the Satisfaction Order is
being processed.\9\ The proposed amendment would clarify that the
customer order must be cancelled or executed prior to the receipt of
the Satisfaction Order fill report. However, if the order is filled or
canceled, there is currently no requirement in the Linkage Plan for the
Participant that sent the Satisfaction Order to cancel it while it is
still pending execution on another market. The Participants believe
that this aspect of the Linkage Plan leads to the rejection of
Satisfaction Order fills that may have been avoided had the
Satisfaction Order been canceled. To address this issue, the amendment
proposes a requirement that a Participant cancel a pending Satisfaction
Order that it sent through Linkage if the underlying customer order is
filled or canceled.
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\9\ See Section 8(c)(ii)(C) of the Linkage Plan.
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Third, as noted above, a Participant can reject a Satisfaction
Order fill if the underlying customer order is executed or cancelled
while the Satisfaction Order is pending. However, it is possible that
the member that initiated the Satisfaction Order could decide to trade
against the customer order before the member receives a notice from
another Participant that the Satisfaction Order has been filled. In
this case, the Participants believe that it would be inappropriate to
reject the fill. Accordingly, the proposed amendment would provide that
a Participant may not reject the fill of the Satisfaction Order when
the underlying customer order has been executed against the member that
initiated the Satisfaction Order.
II. Implementation of the Plan Amendment
The Participants propose to make the amendment to the Linkage Plan
reflected in this filing effective when the Commission approves the
amendment.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Joint Amendment
No. 11 is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml
); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number 4-429 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to Joint Amendment No. 11 to File
Number 4-429. This file number should be included on the subject line
if e-mail is used. To help the Commission process and review your
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed Linkage
Plan amendment that are filed with the Commission, and all written
communications relating to the proposed Linkage Plan amendment between
the Commission and any person, other than those that may be 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies
of such filing also will be available for inspection and copying at the
principal office of the Participants. All comments received will be
posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly.
All submissions should refer to Joint Amendment No. 11 to File
Number 4-429 and should be submitted on or before June 9, 2004.
[[Page 28956]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(29).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-11261 Filed 5-18-04; 8:45 am]
BILLING CODE 8010-01-P