30148 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

1 1 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).

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 exchanges that agreed to the

OPRA Plan are the American Stock Exchange

(‘‘Amex’’); the Chicago Board Options Exchange

(‘‘CBOE’’); the New York Stock Exchange (‘‘NYSE’’);

the Pacific Exchange (‘‘PCX’’); and the Philadelphia

Stock Exchange (‘‘Phlx’’).

2 15 U.S.C. 78k–1.

3Rule 11Aa3–2 establishes procedures for

initiating or approving amendments to national

market system plans such as the OPRA Plan.

Paragraph (b)(2) of Rule 11Aa3–2 permits the

Commission to propose amendments to an effective

national market system plan. Further, Paragraph

(c)(2) of Rule 11Aa3–2 requires that promulgation

of an amendment to an effective national market

system plan initiated by the Commission be by rule.

See 17 CFR 240.11Aa3–2(c)(2).

4 15 U.S.C. 78k–1(a)(2) and (3)(B); see also

Securities Exchange Act Release No. 17638 (March

18, 1981), as amended; see, e.g., Securities

Exchange Act Release No. 40767 (December 9,

1998), 63 FR 69354 (December 16, 1998).

5OPRA was granted registration as a securities

information processor by the Commission in 1976.

See Securities Exchange Act Release No. 12035

(January 22, 1976), 41 FR 4372.

6The NYSE sold its options business to the CBOE

in 1997. Nevertheless, the NYSE remains a

participant of OPRA. The International Securities

Exchange is seeking to become an OPRA

participant.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42755; File No. 4–434]

RIN 3235–AH92

Options Price Reporting Authority

AGENCY: Securities and Exchange

Commission.

ACTION: Proposed amendments to

national market system plan.

SUMMARY: The Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

is proposing amendments to the Options

Price Reporting Authority (‘‘OPRA’’)

Plan for Reporting of Consolidated

Options Last Sale Reports and

Quotation Information (‘‘OPRA Plan’’).

The proposed amendments set forth two

alternatives to establish a formula to

allocate the message capacity of the

OPRA system among the participant

exchanges. The allocation formula is

intended as a short-term solution to

OPRA capacity shortages.

DATES: Comments should be submitted

by June 9, 2000.

ADDRESSES: All comments should be

submitted in triplicate and addressed to

Jonathan G. Katz, Secretary, U.S.

Securities and Exchange Commission,

450 Fifth Street, NW, Washington, DC

20549–0609. Comments also may be

submitted electronically at the following

E-mail address: rule-comments@sec.gov.

All comment letters should refer to File

No. 4–434; this file number should be

included on the subject line if E-mail is

used. Comment letters will be available

for inspection and copying in the public

reference room at the same address.

Electronically submitted comment

letters will be posted on the

Commission’s Internet web site (http://

www.sec.gov).

FOR FURTHER INFORMATION CONTACT:

Deborah Flynn, Senior Special Counsel,

at (202) 942–0075, Kelly Riley,

Attorney, at (202) 942–0752, John

Roeser, Attorney, at (202) 942–0762,

Terri Evans, Special Counsel, at (202)

942–4162, and Heather Traeger,

Attorney, at (202) 942–0763, Division of

Market Regulation, Securities and

Exchange Commission, 450 Fifth Street,

NW, Washington, DC 20549–1001.

SUPPLEMENTARY INFORMATION: The

Commission is proposing amendments

to the OPRA Plan 1 to allocate among

the options exchanges OPRA’s peak

period message handling capacity. An

allocation formula is needed because of

OPRA’s inability to increase its systems

capacity within the short-term. Without

sufficient capacity, options market data

are delayed and, therefore, stale, which

reduces market transparency and

hampers efficient price discovery. When

this occurs, the only market participants

with up-to-date quote and trade

information are those physically on the

floor of a particular exchange. Those

participants then have an informational

advantage that is inconsistent with the

goal of a fair and open market for all

investors.

Consolidated options data offer

enormous benefits to investors and the

markets. The Commission is working

with the OPRA participants to increase

the capacity of the consolidated data

systems and to empower the markets to

individually ensure adequate data

capacity in the future. In the meantime,

an objective capacity allocation formula

is essential to ensure that scarce OPRA

systems capacity is allocated among the

options exchanges on a fair and

reasonable basis and that delays in the

dissemination of options market data to

the public are minimized.

An equitable allocation of capacity

should ensure that all broker-dealers

and investors have available to them

accurate and timely information with

respect to quotations for and

transactions in options and would help

to avoid delays and queues in the

dissemination of options market

information. The OPRA Plan

participants have been unable to

formulate an objective capacity

allocation model. The Commission,

therefore, is proposing these

amendments to the OPRA Plan on its

own initiative, pursuant to Section 11A

under the Securities Exchange Act of

1934 (‘‘Act’’) 2 and Rule 11Aa3–2

thereunder,3 and is seeking comment

from interested persons.

I. Background

In 1981, the Commission approved

the OPRA Plan as a national market

system plan, pursuant to Sections

11A(a)(2) and 11A(a)(3)(B) of the Act.4

The OPRA Plan governs the process by

which options market data are collected

from participant exchanges,

consolidated, and disseminated.5

Consolidated data help ensure that

broker-dealers, markets, and investors

have the best prices available for an

option, from all markets trading that

option class. It assists customers in

setting the terms of their orders and in

monitoring how well their brokers

execute their orders. Consolidated data

also assist brokers and markets in

providing the best execution possible

for an order.

