Options Price Reporting Authority: Options message traffic increase; study request by American Stock Exchange LLC et al.,
[Federal Register: September 15, 1999 (Volume 64, Number 178)]
[Notices]
[Page 50126-50128]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15se99-126]
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 filedan 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).
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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.
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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,
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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. 99-23991Filed9-14-99; 8:45 am]
BILLING CODE 8010-01-M