Current OPRA participants include:

Amex, CBOE, PCX, Phlx, and NYSE.6 A

policy committee composed of

representatives from each participant

exchange implements and, subject to

Commission approval, amends the

policies and procedures set forth in the

OPRA Plan. This committee selected the

Securities Industry Automation

Corporation (‘‘SIAC’’) as the facility for

gathering the last sale and quote

information from each of the participant

exchanges and consolidating and

disseminating it to approved vendors.

All of the transactions executed on, and

price quotations for options generated

by, each options exchange are

communicated to the public by OPRA

through the facilities of its exclusive

processor, SIAC. The messages are sent

to OPRA and distributed to market data

vendors on a consolidated basis for use

by options market participants,

including retail investors, brokerdealers, and the exchanges themselves.

A. Systems Capacity

Each trade that is executed on an

options exchange, as well as each price

change quoted on an options exchange,

is reported to OPRA as a ‘‘message.’’

The options markets generate messages

for a substantial number of products.

Currently, there are approximately 3,300

equity securities and indexes

underlying listed options products, and

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30149

7A series is a class of options, either all puts or

all calls, on the same underlying security that have

the same exercise price and maturity date.

8For example, in February 2000, the average

number of quotes per day was 37.5 million and the

average number of trades per day was 183,000.

9As discussed below, this tremendous increase in

message traffic may be attributed, in part, to the

increase in multiple listing of previously

exclusively-traded option classes that began in

August 1999.

10For example, on January 5, 2000, SIAC reported

a one-minute peak of 2,970 MPS and on January 25,

2000, SIAC reported a five-minute peak of 2,868

MPS.

11The International Securities Exchange (‘‘ISE’’)

was registered as a national securities exchange for

options trading on February 24, 2000. See Securities

Exchange Act Release No. 42455, 65 FR 11387

(March 2, 2000).

12Currently, unlike quotes for equity securities,

options price quotes currently are disseminated

without size. Options quotes are expected to be

disseminated with size in January 2001.

13On September 8, 1999, the Commission

ordered the options exchanges to participate in the

SRI quote mitigation study and to act jointly to

develop quote mitigation strategies. Commission

staff attended all meetings of this group. See

Securities Exchange Act Release No. 41843

(September 8, 1999), 64 FR 50126 (September 15,

1999).

more than 140,000 individual options

series.7 Trade and quote data are

generated continuously during the

hours that markets are open for each

options product listed on each options

exchange.

Quote message traffic represents the

vast majority of the options message

traffic generated.8 Generally, quotes are

generated automatically for individual

options series based on changes in the

underlying stock price or index value.

In other words, every time a price

changes for a particular equity security,

the quotes for all of the options on that

security or an index in which that

security is represented are automatically

updated on each exchange that trades

those options. This enormous amount of

quote message traffic is burdening the

OPRA system, which threatens to

compromise the reliability of options

market data disseminated to market

participants, including retail investors.

The number of messages generated by

the exchanges on a daily basis has been

growing exponentially. In January 1999,

OPRA reported an average of only about

17 million messages per day. By January

2000, OPRA reported an average of 40

million messages per day. And, on April

4, 2000, OPRA reported 74.3 million

messages.9

A more significant gauge of the level

of options market data is messages per

second. Messages per second, or ‘‘MPS,’’

is just that—the number of messages

(i.e., options trade and quote data)

reported to OPRA by the options

exchanges during any given second of a

trading day. The increases in this gauge

have been nothing less than staggering.

Between January 1998 and January

1999, OPRA reported an increase in one

and five minute peaks from

approximately 600 messages per second

to approximately 1,400 messages per

second. By January 2000, OPRA’s

reported one and five minute peaks

reached approximately 2,900 messages

per second. Currently, the exchanges are

hitting OPRA’s current systems capacity

of 3,540 messages per second on an

almost daily basis.

In the past, OPRA had generally been

able to handle the peak messages per

second generated by the exchanges. In

January 1998, OPRA had systems

capacity to handle 600 messages per

second, with plans to upgrade its

systems to handle more messages per

second. In January 1999, OPRA had

capacity to handle 1,900 messages per

second and thus, was not in immediate

danger of a system overload based on

the peak messages per second reported.

In January 2000, however, OPRA

systems only had capacity to handle

approximately 3,000 messages per

second, which was dangerously close to

being met.10

The significant increase in message

traffic may be attributed to increased

volume on the exchanges, increased

volatility in the underlying equity

securities, and increased multiple

trading of previously exclusively-traded

options products across the options

exchanges. Dramatic growth in options

quote message traffic is expected to

continue in the near future as a new

exchange enters the market,11 products

begin to trade in decimals rather than

fractions, and quotes are disseminated

with size.12 The combination of these

factors could result in a peak MPS rate

as high as 38,000 MPS by the end of

2001, a ten-fold increase over existing

capacity.

B. OPRA’s Capacity Initiatives

As options message traffic has

increased exponentially over the last

few years, OPRA has directed SIAC to

implement technological updates to

accommodate the additional message

traffic. Over the last year, however, it

has become increasingly apparent that

the message traffic expected to be

generated by the options exchanges

cannot be accommodated by the

planned enhancements to the OPRA

system.

In response to the systems capacity

problems, OPRA, SIAC, as well as the

options exchanges and their members,

have worked to develop strategies to

mitigate quote message traffic. In 1999,

SIAC, at the request of the Commission,

retained Stanford Research Institute

(‘‘SRI’’) to conduct a study and to

recommend possible strategies aimed at

mitigating the amount of options quote

message traffic.13 As part of this study,

the options exchanges (including ISE),

SIAC, OPRA, and the Securities

Industry Association (‘‘SIA’’) met over a

period of six months to attempt to

develop quote reduction and mitigation

strategies.

A number of alternatives to reduce

options message traffic were considered

and SRI’s findings were presented to

Commission staff on December 14, 1999.

To date, the options exchanges have,

individually, implemented a number of

internal mitigation strategies. The

Commission expects the options

exchanges to continue to consider other

mitigation strategies that could be

implemented as both long-term and

short-term solutions. Nonetheless, quote

traffic has continued to strain OPRA

capacity.

II. Discussion

A. Purpose of the Proposed OPRA Plan

Amendment

As discussed above, the Commission

is greatly concerned about the lack of

available OPRA systems capacity to

accommodate the current and

anticipated levels of options message

traffic generated by the options

exchanges. The Commission is

concerned about the ability of OPRA to

disseminate options market data on a

real-time basis during times of high

message traffic or high volatility in the

equity markets. During these times,

when systems capacity is stretched to

the limit, OPRA data feeds may begin to

queue, leading to the dissemination of

stale market data to market participants.

The Commission is concerned that

without access to current market

information, investors and other market

participants will be unable to make

informed options trading decisions.

To address mounting capacity

problems, novel ways of obtaining

adequate capacity to support the

industry’s continued growth will need

to be identified, evaluated, and

implemented. The Commission

recognizes that wholesale changes to the

manner in which capacity is obtained

will not occur overnight. Therefore, the

options markets must continue to work

within the existing capacity

infrastructure for the short-term.

The options exchanges have

responded to this capacity crisis by

agreeing to allocate existing OPRA

systems capacity among themselves

30150 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

14 During peak periods when capacity caps are

imposed on the exchanges, the Commission

believes that it is unacceptable for any options

exchange to generate message traffic in excess of the

level allocated to it pursuant to an approved OPRA

Plan amendment. An exchange that transmits

message traffic through inbound OPRA lines in

excess of its allocation will cause queuing in the

OPRA system, and consequently, will result in the

dissemination of unreliable market data to all

market participants, including retail investors. The

options markets should take whatever steps are

necessary to prevent delays in their quotes stream

processed by OPRA. If an options exchange

inadvertently generates and transmits to OPRA

message traffic in excess of its allocation, the

Commission expects that the exchange will notify

the public that it has exceeded its established

allocation and as a result, its disseminated quotes

are likely to be unreliable.

15A cabinet would effectively inactivate those

options classes placed in the ‘‘cabinet,’’ so that the

options exchanges would provide quotes to market

participants only upon specific request, rather than

disseminating continuous, two-sided quotations.

16 16 See Securities Exchange Act Release Nos.

42328 (January 11, 2000), 65 FR 2988 (January 19,

2000) (order approving File No. SR–OPRA–00–01);

42362 (January 28, 2000), 65 FR 5919 (February 7,

2000) (order approving File No. SR–OPRA–00–02);

and 42493 (March 3, 2000), 65 FR 12597 (March 9,

2000) (order approving File No. SR–OPRA–00–03).

17The Commission proposes to include in the

allocation formula a requirement that the trading

volume of an option class meet certain minimum

thresholds on an exchange before that options class

will be counted for purposes of that exchange’s

allocation. As discussed below, this minimum

threshold requirement is intended to limit any

potential incentive for an exchange to add new

products solely to obtain an additional allocation of

capacity, without seriously committing to compete

for order flow in those classes.

18The Commission proposes that the calculation

be made on a quarterly basis to take into

consideration the potential effect of the expiration

cycle on the average quoting frequency and trading

volume in individual option classes. The

calculations would be based on quoting and trading

activity during a calendar quarter (e.g., January,

February, and March) and the allocations would be

effective beginning the second month following the

end of the calendar quarter (e.g., May 1).

19Proposed OPRA Plan Section III (m).

during peak periods,14 while continuing

to work on other short-term mitigation

strategies, including delisting classes

with little or no open interest and

developing a cabinet for inactive

options classes.15 To date, the options

markets have reluctantly agreed, on

three occasions, to allocate the existing

OPRA capacity among themselves

during peak periods through temporary

amendments to the OPRA Plan.16 The

capacity allocation used by the

exchanges has been based loosely on the

historical peaks experienced by each

options market, and determined through

negotiations among the markets. Despite

repeated urgings by Commission staff,

the options exchanges have been unable

to formulate an equitable, more

objective capacity allocation model,

which would include incentives for the

exchanges to reduce the excessive

quoting of existing listings or to add

new listings only with a sound business

rationale. The Commission notes that

each exchange has represented that the

total messages per second allocated to it

are insufficient to address its capacity

needs. The Commission is concerned

that the exchanges may be unable or

unwilling to continue to allocate scarce

OPRA capacity among themselves in the

near future. The Commission believes

the queuing that would undoubtedly

result is unacceptable because all

market participants would be subjected

to unreliable market data, including

stale quotes.

B. Two Alternative Proposed Capacity

Allocation Models

The Commission is proposing to

amend the OPRA Plan to establish a

capacity allocation formula to be used

in the short-term to allocate OPRA

systems capacity among the options

exchanges during peak periods. The

Commission is proposing the following

two alternative allocation models.

1. Alternative A

The first proposed capacity allocation

model would allocate capacity during

peak periods based on the average

quotation volume of options classes

listed on each exchange that have

sufficient trading volume to meet a

minimum threshold.17 The proposed

formula rewards quoting efficiency and

restricts the allocation of capacity to an

exchange in a particular options class in

which the exchange’s trading volume

does not exceed certain thresholds. The

Commission proposes that, on a

quarterly basis,18 OPRA would perform

the required allocation calculation itself

or contract with its processor or another

third party to do so. The information

necessary to calculate allocations

pursuant to the proposed formula is

based on quote and transaction data

reported routinely to OPRA by the

options exchanges pursuant to the

OPRA Plan. OPRA would notify the

options exchanges and the Commission

of the specific allocations for peak

periods that would be in place

beginning one month after the

calculation is made.

a. Included Classes

A critical element of the first

Commission proposal is the concept

that an exchange only receives a portion

of the available capacity for those option

classes in which the exchange’s trading

reaches some minimal threshold

(‘‘Included Classes’’).19 The

Commission is proposing that an

options class be considered an Included

Class for an exchange if during the

three-month period, that exchange

trades an average of: (i) 15 trades per

day, if the class is multiply-listed, or (ii)

30 trades per day, if the class is

exclusively-listed. Thus, an options

exchange would receive capacity credit

only for those options classes in which

it exceeds these minimum levels of

trading activity.

The Commission understands,

however, that there are a number of

ways to define the term Included Class.

For this reason, the Commission is also

seeking comment on several variations

of the proposed definition. Specifically,

the Commission seeks comment on

whether the proposed 15/30 threshold

levels are appropriate, or whether these

thresholds should be lower or higher.

For example, should an exchange only

have to have an average one trade per

day in a multiply-listed class for that

class to be an Included Class? The

Commission also seeks comment on the

threshold for considering an exclusively

traded options class as an Included

Class. Specifically, should the minimum

be on average 15 trades per day, or 45

trades per day, or another amount,

rather than 30 trades per day as

proposed? In addition, the Commission

would like commenters’ views on

whether the exchanges should have the

same average daily trading requirements

for multiply-listed classes and

exclusively-listed classes to be

considered Included Classes. If

commenters believe that multiply-listed

and exclusively-listed options should be

subject to the same minimum trading

volume standard, the Commission seeks

comment on what that standard should

be. Finally, the Commission seeks

comment on whether another measure,

such as an exchange’s average quarterly

ratio of quotes-to-contract volume in an

options class would be more

appropriate to use for determining

which classes are Included Classes for

an exchange.

To permit new entrants a fair

opportunity to compete with existing

exchanges, the Commission is also

proposing that all options classes listed

by a new options market be considered

Included Classes for 9 months. Only

after the new exchange has been

operating for nine months would the

minimum threshold levels be applied in

determining which options classes are

Included Classes for purposes of the

allocation of capacity.

The Commission recognizes the

highly competitive environment in

which the options exchanges operate.

As such, the Commission is carefully

considering whether the proposed

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30151

20The Commission defines an options class as a

‘‘new’’ listing if the listing exchange does not

currently list that class, regardless of whether

another options exchange has previously listed the

same option class.

21Proposed OPRA Plan Section III (m).

capacity allocation model should

include any special protections for new

listings.20 As the Commission strongly

encourages competition both within and

among the various options exchanges, a

short-term ‘‘safe harbor’’ was

contemplated for new listings (e.g.,

three to six months), during which time

the listing exchange would get credit

towards its allocation for the new

listing, even if it obtained little or no

order flow in the particular class. The

Commission’s desire to provide a safe

harbor for new listings was balanced

against its concern about the potential

that exchanges could abuse it by adding

new listings merely to obtain a larger

share of capacity and then, at the end of

the established safe-harbor period,

immediately delist those classes and

add new listings. To limit this potential,

the Commission proposes to include in

the formula for capacity allocation only

those options classes that meet the

minimum trading levels. The

Commission emphasizes that its

proposal does not in any way limit the

ability of the options exchanges to list

new option classes. Instead, the

proposed limits on what options classes

are considered Included Classes, relate

only to the extent to which a particular

exchange would receive an allocation

credit of capacity for a new listing.

b. Capacity Credit for Multiply and

Exclusively Listed Options Classes

For each options class that is listed on

more than one exchange, an exchange

for which such class is an Included

Class would be allocated capacity based

on the average quoting frequency during

the first half-hour of the trading day

after the opening rotation across all

exchanges for which such class is an

Included Class. By allocating capacity

based on the average level of quoting

across the exchanges trading a particular

option class, the Commission intends to

encourage quoting efficiency in

multiply-traded classes. For options

classes listed on only one exchange, an

exchange would be allocated capacity

based on the average quote traffic

generated within the first half-hour of

trading after the opening rotation, if the

exchange’s trading volume was

sufficient for that class to be an

Included Class.21 The Commission

seeks comment as to the propriety of

determining the average quoting

frequency of multiply-traded and

exclusively-traded options classes based

on the quoting activity occurring during

the first half-hour after the opening

rotation.

2. Alternative B

As an alternative to allocating

capacity based on the average quoting

frequency of those options classes in

which an exchange has sufficient

volume to meet certain minimum

thresholds, the Commission is

proposing to allocate capacity using a

modified equal share method.

Specifically, under the proposed equal

share method, capacity would be

allocated equally among all the options

exchanges with adjustments based on

the market’s ratio of quotes to contract

volume. The more efficient the market

(i.e., the fewer quotes to contracts), the

greater the allocation that market

receives. Any options classes listed by

an exchange during the preceding

calendar quarter would be excluded

from the ratio calculation. Excluding

new listings from the ratio calculation

would allow exchanges to list new

options classes without being penalized

in the allocation of capacity.

The equal allocation would be

adjusted by an exchange’s deviation

from the average ratio of quotes-tocontracts traded multiplied by a

dampening factor. The Commission is

proposing that the dampening factor be

10% for the first Quote-to-Contract

Volume Deviation calculation. The

dampening factor will be reduced by

one percent and a recalculation of the

Quote-to-Contract Volume Deviation

will be made if after the first calculation

any exchange’s capacity allocation falls

below a pre-determined minimum,

which the Commission is proposing to

be 15% of all OPRA capacity.

Recalculations of the Quote-to-Contract

Volume Deviation will continue,

reducing the dampening factor by one

percent for each successive

recalculation until all exchanges have at

least the 15% minimum capacity

allocation.

The Commission seeks comment on

Alternative B as proposed, and on

whether another relative performance

criteria, such as quotes-to-number of

trades, would be more appropriate. The

Commission also seeks comment on

what minimum portion of capacity an

exchange should be guaranteed. For

example, rather than 15%, is 10% a

more appropriate minimum? The

Commission also seeks comment about

the propriety of the proposed

dampening factor. Should the

dampening factor for the first

calculation be a factor other than 10%?

In addition, should the dampening

factor used in the recalculations be

reduced from the factor used in the first

calculation by a percentage other than

one percent?

III. Request for Public Comments

The Commission seeks comments on

adopting a capacity allocation formula,

as described in this release. In addition

to the requests for comments throughout

the release, the Commission seeks

comment on whether a capacity

allocation formula to allocate OPRA

systems capacity during peak periods is

necessary and should be adopted. If an

objective capacity allocation formula is

desirable, commenters should address

which of the Commission’s proposals

would most fairly allocate systems

capacity among the options exchanges

during peak periods. Commenters

should also address whether there are

any legal or policy reasons why the

Commission should consider a different

approach and a description of what that

approach should be. The Commission

seeks comment on the specific

proposals set forth, as well as on the

proposed calculation of the average

quoting frequency for multiply-traded

and exclusively-traded products and the

proposed treatment of new listings and

new entrants into the market.

Commenters should also address the

propriety of a quarterly allocation

calculation and whether OPRA

participants should be permitted to

perform the calculation, and under what

circumstances. In addition, the

Commission seeks comment on

whether, under either of the proposed

allocation alternatives, options

exchanges should receive capacity in

units that could be traded among the

options exchanges, with the resulting

transactions reported to the

Commission.

IV. Costs and Benefits of the Proposed

Plan Amendments

The Commission is considering the

costs and benefits of the proposed

amendment to the OPRA Plan.

A. Benefits

The Commission believes that some

form of capacity allocation should

provide significant short-term benefits

by avoiding delayed quotes. Currently,

OPRA has the capacity to handle

approximately 3,540 messages per

second and the exchanges are

approaching this level on an almost

daily basis. On March 15, 2000, OPRA

received 3,486 messages per second

over a five-minute period and 3,544

messages per second over a one-minute

period. The Commission believes that

without a capacity allocation formula

for peak message periods, peak message

30152 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

22 15 U.S.C. 78w(a).

23 15 U.S.C. 78c(f).

24Pub. L. No. 104–121, tit. II, 110 stat. 857.

25 5 U.S.C. 603(a).

26 15 U.S.C. 78k–1(a)(3)(B).

27 17 CFR 240.11Aa3–2.

28 17 CFR 240.11Aa3–2(b)(2).

traffic may regularly exceed OPRA’s

capacity, especially with the entry of the

ISE, the planned conversion to decimal

pricing, and the dissemination of

options quotes with size. If peak quoting

rates exceed OPRA’s systems capacity,

an unacceptable level of queuing may

occur and stale or selective market data

may be transmitted to market

participants and investors, thereby

reducing market transparency and

hampering efficient price discovery. As

a result, investors may be making

investment decisions based on stale or

delayed quote information.

The Commission believes that, until

sufficient capacity is available to the

options markets, the adoption of an

objective capacity allocation formula,

such as one of those proposed by the

Commission, should help to ensure that

scarce OPRA systems capacity is

allocated in an equitable manner. The

Commission further believes that the

adoption of objective criteria should

bring additional transparency and

consistency to the allocation process. By

using an objective capacity allocation

formula to determine each exchange’s

message traffic limitations during high

volume or high volatility times, the

Commission’s proposal should enable

the options markets to disseminate

options market data on a real-time basis,

which should foster competition.

Further, the proposal should maintain

efficient and orderly markets for options

by ensuring that current market data is

continuously available and reliable.

Finally, the proposal should encourage

each individual exchange to establish

and utilize efficient quote reduction

methods based on the amount of

message capacity it has been allocated,

thereby promoting efficiency.

B. Costs

Although the proposed capacity

allocation formulas have been tailored

to minimize the costs on any one

exchange, the Commission expects that

the options exchanges will experience

some burdens because capacity will be

limited during peak periods and the

exchanges will have to reduce message

traffic during peak times. This may

result in the exchanges taking steps to

delist or inactivate options that are not

being actively traded or reduce the

number of times that quotes can be

refreshed for certain options classes.

The Commission notes, however, that

the options exchanges have previously

agreed to allocate existing OPRA

capacity during peak periods on three

occasions, while continuing to work on

other short-term and long-term

mitigation strategies.

To assist the Commission in its

evaluation of the costs and benefits that

may result from the proposed

alternatives, commenters are requested

to provide analysis and data relating to

the anticipated costs and benefits

associated with the proposed allocation

alternatives, as well as any possible

anti-competitive impact of the proposed

alternatives. Specifically, the

Commission requests commenters to

address whether any of the proposed

alternatives would generate the

anticipated benefits or impose any costs

on U.S. investors or others.

V. Effects on Competition, Efficiency,

and Capital Formation

Commenters should consider the

proposed rule’s effect on competition,

efficiency and capital formation.

Section 23(a) of the Act 22 requires

that the Commission, when

promulgating rules under the Act, to

consider the anti-competitive effects of

such rules, if any, and to balance any

impact against the regulatory benefits

gained in furtherance of the purposes of

the Act. Section 3(f) of the Act 23

requires the Commission, when

engaging in rulemaking, to consider or

determine whether the action is

necessary or appropriate in the public

interest, and whether the action would

promote efficiency, competition, and

capital formation.

The Commission solicits comments

on the impact of the proposed rules on

competition. Specifically, the

Commission requests commenters to

address how the proposed rule would

affect competition between and among

the options exchanges, market

participants and investors. Further, the

Commission requests comment on the

proposal’s effect on efficiency and

capital formation.

For purposes of the Small Business

Regulatory Enforcement Fairness Act of

1996,24 the Commission is also

requesting information regarding the

potential impact of the proposed rule on

the economy on an annual basis. If

possible, commenters should provide

empirical data to support their views.

VI. Initial Regulatory Flexibility

Analysis

This Initial Regulatory Flexibility

Analysis (‘‘IRFA’’) has been prepared in

accordance with Section 3 of the

Regulatory Flexibility Act (‘‘RFA’’).25 It

relates to proposed amendments to the

OPRA Plan to establish a capacity

allocation model to allocate OPRA

systems capacity among the options

exchanges during peak periods.

A. Reasons for and Objectives of the

Proposal

Although the participant exchanges

have agreed to previous short-term

capacity allocations and continue to

work on short-term mitigation strategies,

they have been unable to formulate a

fair and objective capacity allocation

model, which would include

disincentives to quote existing listings

or to add new listings excessively

without a sound business rationale. The

Commission is proposing to amend the

OPRA Plan on its own initiative, until

a long-term solution to the options

industry’s capacity problems has been

implemented.

The objective of the proposed

capacity allocation model is to achieve

the statutory goals regarding the

maintenance of fair and orderly markets

to assure efficient execution of

securities transactions and the

availability to brokers, dealers, and

investors of information with respect to

quotations for, and transactions in,

securities. The adoption of an objective

capacity allocation model to allocate

fairly OPRA systems capacity among the

options exchanges during peak periods

until a long-term solution to the

capacity problem is achieved is

intended to prevent queuing and delays

in the dissemination of options market

information that would result in market

participants receiving unreliable market

data.

B. Legal Basis

Section 11A(a)(3)(B) of the Act 26

authorizes the Commission, by rule or

order, to authorize or require selfregulatory organizations (‘‘SROs’’) 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. Rule 11Aa3–2 27

establishes procedures for the proposal

of amendments to national market

system plans, such as the OPRA Plan.

Paragraph (b)(2) of Rule 11Aa3–2 28

states that the Commission may propose

amendments to an effective national

market system plan by publishing the

text of the amendment together with a

statement of purpose of the

amendments.

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30153

29 17 CFR 240.0–10(e).

30 17 CFR 240.11Aa3–1.

31 17 CFR 240.11Aa3–2(b)(2) and (c)(1).

32 15 U.S.C. 78k–1(a)(3)(B). Section 11A(a)(3)(B)

authorizes the Commission, in furtherance of its

statutory directive to facilitate the development of

a national market system, by rule or order, to

authorize or require SROs 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 subsystem

thereof) or one or more facilities thereof.

C. Small Entities Affected by the

Proposed Amendments

The proposal would directly affect

Amex, CBOE, ISE, PCX, and Phlx, none

of which are small entities. Paragraph

(e) of the Rule 0–10 29 states that the

term ‘‘small business,’’ when referring

to an exchange, means any exchange

that has been exempted from the

reporting requirements of Rule 11Aa3–

1.30 Thus, there would be no impact for

purposes of the RFA on small

businesses.

D. Reporting, Recordkeeping, and Other

Compliance Requirements

The proposals would not impose any

new reporting, recordkeeping, or other

compliance requirements.

E. Duplicative, Overlapping or

Conflicting Federal Rules

The Commission believes that there

are no rules that duplicate, overlap or

conflict with the proposed rules.

F. Significant Alternatives

The RFA directs the Commission to

consider significant alternatives that

would accomplish the stated objectives,

while minimizing any significant

economic impact on small entities. In

connection with the proposal, the

Commission considered the following

alternatives: (1) the establishment of

differing compliance or reporting

requirements or timetables that take into

account the resources available to small

entities; (2) the clarification,

consolidation, or simplification of

compliance and reporting requirements

under the Rule for small entities; (3) the

use of performance rather than design

standards; and (4) an exemption from

coverage of the Rule, or any part thereof,

for small entities. The Commission

believes that none of the above

alternatives is applicable. The OPRA

Plan participants are the only parties

that are subject to the requirements of

the OPRA Plan. The OPRA Plan

participants are all national SROs and,

as such, are not ‘‘small entities.’’

Therefore, the Commission does not

believe the alternatives are applicable to

the proposal.

G. Solicitation of Comments

The Commission encourages the

submission of comments with respect to

any aspect of this IRFA. In particular,

the Commission seeks comment on: (i)

the number of small entities, if any, that

would be affected by the proposed

amendment; and (ii) the impact that the

proposed amendment would have, if

any, on such entities. Such comments

will be considered in the preparation of

the Final Regulatory Flexibility

Analysis, if the proposed amendment is

adopted, and will be in the same public

file as comments on the proposed

amendments themselves. Comments

should be submitted in triplicate to

Jonathan G. Katz, Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW, Washington, DC 20549–

0609. Comments also may be submitted

electronically at the following e-mail

address: rule-comments@sec.gov. All

comment letters should refer to File No.

4–434; this file number should be

included on the subject line if e-mail is

used. Comment letters will be available

for public inspection and copying in the

Commission’s Public Reference Room.

Electronically submitted comment

letters also will be posted on the

Commission’s Internet web site (http://

www.sec.gov).

VII. Paperwork Reduction Act

The Paperwork Reduction Act does

not apply because the proposed

amendments do not impose

recordkeeping or information collection

requirements, or other collections of

information which require approval of

the Office of Management and Budget

under 44 U.S.C. 3501, et. seq.

VIII. Description of Alternative

Proposed Amendments to the OPRA

Plan

The Commission hereby proposes to

amend the OPRA Plan to provide for a

specific formula to allocate capacity

among the options exchanges during

peak usage periods pursuant to Rule

11Aa3–2(b)(2) and (c)(1) 31 and the

Commission’s authority under Section

11A(a)(3)(B) of the Act.32

Alternative A

* * * * *

III. Definitions

(a)–(k) No change.

(1) Relevant Calendar Quarter.

(i) For the capacity allocation

commencing on May 1 of each year, the

Relevant Calendar Quarter shall mean

the months of January, February, and

March.

(ii) For the capacity allocation

commencing on August 1 of each year,

the Relevant Calendar Quarter shall

mean the months of April, May, and

June.

(iii) For the capacity allocation

commencing on November 1 of each

year, the Relevant Calendar Quarter

shall mean the months of July, August

and September.

(iv) For the capacity allocation

commencing on February 1 of each year,

the Relevant Calendar Quarter shall

mean the months of October, November

and December.

(m) ‘‘Included Class’’ means any

options class listed by an OPRA

participant:

(i) For which such participant

executes during the Relevant Calendar

Quarter an average of at least 15 trades

per day if the options class is multiplylisted;

(ii) For which such participant

executes during the Relevant Calendar

Quarter an average of at least 30 trades

per day if the options class is

exclusively listed; or

(iii) That during the Relevant

Calendar Quarter has been trading

options for fewer than 270 calendar

days.

(n) An OPRA participant that is

operating an options market receives a

‘‘Capacity Credit’’ for each options class

that is an Included Class for that

participant equal to:

(i) For a multiply-traded options class,

the average quote messages generated

during the Relevant Calendar Quarter

by all OPRA participants, for which

such class is an Included Class, during

the first half-hour of trading after the

opening rotation is completed divided

by the number of such OPRA

participants; or 

(ii) For an exclusively-listed options

class, the average quote messages

generated during the Relevant Calendar

Quarter by the OPRA participant during

the first half-hour of trading after the

opening rotation is completed.

(o) ‘‘Allocation Percentage’’ for an

OPRA participant means the total of all

such participant’s Capacity Credits

divided by the total of all Capacity

Credits for all OPRA participants.

IV. No Change

V. (a)–(c) No Change

(d) Quarterly Calculation of Capacity

Allocation.

(i) On the first of February, May,

August and November of each year,

each OPRA participant that operates an

options exchange will receive an

allocation of OPRA’s peak period

systems capacity in an amount equal to

its Allocation Percentage multiplied by

the total OPRA systems capacity.

30154 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19–4.

(ii) OPRA will calculate the capacity

allocation specified in paragraph (d)(i)

as soon as possible after the end of the

Relevant Calendar Quarter. OPRA will

use data to make this calculation that is

provided to it by the OPRA participants.

Alternatively, OPRA can contract with

its processor or with another third party

to perform this calculation. OPRA will

notify the OPRA participants and the

Commission of the capacity allocation

for peak periods promptly after such

calculation is made.

(e) [d] Indemnification.

(i)–(ii) No change.

* * * * *

Alternative B

* * * * *

III. Definitions

(a)–(k) No change.

(l) Relevant Calendar Quarter.

(i) For the capacity allocation

commencing on May 1 of each year, the

Relevant Calendar Quarter shall mean

the months of January, February, and

March.

(ii) For the capacity allocation

commencing on August 1 of each year,

the Relevant Calendar Quarter shall

mean the months of April, May, and

June.

(iii) For the capacity allocation

commencing on November 1 of each

year, the Relevant Calendar Quarter

shall mean the months of July, August

and September.

(iv) For the capacity allocation

commencing on February 1 of each year,

the Relevant Calendar Quarter shall

mean the months of October, November

and December.

(m) ‘‘Quotes-to-Contract Volume’’ for

an OPRA participant means the average

daily quotes in options classes listed for

more than 3 calendar months generated

during the Relevant Calendar Quarter

by a participant divided by the average

daily contract volume traded in options

classes listed for more than 3 calendar

months by that participant during the

same calendar quarter.

(n) ‘‘Average Quotes-to-Contract

Volume’’ means the average Quote-toContract Volume of all OPRA

participants during the Relevant

Calendar Quarter computed by adding

together the Quotes-to-Contract Volume

for each participant and dividing by the

number of participants.

(o) ‘‘Quotes-to-Contract Volume

Deviation’’ for an OPRA participant is

calculated using the following formula:

(1—(Quotes-to-Contract Volume for

that OPRA participant/ Average Quotesto-Contract Volume)) * Dampening

Factor.

(d) ‘‘Equal Share’’ means one divided

by the number of OPRA participants

that are operating an options market.

(d) No Change

(d) (a)–(c) No change.

(d) Quarterly Calculation of Capacity

Allocation

(i) On the first of February, May,

August, and November of each year,

each OPRA participant that operates an

options exchange will receive an

allocation of OPRA’s systems capacity

in an amount equal to the sum of the

Equal Share and such participant’s

Quotes-to-Contract Volume Deviation.

For purposes of calculating the Quoteto-Contract Volume Deviation, the

Dampening Factor shall equal 10%.

(ii) Notwithstanding paragraph (d)(i),

in no event shall an OPRA participant

that operates an options exchange

receive a capacity allocation that is less

than 15% of OPRA’s systems capacity.

If the initial calculation of the Quote-toContract Volume Deviation results in an

options exchange receiving an

allocation of less than 15% of the total

OPRA system’s capacity, the Quote-toContract Volume Deviation will be

recalculated as follows:

a. The first recalculation shall consist

of a downward adjustment of the

Dampening Factor by 1% (i.e., to 9%)

applied to all OPRA participants.

b. If after the first recalculation, any

OPRA participant that operates an

options exchange still receives less than

15% of OPRA’s systems capacity, the

recalculations shall continue by

adjusting the Dampening Factor

downward by 1% until all OPRA

participants have at least 15% of

OPRA’s systems capacity.

(iii) OPRA will calculate the capacity

allocation specified in paragraph (d)(i)

as soon as possible after the end of the

Relevant Calendar Quarter. OPRA will

use data to make this calculation that is

provided to it by the OPRA participants.

Alternatively, OPRA can contract with

its processor or with another third party

to perform this calculation. OPRA will

notify the OPRA participants and the

Commission of the capacity allocation

for peak periods promptly after such

calculation is made.

(e) [d] Indemnification.

(i)–(ii) No change.

* * * * *

By the Commission.

Dated: May 4, 2000.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11680 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE

COMMISSION

[File No. 500–1]

In the Matter of Asthma Disease

Management, Inc.; Order of

Suspension of Trading

It appears to the Securities and

Exchange Commission that there is a

lack of current and accurate information

concerning the securities of Asthma

Disease Management, Inc., a Nevada

corporation, with its principal place of

business in Berlin, New Jersey.

Questions have been raised about the

adequacy and accuracy of publicly

disseminated information, concerning,

among other things, purported contracts

between Asthma Disease Management,

Inc. and three health maintenance

organizations: Cape Health Plan (f/k/a

Cape Medical) of Detroit, Michigan;

Horizon Mercy of Trenton, New Jersey;

and HMA of Philadelphia,

Pennsylvania.

The Commission is of the opinion that

the public interest and the protection of

investors require a suspension of trading

in the securities of the above-listed

company.

Therefore, it is ordered, pursuant to

section 12(k) of the Securities Exchange

Act of 1934, that trading in the abovelisted company is suspended for the

period from 9:30 a.m. EDT, May 8, 2000,

through 11:59 p.m. EDT, on May 19,

2000.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11798 Filed 5–8–00; 12:15 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42752; File No. SR–Amex–

00–18]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange LLC

Relating to Options Transaction Fees

for Non-Member Broker-Dealers

May 3, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby give that on April 7,

2000, the American Stock Exchange LLC

(‘‘Amex’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule