Federal Register: April 10, 2001 (Volume 66, Number 69)
DOCID: FR Doc 01-8740
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-44145; File Nos. SR-Amex-01-18; SR-CBOE-01-15; SR-ISE- 01-07; SR-PCX-01-18; and SR-Phlx-01-37]
NOTICE: NOTICES
ACTION: Self-regulatory organizations; proposed rule changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations: Notice of Filing and Order Granting Partial Accelerated Approval for a Sixty Day Pilot Program of Proposed Rule Changes and Amendments by the American Stock Exchange LLC, the Chicago Board Options Exchange, Inc., the International Securities Exchange LLC, the Pacific Exchange, Inc., and the Philadelphia Stock Exchange, Inc. Relating to the Application of the Quote Rule to Options Trading
DOCUMENT SUMMARY:
April 2, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b4
[[Page 18663]]
thereunder,\2\ notice is hereby given that on March 15, 2001, the
American Stock Exchange LLC (``Amex''); on March 30, 2001, the Chicago
Board Options Exchange, Inc. (``CBOE''); on February 28, 2001, the
International Securities Exchange LLC (``ISE''); on March 29, 2001, the
Pacific Exchange, Inc. (``PCX''); and on March 12, 2001, the
Philadelphia Stock Exchange, Inc. (``Phlx'') (referred to collectively
as ``Exchanges'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule changes as described in
Items I and II below, which Items have been prepared by the Exchanges.\3\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ For ease of comparison and review, the Commission has
consolidated the proposed rule changes of the Exchanges into one
notice, which combines and summarizes the main provisions of the Exchanges' proposed rule changes.
Amex submitted to the Commission Amex Amendment No. 1 to its
proposed rule change on March 21, 2001 \4\ and Amex Amendment No. 2 on
March 28, 2001.\5\ CBOE filed CBOE Amendment No. 1 to its proposed rule
change on March 30, 2001.\6\ ISE submitted ISE Amendment No. 1 to its
proposal on March 30, 2001.\7\ The PCX submitted PCX Amendment No. 1 on
March 29, 2001.\8\ The Phlx submitted Phlx Amendment No. 1 to its
proposal on March 16, 2001 \9\ and Phlx Amendment No. 2 on March 29,
2001.\10\ The Commission is publishing this notice to solicit comments
on the proposed rule changes, as amended, from interested persons. As
discussed below, the Commission is also granting accelerated approval
to those portions of the proposals relating the implementation of
sixtyday pilot programs (``Pilots'') to accommodate the Exchanges'
efforts to amend their rules to conform to the Quote Rule by the compliance date of April 1, 2001.
\4\ In Amendment No. 1, Amex made technical corrections to its
rule text to, in part, better conform to Exchange Act Rule 11Ac11
(``Quote Rule''); clarified in a footnote that Nasdaq has begun
trading in decimals; and requested a 60 day pilot program to
accommodate the application of the Quote Rule to its market. See
letter from Claire P. McGrath, Vice President and Special Counsel,
Derivative Securities, Amex, to Nancy Sanow, Assistant Director,
Division of Market Regulation (``Division''), Commission, dated March 20, 2001 (``Amex Amendment No. 1'').
\5\ In Amendment No. 2, Amex made further corrections to its
rule text to better conform to the Quote Rule. See letter from
Claire P. McGrath, Vice President and Special Counsel, Derivative
Securities, Amex, to Nancy Sanow, Assistant Director, Division,
Commission, dated March 27, 2001 (``Amex Amendment No. 2'').
\6\ In Amendment No. 1, CBOE made technical corrections to its
rule text to, in part, better conform to the Quote Rule. See letter
from Madge M. Hamilton, Legal Division, CBOE to Nancy Sanow,
Assistant Director, Division, Commission, dated March 30, 2001 (``CBOE Amendment No. 1'').
\7\ In Amendment No. 1, ISE made technical corrections to its
rule text to, in part, better conform to the SEC's Quote Rule and
requested a 60day pilot program to accommodate the application of
the Quote Rule to its market. See letter from Michael Simon, Senior
Vice President and General Counsel, ISE, to Nancy Sanow, Assistant
Director, Division, Commission, dated March 29, 2001 (replacing Form 19b4 in its entirety) (``ISE Amendment No. 1'').
\8\ In Amendment No. 1, PCX made technical corrections to its
rule text to, in part, better conform to the Quote Rule. See letter
from Michael D. Pierson, Senior Vice President Regulatory Policy,
PCX, to John Roeser, Division, Commission, dated March 29, 2001 (``PCX Amendment No. 1'').
\9\ In Amendment No. 1, Phlx made technical corrections to its
rule text to, in part, better conform to the Quote Rule; requested a
60 day pilot program to accommodate the application of the Quote
Rule to its market; and clarified that the applicable firm quote
size will be the AUTOX guarantee or ten contracts for booked limit
orders. See letter from Richard S. Rudolph, Counsel, Phlx, to Nancy
J. Sanow, Assistant Director, Division, Commission, dated March 15, 2001 (``Phlx Amendment No. 1'').
\10\ In Amendment No. 2, Phlx made further technical corrections
to its rule text to conform to the Quote Rule; clarified that
responsible brokers or dealers were collectively responsible for
satisfying the disseminated size or quotation size; clarified the
responsibility of a responsible broker or dealer when acting as an
agent for a limit order; represented that Phlx would notify
specified persons of an unusual market condition through OPRA using an agreedupon indicator; and represented that Phlx will
periodically publish its established quotation size for broker
dealer orders on its web site. See letter from Richard S. Rudolph,
Counsel, Phlx, to Nancy J. Sanow, Assistant Director, Division,
Commission, dated March 28, 2001 (``Phlx Amendment No. 2'').
I. SelfRegulatory Organizations' Statement of the Terms of Substance of the Proposed Rule Changes
The Exchanges propose to amend their rules to conform to the
requirements of the Quote Rule. The text of the proposed rule changes
follows. New text is italicized and deleted text is bracketed. A. Amex Proposed Rule Text
Rule 958A. [Specialist Options Transactions]
[(a) Firm Quotes. At all times other than during rotation, a
specialist is required to sell (buy) at least ten (10) contracts at the
offer (bid) which is displayed when a buy (sell) order reaches the
trading post where the option class is located for trading. Option
series that are subject to this rule shall be determined from time to
time at the discretion of the Exchange. A Floor Official may determine
on a case by a case basis that an exception to the rule is warranted
for, among other things, a change in market conditions, an obvious
error occurring in the posting of the display market quote due to reporter errors or system malfunctions.
(b) Public Customer Definition. Only nonbrokerdealer customer
orders shall be entitled to executions pursuant to the provisions of
this rule. For purposes of this Rule, the term ``broker/dealer'' includes foreign broker/dealers.
(c) Registered Option Trader Orders. Specialists are not required
to display as a market quotation bids or offers of a Registered Option Trader for less than 10 contracts.
* * * Commentary
.01 Trade or Fade. With respect to brokerdealer orders to buy
(sell) at the displayed offer (bid), or portions of customer orders
that are not entitled to an execution pursuant to provisions of
paragraph (a), the specialist is required to either (1) sell (buy) the
number of contracts specified in the order, or (2) change the displayed
offer (bid) to reflect that such displayed offer (bid) is no longer
available. In such instance, where a displayed offer (bid) is revised,
it shall be considered conduct inconsistent with just and equitable
principles of trade for the specialist to immediately redisplay the
previously disseminated offer (bid), unless such action is warranted by a change in market conditions].
Application of the Firm Quote Rule
(a) Definitions(i) For purposes of this rule the terms
``aggregate quotation size'', ``best bid and best offer'', ``bid and
offer'', ``quotation size'', ``quotation vendor'', ``reported
security'', ``listed option'', ``option class'', ``option series'' and
``trading rotation'' shall have the meanings set forth in SEC Rule 11Ac11.
(ii) For purposes of this rule and SEC Rule 11Ac11 as applied to
the Exchange and its members, the term ``responsible broker or dealer''
shall mean, with respect to any bid or offer for any listed option made
available by the Exchange to quotation vendors, the specialist and any
registered options traders constituting the trading crowd in such
option series shall collectively be the responsible broker or dealer to the extent of the aggregate quotation size specified.
(b) Dissemination Requirements of the Exchangewith respect to
paragraph (b) of SEC Rule 11Ac11 and except as set forth in Commentary
.01 of this rule, the Exchange shall, at all times it is open for
trading, (A) collect, process and make available to quotation vendors
the best bid, the best offer, quotation sizes and aggregate quotation
sizes associated therewith for each option series that is a reported
security and for which a responsible broker or dealer is obligated to execute any
[[Page 18664]]
customer order as set forth in paragraph (c)(i) below; and (B) shall
for each listed option class, establish by rule and periodically
publish the quotation size for which the responsible broker or dealer
is obligated to execute an order for the account of a broker or dealer
to buy or sell an option series that is a reported security at its
published bid or offer as set forth in paragraph (c)(ii) below. The
Exchange may collect, process and make available to quotation vendors a
best bid or best offer determined by an automated quotation system.
The Exchange's obligation to collect, process and make available
data as set forth above shall not include (A) collecting processing or
making available any such bid or offer which is executed immediately
after being made in the crowd and any such bid or offer which is
cancelled or withdrawn if not executed immediately after being made; or
(B) data communicated during any period when trading in such reported
security has been suspended or halted; prior to the commencement of
trading in such reported security on any trading day; or during a
trading rotation. The minimum quotation size made available to
quotation vendors or established by rule and published by the exchange shall be ten contracts for each option series.
(c) Obligations of a Responsible Broker or DealerPursuant to SEC
Rule 11Ac11 each responsible broker or dealer for each series of each
listed option class shall promptly communicate to the Exchange its best
bid, best offer, quotation size and aggregate quotation size. No
responsible broker or dealer shall communicate a quotation size or
aggregate quotation size for less than ten contracts. This obligation
may be fulfilled by the use of an automated quotation system.
(i) Subject to the provisions of paragraph (d) of this rule, each
responsible broker or dealer shall be obligated to execute any customer
order in an option series in an amount up to its published quotation size.
(ii) Subject to the provisions of paragraph (d) of this rule, each
responsible broker or dealer shall be obligated to execute any order
for the account of a broker or dealer in a listed option in an amount
up to the quotation size established by rule and periodically published by the Exchange.
(iii) Subject to the provisions of paragraph (d) of this Rule, each
responsible broker or dealer shall comply with the Thirty Second
Response provisions set forth in paragraph (d)(3) of SEC Rule 11Ac11.
(d) Use of Unusual Market ExceptionNotwithstanding paragraphs (b)
and (c) above and pursuant to paragraph (b)(3) of SEC Rule 11Ac11, if
the Exchange determines, in accordance with the procedures set forth
below, that the level of trading activity or the existence of unusual
market conditions is such that the Exchange cannot collect, process and
make available to quotation vendors quotation data in a manner which
accurately reflects the current state of the market at the Exchange,
the Exchange shall immediately notify the persons specified in
paragraph (b)(3) of SEC Rule 11Ac11 below and, upon such notification,
the obligation imposed upon Exchange members under paragraph (c)(2) of
SEC Rule 11Ac11 and the Exchange under paragraphs (b)(1) and (2) of
SEC Rule 11Ac11 shall be suspended, until a determination by the
Exchange that the unusual market activity or condition has terminated
and the specified persons have been notified that the unusual market activity or condition has terminated:
(i) If a responsible broker or dealer is unable to update his
quotations on a timely basis due to the high level of trading activity
or the existence of an unusual market condition, he shall promptly notify a Floor Official.
(ii) Upon notification by a responsible broker or dealer, the Floor
Official shall promptly verify the existence of the unusual market
activity or condition and if, in his judgment, the responsible broker
or dealer is unable to update his quotations on a timely basis, the
Floor Official shall promptly notify the Market Operations Division of
the Exchange. If a Floor Official, independent of notification by a
responsible broker or dealer, becomes aware of any unusual market
activity or condition which adversely affects a responsible broker or
dealer's ability to promptly communicate quotation data, he shall likewise promptly advise the Market Operations Division.
(iii) If the Exchange is unable to accurately collect, process,
and/or disseminate quotation data owing to the high level of trading
activity or the existence of unusual market conditions, the Market
Operations Division of the Exchange, after consultation with a Floor
Official, shall make a determination that this is the case.
(iv) The Market Operations Division, after receiving notification
from a Floor Official pursuant to either subparagraphs (i) and (iii)
above, shall notify the persons specified in paragraph (b)(3) of SEC
Rule 11Ac11 regarding the Exchange's inability to accurately collect,
process, and make available the quotation data required by SEC Rule
11Ac11. The Exchange shall append to each quotation made available to
a quotation vendor an identifier which will indicate that the
obligation imposed upon Exchange members and the Exchange by SEC Rule 11Ac11 has been suspended.
(v) The Floor Official or the Market Operations Division (as the
case may be) shall monitor the unusual market activity or condition
until it has terminated. Thereupon, the Market Operations Division
shall immediately notify the persons specified in paragraph (b)(3) of
SEC Rule 11Ac11 that the Exchange is once again capable of
disseminating the quotation data required by Rule SEC 11Ac11 and
responsible brokers or dealers shall be once again obligated under SEC
Rule 11Ac11 as made applicable to Exchange members pursuant to this Rule 958A.
* * * * *
* * * Commentary
.01 As of April 1, 2001, the compliance date for application of
SEC Rule 11Ac11 to the trading of options, the Exchange is able to
disseminate to quotation vendors the quotation size or aggregate
quotation size of the best bid or best offer in most, but not all,
option classes. This is not expected to be a permanent condition and it
is anticipated that quotation sizes will be available for all option
classes shortly after the compliance date. However, until such time as
the Exchange is able to disseminate quotation size for all option
classes, for those option classes for which it is unable to do so, it
will collect, process and disseminate the best bid and best offer, and
establish by rule and periodically publish the quotation size for which
the responsible broker or dealer is obligated to execute a customer order to buy or sell an option series in that class.
.02 No specialist shall be deemed to be a responsible broker or
dealer with respect to a published bid or offer that is erroneous as a
result of an error or omission made by the Exchange or any quotation
vendor. If a published bid or published offer is accurate but the
published quotation size (or published aggregate quotation size, as the
case may be) associated with it is erroneous as a result of an error or
omission made by the Exchange or any quotation vendor, then the
specialist who is responsible for the published bid or published offer
shall be obligated to the extent set forth in paragraph (c) of Rule 11Ac11 but only to the extent of one
[[Page 18665]]
unit of trading in the reported security in question.
.03 Absent unusual market conditions, the responsible broker or
dealer shall honor any bid or offer then being displayed by quotation
vendors which is erroneous, up to the quotation size then being so
displayed, which has been displayed for six minutes or more. Provided,
however, that the specialist shall not be required to honor such a bid
or offer which is erroneous as to either price or size or both if:
(i) as a matter or record, an execution, cancellation or update of such bid or offer was in effect or in process;
(ii) in honoring such a bid or offer, the resulting transaction
would violate applicable Exchange rules or federal regulations;
(iii) equipment failure prevents the specialist from monitoring such bid or offer; or
(iv) the price sought upon such quotation is above the current bid
or below the current offer, on the Floor, by (a) $.25 or more in the
case of a reported security trading at $3 or less or (b) $.50 or more
in the case of a reported security trading at more than $3. B. CBOE Proposed Rule Text
Rule 8.51. [Trading Crowd] Firm Disseminated Market Quotes
(a) Rule 8.51. Definitions.
(1) For the purposes of this rule, and SEC Rule 11Ac11 as applied
to the Exchange and members on the floor, the term ``responsible broker
or dealer'' shall mean, with respect to any bid or offer for any
reported security made available by the Exchange to quotation vendors,
the trading crowd in a series or class of option, which shall be the
responsible broker or dealer to the extent of the quotation size specified in (b) or (c) of this rule.
(2) For purposes of this rule, the term ``reported security'' means
any security or class of securities for which transaction reports are
collected, processed and made available pursuant to an effective
national market system plan for reporting transactions in listed options.
(b) Firm Quote Requirement for Nonbrokerdealer Orders. All [The]
classes and series [which] shall be subject to the requirements of this
rule. [will be determined at the discretion of the appropriate Market Performance Committee (``MPC'').]
(1) The appropriate Floor Procedure Committee may establish the
firm quote requirement for each series of option, which shall be for at
least one contract, for nonbrokerdealer orders. The Exchange will
periodically publish the firm quote requirement for each series of
option. In the event the Exchange disseminates quotation size, the firm
quote requirement would be for up to the disseminated size.
[(1) Only nonbroker dealer customer orders shall be entitled to an
execution pursuant to the provisions of this paragraph (a). For the
purposes of this Rule, the term brokerdealer includes foreign broker dealers as defined in Rule 1.1(xx).]
(2) [The firm quote requirement shall be no less than the RAES
contract limit applicable to that class of options, except where the
RAES contract limit is more than fifty contracts for a particular
option class then the firm quote requirement shall be fifty contracts.
However, for those classes where the RAES contract limit is fifty or
less, the appropriate Floor Procedure Committee, in its discretion, may
establish a different firm quote requirement for a particular class of
options that is no less than the RAES contract limit and no more than
50 contracts. For classes or series that are not traded on RAES, the
appropriate Floor Procedure Committee may establish a firm quote
requirement of between 10 and 50 contracts; The firm quote requirement
applies at all times other than during rotation, unless there is a
contrary FloorOfficial ruling pursuant to subparagraph (3) of this paragraph (a).]
The firm quote requirement obligates [a trading crowd] the
responsible broker or dealer to sell(buy) at least the established
number of contracts at the offer(bid) which is displayed when [a] the
responsible broker or dealer receives a buy (sell) order [reaches] at
the trading station where the particular option class is located for
trading. [The Exchange may establish a higher firm quote requirement,
of up to 100 contracts, for the trading crowd for options on the Dow
Jones Industrial Average. Except in the case of rerouted RAES orders
that are eligible for the RAES kick out price in accordance with
Interpretation .04 to Rule 6.8, an order ordinarily will be deemed to
reach the trading station when a Floor Broker represents the order in open outcry at the trading station.]
(3) When orders for the same class (whether for the same series or
different series) from the same beneficial owner are represented at the
trading station at approximately the same time, then only the first of
such orders that cumulatively equal or add up to less than the firm
quote requirement shall be entitled to an execution pursuant to paragraphs (b) and (c) [(a)(2)] above.
[(4) On a case by case basis, any two Floor Officials may grant
exemptions to or suspend the provisions of this paragraph (a) for
either a class or series within a class if, in their determination, to
do so is in the interest of a fair and orderly market. Additionally,
any two Floor Officials may determine that an exemption to Rule 8.51(a)
is warranted, on a case by case basis, upon their determination that an
obvious error occurred in the posting of the disseminated market quote.]
[(5) The senior person then in charge of the Exchange's Control
Room shall have the authority to suspend the firm quote requirements of
this paragraph (a) with respect to a class of options if a system
malfunction or circumstance impairs the Exchange's ability disseminate
or update market quotes in a timely and accurate manner. After
exercising such authority, that senior person shall immediately seek
approval by two Floor Officials, who may confirm or overrule the
decision. If this authority is invoked, the Exchange's Control Room
will disseminate a message notifying the public that the displayed
quotes are not firm because of a data dissemination problem. Once the
problem has been corrected and the market quotes have been updated, the
suspension of the firm quote requirements of paragraph (a), shall be
lifted by either the senior person then in charge of the Exchange's Control Room, or by two Floor Officials.]
([b]c) Firm Quote Requirement for BrokerDealer Orders. The
appropriate Floor Procedure Committee may establish the firm quote
requirement for each series of option, which shall be for at least one
contract, for brokerdealer orders. The Exchange will periodically
publish the firm quote requirement for each series of option. In the
event the Exchange disseminates quotation size, if the disseminated
quotation size is for a lesser amount than the firm quote requirement,
then the brokerdealer firm quote requirement would be for the
disseminated size. For purposes of this Rule, the term brokerdealer
includes foreign brokerdealers as defined in Rule 1.1(xx). [With
respect to orders (or portions of orders) at the displayed offer (bid),
that are not entitled to an pursuant to the provisions of paragraph (a), the trading crowd is required to either
(1) sell (buy) the number of contracts specified in the order; or
(2) change the displayed offer (bid) to reflect that the previously displayed offer (bid) is no longer available.]
(d) Thirty Seconds Rule. Each responsible broker or dealer within
thirty seconds from receiving an order that is greater than the quotation size
[[Page 18666]]
established by paragraph (b) or (c) of this rule must:
(1) Execute the entire order; or
(2) (A) Execute that portion of the order equal to at least the
quotation size established by paragraphs (b) or (c) of this rule; and (B) Revise its bid or offer.
(e) Exemptions to Firm Quote Requirements. NonFirm Mode.
(1) With respect to paragraph (b)(3) of SEC Rule 11Ac11:
(i) Any two Floor Officials, on a case by case basis, for either a
class or series within a class, may make a determination, that the
level of trading activity or the existence of unusual market conditions
are such that the Exchange is incapable of collecting, processing and
making available to quotation vendors bids, offers and quotation sizes
with respect to one or more class or series within a class of option in
a manner which accurately reflects the current state of the market on
the floor. During any period that the market in a reported security is
in a nonfirm mode, the responsible broker or dealer shall be relieved
of their obligations under SEC Rule 11Ac11 as applicable to such
members under this Rule 8.51 with respect to such reported security,
but the responsible broker or dealer shall report bids and offers or
revised bids and offers in such reported security, for publication, on a ``best efforts'' basis; or
(ii) The senior person, then in charge of the Exchange's Control
Room, shall have the authority to suspend the firm quote requirements
of paragraphs (b) or (c) with respect to a class of options if he or
she determines that the level of trading activity or the existence of
unusual market conditions are such that the Exchange is incapable of
collecting, processing and making available to quotation vendors bids,
offers and quotation sizes with respect to one or more class or series
of option in a manner which accurately reflects the current state of
the market on the floor. After exercising such authority, that senior
person shall immediately seek approval by two Floor Officials, who may
confirm or overrule the decision. During any period that the market in
a reported security is in a nonfirm mode, the responsible broker
dealer shall be relieved of their obligations under SEC Rule 11Ac11 as
applicable to such members under this Rule 8.51 with respect to such
reported security, but the responsible broker or dealer shall report
bids and offers or revised bids and offers in such reported security, for publication, on a ``best efforts'' basis.
(iii) Whenever two Floor Officials or the senior person then in
charge of the Exchange's Control Room make a determination under
subparagraphs (i) or (ii) above with respect to any reported security,
the Exchange's Control Room will disseminate a message notifying the specified persons that the displayed quotes are not firm.
(iv) During any period that the market in a reported security is in
a nonfirm mode, the Floor Officials shall monitor the activity or
condition, which formed the basis for his or their determination. No
more than 30 minutes after such market has been designated to be in a
nonfirm mode, the DPM shall review the condition of such market with
the Floor Officials. Continuation of the nonfirm mode for longer than
30 minutes shall require the reaffirmation of the reviewing Floor
Officials. Such review and reaffirmation shall occur not less
frequently than every 30 minutes thereafter while the nonfirm mode is in effect.
(v) When the Exchange is once again capable of collecting,
processing and making available to quotation vendors bids and offers
with respect to a reported security that is in a nonfirm mode in a
manner which accurately reflects the current state of the market on the
floor then the senior person then in charge of the Exchange's Control
Room, or two Floor Officials shall lift the nonfirm mode designation.
Once the nonfirm mode designation has been lifted, responsible broker
dealers shall be obligated for the firm quote requirement as stated in paragraphs (b) or (c).
(2) No responsible broker or dealer shall be obligated to execute a
transaction for any listed option as provided in paragraphs (b) and (c) of this rule \11\ when:
\11\ This section is pursuant to SEC Rule 11Ac1(d)(4). The
responsible broker or dealer shall also be relieved of their obligations under SEC Rule 11Ac11(c)(2).
(i) (A) Prior to the presentation of an order to sell(buy), a
responsible broker or dealer has communicated to the exchange, a revised quotation size; or
(B) At the time an order to sell(buy) is presented, a responsible
broker or dealer is in the process of effecting a transaction in such
class and/or series of option, and immediately after the completion of
such transaction, it communicates to the exchange a revised quotation
size, such responsible broker or dealer shall not be obligated by
paragraphs (b), (c) or (d) of this Rule to sell(buy) that option in an amount greater than such revised quotation size.
(C) Before the order sought to be executed is presented, a
responsible broker or dealer has communicated to the exchange, a revised bid or offer; or
(D) At the time the order sought to be executed is presented, a
responsible broker or dealer is in the process of effecting a
transaction in such class or series of option, and, immediately after
the completion of such transaction, a responsible broker or dealer
communicates to the exchange, a revised bid or offer; provided,
however, that the responsible broker or dealer shall nonetheless be
obligated to execute any such order as provided in paragraphs (b) or
(c) of this rule at its revised bid or offer in any amount up to its published quotation size or revised quotation size; or
(ii) The order for the purchase or sale of a listed option is presented during a trading rotation in that listed option.
(f) Each member on the floor shall abide by such rules and
procedures adopted by the Exchange, in order to enable the Exchange to meet its quotation dissemination requirements. \12\
\12\ See SEC Rule 11Ac11.
* * * Interpretations and Policies:
.01 With respect to subsection [(a)] (b) of this Rule, if the
disseminated bid (offer) is on behalf of an order represented by a
Floor Broker, DPM, or OBO and is for less than the firm quote
requirement applicable for that class of options, [the trading crowd] a
responsible broker or dealer is obligated to buy or sell the necessary
number of contracts needed to make the disseminated quote firm for the firm quote requirement for that class of options.
.02 Where a Floor Broker, DPM, or OBO has caused a bid or offer to
be disseminated and the order is subsequently filled or canceled, the
Floor Broker, DPM, or OBO will be responsible for causing such
disseminated bid or offer to be removed. Failure to do so will result
in the Floor Broker, DPM, or OBO being responsible for satisfying the
firm disseminated quote commitment pursuant to subsection [(a)](b) or
(c) of this Rule. [A MarketMaker] Any member who has caused a bid or
offer to be disseminated is equally responsible for removing such bid or offer when he leaves the trading crowd.
[.03 In broadbased index options, orders for accounts exempted
from the firm quote treatment as defined in paragraph (a)(1) that in
each case are for less than the firm quote requirement applicable for
that class of options, and are represented in the crowd by a Floor
Broker or DPM need not be reflected in the displayed market quote. In
all option classes other than broadbased index option classes, orders for accounts
[[Page 18667]]
exempted from the firm quote treatment as defined in paragraph (a)(1)
that in each case are for less than ten contracts, and are represented
in the crowd by a Floor Broker or DPM need not be reflected in the
displayed market quote. However, a Floor Broker or DPM remains
obligated to use due diligence in the representation of such orders as set forth in Rule 6.73.]
.03[.04] Where a disseminated market quote is revised, as provided
for in paragraph (e) [(b)] of this Rule, it shall be considered conduct
inconsistent with just and equitable principles of trade for [the
trading crowd] a responsible broker or dealer immediately to redisplay
the previously disseminated market quote, unless such action is warranted by a change in market conditions.
.04[.05] Floor Officials may, as provided for under Rules 6.20(c)
and 17.50(g)(6), impose a fine on members of the trading crowd for
violations of this Rule and its Interpretations and Policies.
.05[.06] The requirement of paragraphs [subsection] (b) and (c) of
this Rule that [that the trading crowd] the responsible broker or
dealer must honor displayed quotations up to the firm quote requirement
subject to the conditions of the Rule applies not only to orders to buy
or to sell options, but also to twopart spread or straddle for
[equity] all options orders which may be executed at displayed
quotations for both parts of the order. This obligation of [the trading
crowd] a responsible broker or dealer applies to twopart orders where
the two sides are on opposite sides of the market in a onetoone
ratio, and extends to the amount of the firm quote requirement on each side of the order.
.06[.07] Pursuant to Rule 6.20 Interpretation .09, the reference
to any two Floor Officials in Rule 8.51 and its Interpretations and
Policies includes, but is not limited to, members of the appropriate Market Performance Committee.
.07[.08 Pursuant to Rule 6.6, if a] Under paragraph (e) of this
Rule, when two Floor Officials may determine that a market in a class
or series of option is fast [market is declared] pursuant to Rule 6.6,
the Floor Officials may determine the market constitutes a level of
trading activity or such unusual market conditions that the Exchange is
incapable of collecting, processing and making available to quotation
vendors bids, offers and quotation sizes in a manner that accurately
reflects the current state of the market on the floor, and thus,
suspend the firm quote requirement. [any two Floor Officials have the
power, but are not required, to suspend the firm quote requirement of Rule 8.51(a).]
.08[. 09] The trading crowd shall not be deemed to be a
responsible broker or dealer with respect to a published bid or offer
that is erroneous as a result of an error or omission made by the
Exchange or any quotation vendor. If a published bid or published offer
is accurate but the published quotation size (or published aggregate
quotation size, as the case may be) associated with it is erroneous as
a result of an error or omission made by the Exchange or any quotation
vendor, then the trading crowd responsible broker or dealer is
responsible for the published bid or published offer shall be obligated
to the extent set forth in paragraph (c) of Rule 11Ac11 but only to
the extent of one contract of the listed option in question. * * * * *
Rule 6.6. Unusual Market Conditions
* * * * *
(b) If a market is declared fast, any two Floor Officials shall
have the power to do one or more of the following with respect to the class or classes involved.
* * * * *
(iv) Suspend the firm quote requirement as permitted [of] under Rule 8.51[(a)].
* * * * *
Rule 6.20. Admission to and Conduct on the Trading Floor; Member Education
* * * * *
.09 Members of the appropriate Market Performance Committee may
perform the functions of a Floor Official for the purpose of enforcing
trading conduct policies, including but not limited to, enforcing
policies and acting pursuant to rules related to the Retail Automatic
Execution System, fast markets, and the firm quote requirement of Rule 8.51[(a)].
* * * * *
Rule 26.11. MarketMakers
* * * * *
[(e) Firm Disseminated Quotations. The trading crowd (including the
DPM) at the trading station for a class of market baskets is required
to sell (buy) one contract, or such greater number as shall be
indicated, at the offer (bid) which is displayed when a buy (sell) order reaches that trading station.]
Supplements Rule 8.5 and replaces Rules 8.3, 8.7, and 8.50 [and 8.51].
* * * * *
Rule 27.6. Application of Certain Rules to BOUNDs
For purposes of Rule 6.51, a transaction in BOUNDs need not be identified as a put or a call. [The requirements contained in Rule 8.51 regarding trading crowd firm disseminated market quotes will not apply to BOUNDs.] For purposes of Rule 9.15, the requirement to deliver an Options Disclosure Document shall include the obligation to deliver any supplement thereto pertaining to BOUNDs with respect to any customer whose account is approved for trading in BOUNDs.
This Rule supplements Rules 6.51, [8.51] and 9.15
C. ISE Proposed Rule Text
Rule 804. Market Maker Quotations
(a) No change.
(b) Size Associated with Quotes. A market maker's bid and offer for
a series of options contracts shall be accompanied by the number of
contracts at that price the market maker is willing to buy from or sell
[at that price] to (i) Public Customers (the ``Public Customer Size'')
and (ii) NonCustomers (the ``NonCustomer Size''). Unless the Exchange
has declared a fast market pursuant to Rule 704, a market maker may not
initially enter a bid or offer [for] with a Public Customer Size of
less than ten (10) contracts. Where the size associated with a market
maker's bid or offer falls below ten (10) contracts due to executions
at that price and consequently the size of the best bid or offer on the
Exchange would be for less than ten (10) contracts, the market maker
shall enter a new bid or offer for at least ten (10) contracts, either
at the same or a different price. Every market maker bid or offer must have a NonCustomer Size of at least one (1) contract.
(c) No change.
(d) Firm Quotes. (1) [With respect to Public Customer Orders,
market] Market maker bids and offers are firm for Public Customer
Orders and NonCustomer Orders both under this Rule and Rule 11Ac11
under the Exchange Act (``Rule 11Ac11'') for the number of contracts
specified for each according to the requirements of paragraph (b) above
[associated with each, unless:]. Market maker bids and offers are not firm under this Rule and Rule 11Ac11 if:
(i) the Exchange determines that an exception is warranted, on a case by case basis, because of an obvious error; [or]
(ii) a system malfunction or other circumstance impairs the Exchange's ability to disseminate or update market
[[Page 18668]]
quotes in a timely and accurate manner[.];
(iii) the level of trading activities or the existence of unusual
market conditions is such that the Exchange is incapable of collecting,
processing, and making available to quotation vendors the data for the
option in a manner that accurately reflects the current state of the
market on the Exchange, and as a result, the market in the option is declared to be ``fast'' pursuant to Rule 704;
(iv) during trading rotations; or
(v) any of the circumstances provided in paragraph (c)(3) of Rule 11Ac11 exist.
(2) Within thirty seconds of receipt of a Public Customer Order
(NonCustomer Order) to buy or sell an option in an amount greater than
the Public Customer Size (NonCustomer Size), that portion of the order
equal to the Public Customer Size (NonCustomer Size) will be executed and the bid or offer price will be revised.
[(2) With respect to NonCustomer Orders, market makers must either
buy or sell the number of contracts specified in their quotes or change
their quotes to reflect that the previously displayed quote is no longer available.]
Paragraphs (e)(f): No change.
Rule 704. [Unusual Market Conditions] Collection and Dissemination of Quotations
[(a) Whenever an Exchange official who is designated by the Board
shall have the power to determines, because of an influx of orders or
other unusual conditions or circumstances and the interest of
maintaining a fair and orderly market so requires, such designated
Exchange official may declare the market in one or more classes of options contracts to be ``fast.'']
(a) Each market maker shall communicate to the Exchange its bid and
offers in accordance with the requirements of Rule 11Ac11 under the Exchange Act and the Rules of the Exchange.
(b) The Exchange will disseminate to quotation vendors the highest
bid and the lowest offer, and the aggregate quotation size associated
therewith that is available to Public Customer Orders, in accordance
with the requirements of Rule 11Ac11 under the Exchange Act. (c) Unusual Market Conditions.
(1) An Exchange official designated by the Board shall have the
power to determine that the level of trading activities or the
existence of unusual market conditions is such that the Exchange is
incapable of collecting, processing, and making available to quotation
vendors the data for the option in a manner that accurately reflects
the current state of the market on the Exchange. Upon making such a
determination, the Exchange shall designate the market in such option
to be ``fast.'' When a market for an option is declared fast, the
Exchange will provide notice that its quotations are not firm by appending an appropriate indicator to its quotations.
[(b)] (2) If a market is declared fast, designated Exchange
officials shall have the power to: (i) Direct that one or more trading
rotations be employed pursuant to Rule 701; (ii) suspend the minimum
size requirement of Rule 804(b); or (iii) take such other actions as
are deemed in the interest of maintaining a fair and orderly market.
[(c)] (3) The Exchange will monitor the activity or conditions that
caused a fast market to be declared, and a designated Exchange official
shall review the condition of such market at least every thirty (30)
minutes. Regular trading procedures shall be resumed by the Exchange
when a designated Exchange official determines that the conditions
supporting a fast market declaration no longer exist. The Exchange will
provide notice that its quotations are once again firm by removing the indicator from its quotations.
[(d)] (4) If the conditions supporting a fast market declaration
cannot be managed utilizing one or more of the procedures described
above [contained in paragraphs (b) of this Rule], then a designated
Exchange official shall halt trading in the class or classes so affected.
D. PCX Proposed Rule Text
para. 4935 Obligations of Market Makers
RULE 6.37(a)(c)No change.
[(d) Trade or Update. When an order is represented at a trading
post for execution at the currently disseminated bid or offer, Market
Makers or Lead Market Makers at the trading post, if they do not
satisfy the order in its entirety, shall lower their bid or raise their
offer. Thereafter, the dissemination of such revised bid or offer must
be maintained for a reasonable period of time, as specified in Commentary .09.]
Commentary:
.01.09No change.
[.10 For purposes of subsection (d), two minutes shall be presumed
to be ``reasonable'' period of time in which to maintain a revised bid
or offer. However, a revised market may be further revised before two minutes pass if the following market changes occur:
(1) A change in the market quote in the underlying security or a change in the size of the market quoted; or
(2) In the case of another option series on the same underlying
security, a quote change of twice the minimum price differential resulting from a customer order.
Two Floor Officials may grant exemption from the rule on a caseby
case basis if the individual situation warrants such action.] * * * * *
5221 [Guaranteed Markets] Firm Quotes
Rule 6.86Deleted in its entirety.
RULE 6.86 (a) Definitions
(1) For purposes of this Rule the terms ``bid and offer,''
``quotation size,'' ``quotation vendor,'' ``reported security,''
``listed option,'' ``option series'' and ``trading rotation'' will have the meanings set forth in SEC Rule 11Ac11.
(2) For purposes of this Rule and SEC Rule 11Ac11 as applied to
the Exchange and its members, the term ``Responsible Broker or Dealer''
means that with respect to any bid or offer for any listed option made
available by the Exchange to quotation vendors, the Lead Market Maker
and any registered Market Makers constituting the trading crowd in such
option series will collectively be the Responsible Broker or Dealer to the extent of the aggregate quotation size specified.
(b) Dissemination Requirements
(1) Price. The Exchange will, at all times that it is open for
trading, collect, process and make available to quotation vendors the
best bid and best offer for each option series that is a reported
security. The Exchange may collect, process and make available to
quotation vendors a best bid and best offer determined by an automated quotation system.
(2) Size. The Exchange will for each listed option, establish by
rule and periodically publish the quotation size for which the
Responsible Broker or Dealer is obligated to execute an order to buy or
sell an option series that is a reported security at its published bid or offer as set forth in subsection (c) below.
(3) The Exchange's obligation to collect, process and make available data as set forth above will not include:
(A) collecting, processing or making available any such bid or
offer that is executed immediately after being made in the trading
crowd and any such bid or offer that is cancelled or withdrawn if not executed immediately after being made; or
(B) data communicated during any period when trading in such
reported security: (i) has been suspended or halted; (ii) prior to the commencement
[[Page 18669]]
of trading in such reported security on any trading day; or (iii) during a trading rotation.
(c) Obligations of Responsible Brokers or Dealers
(1) Customer Orders. Except as provided in subsection (d), below,
each Responsible Broker or Dealer is obligated to execute any customer
order in a listed option series in an amount up to the quotation size
established by rule and periodically published by the Exchange. The
minimum quotation size established by rule and published by the
Exchange for customer orders will be 20 contracts for each option series.
(2) BrokerDealer Orders. Except as provided in subsection (d),
below each Responsible Broker or Dealer is obligated to execute any
order in a listed option for the account of a broker or dealer in an
amount up to the quotation size established by rule and periodically
published by the Exchange. The minimum quotation size established by
rule and published by the Exchange for brokerdealer orders will be one contract for each option series.
(3) Each Responsible Broker or Dealer, within thirty seconds of
receiving an order to buy or sell a listed option in an amount greater
than the quotation size required pursuant to subsections (c)(1) or (c)(2), above, must either:
(A) execute the entire order; or
(B) execute the portion of the order that is equal to the size
required pursuant to this subsection (c) and revise its bid or offer. (d) Exception for Unusual Market Conditions
(1) If the Exchange determines, in accordance with the procedures
set forth below, that the level of trading activity or the existence of
unusual market conditions is such that the Exchange cannot collect,
process and make available to quotation vendors quotation data in a
manner that accurately reflects the current state of the market at the
Exchange, the Exchange will immediately notify the persons specified in
SEC Rule 11Ac11(b)(3) and, upon such notification, the obligation
imposed upon Exchange members under SEC Rule 11Ac11(c)(2) and the
Exchange under subsection (b), above, will be suspended, until the
Exchange determines that the unusual market activity or condition has
terminated and the specified persons have been notified that the unusual market activity or condition has terminated.
(A) If a Responsible Broker or Dealer is unable to update its
quotations on a timely basis due to the high level of trading activity
or the existence of unusual market conditions, the Responsible Broker or Dealer will promptly notify a Floor Official.
(B) Upon notification by a Responsible Broker or Dealer, the Floor
Official will promptly verify the existence of the unusual market
activity or condition and if, in the Floor Official's judgment, the
Responsible Broker or Dealer is unable to update its quotations on a
timely basis, the Floor Official will promptly notify the Exchange. If
a Floor Official, independent of notification by a responsible broker
or dealer, becomes aware of any unusual market activity or condition
that adversely affects a Responsible Broker or Dealer's ability to
promptly communicate quotation data, the Floor Official will likewise promptly advise the Exchange.
(C) If the Exchange is unable to accurately collect, process, or
disseminate quotation data owing to a high level of trading activity or
the existence of unusual market conditions, the Exchange, after
consultation with a Floor Official, will make a determination that this is the case.
(D) The Exchange, after receiving notification from a Floor
Official pursuant to either subsection (A) or (B), above, will notify
the persons specified in SEC Rule 11Ac11(b)(3) regarding the
Exchange's inability to accurately collect, process, and make available
the quotation data required by SEC Rule 11Ac11. The Exchange will
append to each quotation made available to a quotation vendor an
identifier that will indicate that the obligation that is imposed upon
Exchange members and the Exchange by SEC Rule 11Ac11 has been suspended.
(E) The Floor Official or Exchange staff (as the case may be) will
monitor the unusual market activity or condition until it has
terminated. Thereupon, the Exchange will immediately notify the persons
specified in SEC Rule 11Ac11(b)(3) that the Exchange is once again
capable of disseminating the quotation data required by SEC Rule 11Ac1
1 and Responsible Brokers or Dealers will be once again obligated under SEC Rule 11Ac11.
Commentary:
.01 As of April 1, 2001, the compliance date for the application
of SEC Rule 11Ac11 to the trading of options, the Exchange will
collect, process and disseminate the best bid and best offer in each
option series, and establish by rule and periodically publish the
quotation size for which the responsible broker or dealer is obligated
to execute a customer order to buy or sell an option in that series.
.02 No Lead Market Maker or Marker Maker will be deemed to be a
Responsible Broker or Dealer with respect to a published bid or offer
that is erroneous as a result of an error or omission made by the
Exchange or any quotation vendor. If a published bid or offer is
accurate but the published quotation size associated with it is
erroneous as a result of an error or omission made by the Exchange or
any quotation vendor, then the Lead Market Maker or Market Maker who is
responsible for the published bid or published offer will be obligated
to the extent set forth in SEC Rule 11Ac11(c), but only to the extent of one unit of trading in the option series in question.
E. Phlx Proposed Rule Text
Rule 1082. Firm Quotations
(a) Definitions
(i) The term ``disseminated price'' shall mean the bid (or offer)
price for an options series that is made available by the Exchange and
displayed by a quotation vendor on a terminal or other display device.
(ii) The term ``disseminated size'' shall mean with respect to the
disseminated price for any quoted options series, the AUTOX guarantee
for the quoted option, except that the disseminated size of bids and
offers of limit orders on the book shall be ten (10) contracts.
(iii) The term ``SEC Quote Rule'' shall mean Rule 11Ac11 under the Securities Exchange Act of 1934, as amended.
(iv) The terms ``customer,'' ``responsible broker or dealer,'' and
``specified persons'' shall have the meaning set forth in the SEC Quote Rule.
(b) Except as provided in paragraph (c) of this Rule, all
quotations made available by the Exchange and displayed by quotation
vendors shall be firm for customer orders at the disseminated price in
an amount up to the disseminated size. Responsible brokers or dealers
bidding (or offering) at the disseminated price shall be collectively
required to execute orders presented to them at such price up to the
disseminated size in accordance with Rule 1015, or, if the responsible
broker or dealer is representing (as agent) a limit order, such
responsible broker or dealer shall be responsible (as agent) up to the
size of such limit order, but may be responsible as principal for all
or a portion of the excess of the disseminated size over the size of such limit order to the extent provided in Rule 1015.
(c) The requirements of paragraph (b) or (d) of this Rule shall not apply to
[[Page 18670]]
displayed quotations: (i) when the level of trading activities or the
existence of unusual market conditions is such that the Exchange is
incapable of collecting, processing, and making available to quotation
vendors the data for a subject security required to be made available
pursuant to the SEC Quote Rule in a manner that accurately reflects the
current market on the Exchange as determined by two Floor Officials,
with the concurrence of the Director of Surveillance, or his designee;
(ii) during a trading rotation; (iii) if any of the circumstances
provided in paragraph (c)(3) of the SEC Quote Rule exist; or (iv) on a
case by case basis where it is determined that an exemption is
warranted for an obvious error in the posting of the disseminated price
or disseminated size due to reporter error or system malfunction. The
Exchange shall immediately notify all specified persons of such a
determination. Regular trading procedures shall be resumed when two
Floor Officials determine that the conditions supporting that
declaration no longer exist. The Exchange shall immediately notify all specified persons of such a determination.
Any exemption granted pursuant to paragraph (c)(iv) shall be in
writing and shall set forth the basis upon which the exemption is granted.
(d) In accordance with paragraph (d)(1)(ii) of the SEC Quote Rule,
the quotation size for a disseminated price with respect to an order
for the account of a broker or dealer (``brokerdealer order'') shall
be one (1) contract (``quotation size''), and all quotations made
available by the Exchange and displayed by quotation vendors shall be
firm for brokerdealer orders at the disseminated price in an amount up
to the quotation size. The quotation size for brokerdealer orders
provided in this paragraph (d) shall be periodically published by the
Exchange. Responsible brokers or dealers bidding (or offering) at the
disseminated price shall be collectively required to execute broker dealer orders at such price up to the quotation size.
(e) If responsible brokers or dealers receive an order to buy or
sell a listed option at the disseminated price in an amount greater
than the disseminated size (for customer orders) or the quotation size
(for brokerdealer orders), such responsible broker or dealer shall,
within thirty (30) seconds of receipt of the order, (i) execute the
entire order at the disseminated price (or better), or (ii) execute
that portion of the order equal to the disseminated size (in the case
of a customer order) or the quotation size (in the case of a broker
dealer order) at the disseminated price (or better), and revise its bid or offer.
A3 Requesting Market Quotations
A Specialist may request an ROT in the crowd to state his current
bid and offer (including size) for any series of options traded at the
post. A Specialist may request that staff or a Floor Official call for additional ROTs to enter the trading crowd.
A11 Responsibility to [Make TenUp Markets] Fill Customer Orders
(a) Execution [Quotation] Guarantees[Public] C[c]ustomer market
or marketable limit orders in any options series on the Exchange are to
be filled at the best market, in accordance with Rule 1082, to a
minimum of the disseminated size [ten contracts] by floor traders (i.e., Specialists and ROTs) in the crowd as follows:
(i) If only one floor trader is quoting the availed upon best bid
(or offer), that floor trader is responsible for providing a fill for the disseminated size [on the minimum ten contracts].
(ii) If more than one floor trader is quoting the availed upon best
bid (or offer), and their combined quote size is less than the
disseminated size [ten contracts], participation for the additional
contracts needed to meet the disseminated size [minimum ten contract]
requirement shall be decided upon agreement by those floor traders or otherwise divided proportionately among them.
(iii) If the availed upon best bid (or offer) is established by
someone other than a floor trader and is not for at least the
disseminated size [ten contracts], participation for the additional
contracts needed to meet the disseminated size [minimum ten contract]
requirement shall be supplied at that same price by the floor trader
with the immediately prior best bid (or offer). If more than one floor
trader was on the prior bid (or offer), participation for the
additional contracts shall be decided upon agreement by those floor
traders or otherwise divided proportionately among them. For example,
if a 2\1/4\ or 2.25 bid by an ROT is followed by a 2\1/2\ or 2.50 bid
for five contracts by a customer, the ROT who was bidding 2\1/4\ or
2.25 will be responsible for buying the other five contracts at 2\1/2\ or 2.50.
[(iv) ROT orders for less than ten contracts that are represented
at a trading post by a Floor Broker shall not be disseminated and shall
have no standing in the crowd. Floor Brokers shall otherwise remain
obligated to use due diligence in the representation of orders pursuant to Rule 155.]
([v]iv) The ``availed upon best bid (or offer)'' for purposes of
this Advice shall be the disseminated price (as defined in Rule 1082)
[crowd markets or the displayed or screen markets, whichever is better.
In the instance of a broker quoting a market on behalf of a tenup
eligible order, once the crowd market has been sought, the screen
market (if superior) is available on an immediate basis and if not availed upon the displayed market may be revised].
[(vi) In each case where the responsibility to make tenup markets
based on displayed or screen quotations generally applies, an exemption
will exist for the first three minutes following completion of the
rotation in each series for which a quotation update to the opening
quote has not yet occurred. While any such exemption is in effect, the
tenup market guarantee will be based on the crowd markets.]
([vii]v) Orders received by a member from a customer may not be
unbundled for the primary purpose of availing upon the execution
guarantee [ten up market] requirement, nor may a Firm solicit a
customer to unbundle an order for the primary purpose of availing upon the execution guarantee [ten up market requirement].
([viii]vi) Floor Brokers must make reasonable efforts to ascertain
whether each order entrusted to them is for the account of a customer
or a brokerdealer. If it is ascertained that the order is for the
account of a brokerdealer, the responsible Floor Broker must advise
the crowd of that fact prior to bidding/offering on behalf of the order
or executing the order. The responsible floor agent must legibly mark
the floor ticket as ``B/D'' when it has been determined that the order is for an account of a broker/dealer.
([ix]vii) The disseminated size requirement shall not apply when
Exchange quotations are not required to be firm pursuant to paragraph
(c) of Rule 1082. [Exemptions from the tenup requirement may be
granted by two Floor Officials with the concurrence of the Director of
Surveillance or his designee, (1) under exceptional circumstances or
for good cause shown (e.g., in fast market conditions) for all or part
of a trading session; or (2) on a casebycase basis where it is
determined that an exemption is warranted for an obvious error in the
posting of the displayed market quote due to reporter error or system
malfunction. Any such exemption shall be in writing and shall set forth the basis upon which the exemption is granted.]
(b) Trade or Fade When paragraph (e) of Rule 1082 is applicable to an order
[[Page 18671]]
received by a responsible broker or dealer, participation by
Specialists or ROTs above their stated size to fill the order
completely or meet the disseminated size requirement (for customer
orders) or the quotation size requirement (for brokerdealer orders)
shall be decided upon agreement by such Specialists or ROTs or otherwise divided proportionately among them.
[With respect to nonpublic customer orders to buy (sell) at the
displayed offer (bid), or portions of customer orders greater than the
minimum size guarantee in that option, the trading crowd is required to
either: (1) sell (buy) the number of contracts specified in the order;
or (2) change the displayed offer (bid) to reflect that the previously
displayed offer (bid) is no longer available.] Where the [a]
disseminated market quote of a responsible broker or dealer is revised,
as provided for in Rule 1082 [this paragraph], it shall be considered
conduct inconsistent with just and equitable principles of trade for
such responsible broker or dealer [the trading crowd] to immediately
redisplay its [the] previously disseminated market quote, unless such action is warranted by a change in market conditions.
F7 Bids and Offers
All bid and offer prices shall be general ones and shall not be specified for acceptance by particular members.
In the absence of a stated size to any bid or offer voiced or displayed on the Options Floor, the person responsible for such bid and offer is deemed to be quoting for one contract, except in those instances where predetermined volume guarantees are provided for the facilitation of specific account types. Floor traders (Specialists and ROTs) are [may], however, [be] required to trade more than one contract in connection with the execution of a customer order pursuant to [provisions under] Advice A11.
The size of any disseminated bid or offer by the Exchange shall be
equal to the AUTOX guarantee for the quoted option and shall be firm,
except that the disseminated size of bids and offers of limit orders on
the book [customer limit orders] shall be ten (10) contracts and shall be firm regardless of the actual size of such orders.
F10 Unusual [Extraordinary] Market Conditions [(Fast Markets)]
In the interest of maintaining a fair and orderly market under
unusual [trading] market conditions for one or more classes of options,
two Floor Officials, with the concurrence of the Director of
Surveillance or his designee, may [declare a ``fast market'' for these
options] determine that the level of trading activities or the
existence of unusual market conditions is such that the Exchange is
incapable of collecting, processing, and making available to quotation
vendors the data for a subject security required to be made available
pursuant to the SEC Quote Rule in a manner that accurately reflects the
current market on the Exchange. The Exchange shall immediately notify
all specified persons of such a determination. Regular trading
procedures shall be resumed when two Floor Officials determine that the
conditions supporting that declaration no longer exist. During the
period for which [a fast market is in effect] such a determination has
been made, displayed quotes for the respective options are not firm (as
required by Rule 1082) and volume guarantees of [Option] Advice A11
and Rule 1015 are not applicable, but the respective Specialists and
trading crowds are required to use best efforts to update quotes and
fill incoming orders in accordance with Advice A11 and Rule 1015. Rule 1015. [Quotation] Execution Guarantees
(a) Execution [Quotation] Guarantees[Public] C[c]ustomer market
or marketable limit orders in any options series on the Exchange are to
be filled at the best market, in accordance with Rule 1082, to a
minimum of the disseminated size [ten contracts] by floor traders (i.e., Specialists and ROTs) in the crowd as follows:
(i) If only one floor trader is quoting the availed upon best bid
(or offer), that floor trader is responsible for providing a fill for the disseminated size [on the minimum ten contracts].
(ii) If more than one floor trader is quoting the availed upon best
bid (or offer), and their combined quote size is less than the
disseminated size [ten contracts], participation for the additional
contracts needed to meet the disseminated s
SUMMARY:
American Stock Exchange LLC et al.,
DOCUMENT BODY 2:
April 2, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b4
[[Page 18663]]
thereunder,\2\ notice is hereby given that on March 15, 2001, the
American Stock Exchange LLC (``Amex''); on March 30, 2001, the Chicago
Board Options Exchange, Inc. (``CBOE''); on February 28, 2001, the
International Securities Exchange LLC (``ISE''); on March 29, 2001, the
Pacific Exchange, Inc. (``PCX''); and on March 12, 2001, the
Philadelphia Stock Exchange, Inc. (``Phlx'') (referred to collectively
as ``Exchanges'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule changes as described in
Items I and II below, which Items have been prepared by the Exchanges.\3\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ For ease of comparison and review, the Commission has
consolidated the proposed rule changes of the Exchanges into one
notice, which combines and summarizes the main provisions of the Exchanges' proposed rule changes.
Amex submitted to the Commission Amex Amendment No. 1 to its
proposed rule change on March 21, 2001 \4\ and Amex Amendment No. 2 on
March 28, 2001.\5\ CBOE filed CBOE Amendment No. 1 to its proposed rule
change on March 30, 2001.\6\ ISE submitted ISE Amendment No. 1 to its
proposal on March 30, 2001.\7\ The PCX submitted PCX Amendment No. 1 on
March 29, 2001.\8\ The Phlx submitted Phlx Amendment No. 1 to its
proposal on March 16, 2001 \9\ and Phlx Amendment No. 2 on March 29,
2001.\10\ The Commission is publishing this notice to solicit comments
on the proposed rule changes, as amended, from interested persons. As
discussed below, the Commission is also granting accelerated approval
to those portions of the proposals relating the implementation of
sixtyday pilot programs (``Pilots'') to accommodate the Exchanges'
efforts to amend their rules to conform to the Quote Rule by the compliance date of April 1, 2001.
\4\ In Amendment No. 1, Amex made technical corrections to its
rule text to, in part, better conform to Exchange Act Rule 11Ac11
(``Quote Rule''); clarified in a footnote that Nasdaq has begun
trading in decimals; and requested a 60 day pilot program to
accommodate the application of the Quote Rule to its market. See
letter from Claire P. McGrath, Vice President and Special Counsel,
Derivative Securities, Amex, to Nancy Sanow, Assistant Director,
Division of Market Regulation (``Division''), Commission, dated March 20, 2001 (``Amex Amendment No. 1'').
\5\ In Amendment No. 2, Amex made further corrections to its
rule text to better conform to the Quote Rule. See letter from
Claire P. McGrath, Vice President and Special Counsel, Derivative
Securities, Amex, to Nancy Sanow, Assistant Director, Division,
Commission, dated March 27, 2001 (``Amex Amendment No. 2'').
\6\ In Amendment No. 1, CBOE made technical corrections to its
rule text to, in part, better conform to the Quote Rule. See letter
from Madge M. Hamilton, Legal Division, CBOE to Nancy Sanow,
Assistant Director, Division, Commission, dated March 30, 2001 (``CBOE Amendment No. 1'').
\7\ In Amendment No. 1, ISE made technical corrections to its
rule text to, in part, better conform to the SEC's Quote Rule and
requested a 60day pilot program to accommodate the application of
the Quote Rule to its market. See letter from Michael Simon, Senior
Vice President and General Counsel, ISE, to Nancy Sanow, Assistant
Director, Division, Commission, dated March 29, 2001 (replacing Form 19b4 in its entirety) (``ISE Amendment No. 1'').
\8\ In Amendment No. 1, PCX made technical corrections to its
rule text to, in part, better conform to the Quote Rule. See letter
from Michael D. Pierson, Senior Vice President Regulatory Policy,
PCX, to John Roeser, Division, Commission, dated March 29, 2001 (``PCX Amendment No. 1'').
\9\ In Amendment No. 1, Phlx made technical corrections to its
rule text to, in part, better conform to the Quote Rule; requested a
60 day pilot program to accommodate the application of the Quote
Rule to its market; and clarified that the applicable firm quote
size will be the AUTOX guarantee or ten contracts for booked limit
orders. See letter from Richard S. Rudolph, Counsel, Phlx, to Nancy
J. Sanow, Assistant Director, Division, Commission, dated March 15, 2001 (``Phlx Amendment No. 1'').
\10\ In Amendment No. 2, Phlx made further technical corrections
to its rule text to conform to the Quote Rule; clarified that
responsible brokers or dealers were collectively responsible for
satisfying the disseminated size or quotation size; clarified the
responsibility of a responsible broker or dealer when acting as an
agent for a limit order; represented that Phlx would notify
specified persons of an unusual market condition through OPRA using an agreedupon indicator; and represented that Phlx will
periodically publish its established quotation size for broker
dealer orders on its web site. See letter from Richard S. Rudolph,
Counsel, Phlx, to Nancy J. Sanow, Assistant Director, Division,
Commission, dated March 28, 2001 (``Phlx Amendment No. 2'').
I. SelfRegulatory Organizations' Statement of the Terms of Substance of the Proposed Rule Changes
The Exchanges propose to amend their rules to conform to the
requirements of the Quote Rule. The text of the proposed rule changes
follows. New text is italicized and deleted text is bracketed. A. Amex Proposed Rule Text
Rule 958A. [Specialist Options Transactions]
[(a) Firm Quotes. At all times other than during rotation, a
specialist is required to sell (buy) at least ten (10) contracts at the
offer (bid) which is displayed when a buy (sell) order reaches the
trading post where the option class is located for trading. Option
series that are subject to this rule shall be determined from time to
time at the discretion of the Exchange. A Floor Official may determine
on a case by a case basis that an exception to the rule is warranted
for, among other things, a change in market conditions, an obvious
error occurring in the posting of the display market quote due to reporter errors or system malfunctions.
(b) Public Customer Definition. Only nonbrokerdealer customer
orders shall be entitled to executions pursuant to the provisions of
this rule. For purposes of this Rule, the term ``broker/dealer'' includes foreign broker/dealers.
(c) Registered Option Trader Orders. Specialists are not required
to display as a market quotation bids or offers of a Registered Option Trader for less than 10 contracts.
* * * Commentary
.01 Trade or Fade. With respect to brokerdealer orders to buy
(sell) at the displayed offer (bid), or portions of customer orders
that are not entitled to an execution pursuant to provisions of
paragraph (a), the specialist is required to either (1) sell (buy) the
number of contracts specified in the order, or (2) change the displayed
offer (bid) to reflect that such displayed offer (bid) is no longer
available. In such instance, where a displayed offer (bid) is revised,
it shall be considered conduct inconsistent with just and equitable
principles of trade for the specialist to immediately redisplay the
previously disseminated offer (bid), unless such action is warranted by a change in market conditions].
Application of the Firm Quote Rule
(a) Definitions(i) For purposes of this rule the terms
``aggregate quotation size'', ``best bid and best offer'', ``bid and
offer'', ``quotation size'', ``quotation vendor'', ``reported
security'', ``listed option'', ``option class'', ``option series'' and
``trading rotation'' shall have the meanings set forth in SEC Rule 11Ac11.
(ii) For purposes of this rule and SEC Rule 11Ac11 as applied to
the Exchange and its members, the term ``responsible broker or dealer''
shall mean, with respect to any bid or offer for any listed option made
available by the Exchange to quotation vendors, the specialist and any
registered options traders constituting the trading crowd in such
option series shall collectively be the responsible broker or dealer to the extent of the aggregate quotation size specified.
(b) Dissemination Requirements of the Exchangewith respect to
paragraph (b) of SEC Rule 11Ac11 and except as set forth in Commentary
.01 of this rule, the Exchange shall, at all times it is open for
trading, (A) collect, process and make available to quotation vendors
the best bid, the best offer, quotation sizes and aggregate quotation
sizes associated therewith for each option series that is a reported
security and for which a responsible broker or dealer is obligated to execute any
[[Page 18664]]
customer order as set forth in paragraph (c)(i) below; and (B) shall
for each listed option class, establish by rule and periodically
publish the quotation size for which the responsible broker or dealer
is obligated to execute an order for the account of a broker or dealer
to buy or sell an option series that is a reported security at its
published bid or offer as set forth in paragraph (c)(ii) below. The
Exchange may collect, process and make available to quotation vendors a
best bid or best offer determined by an automated quotation system.
The Exchange's obligation to collect, process and make available
data as set forth above shall not include (A) collecting processing or
making available any such bid or offer which is executed immediately
after being made in the crowd and any such bid or offer which is
cancelled or withdrawn if not executed immediately after being made; or
(B) data communicated during any period when trading in such reported
security has been suspended or halted; prior to the commencement of
trading in such reported security on any trading day; or during a
trading rotation. The minimum quotation size made available to
quotation vendors or established by rule and published by the exchange shall be ten contracts for each option series.
(c) Obligations of a Responsible Broker or DealerPursuant to SEC
Rule 11Ac11 each responsible broker or dealer for each series of each
listed option class shall promptly communicate to the Exchange its best
bid, best offer, quotation size and aggregate quotation size. No
responsible broker or dealer shall communicate a quotation size or
aggregate quotation size for less than ten contracts. This obligation
may be fulfilled by the use of an automated quotation system.
(i) Subject to the provisions of paragraph (d) of this rule, each
responsible broker or dealer shall be obligated to execute any customer
order in an option series in an amount up to its published quotation size.
(ii) Subject to the provisions of paragraph (d) of this rule, each
responsible broker or dealer shall be obligated to execute any order
for the account of a broker or dealer in a listed option in an amount
up to the quotation size established by rule and periodically published by the Exchange.
(iii) Subject to the provisions of paragraph (d) of this Rule, each
responsible broker or dealer shall comply with the Thirty Second
Response provisions set forth in paragraph (d)(3) of SEC Rule 11Ac11.
(d) Use of Unusual Market ExceptionNotwithstanding paragraphs (b)
and (c) above and pursuant to paragraph (b)(3) of SEC Rule 11Ac11, if
the Exchange determines, in accordance with the procedures set forth
below, that the level of trading activity or the existence of unusual
market conditions is such that the Exchange cannot collect, process and
make available to quotation vendors quotation data in a manner which
accurately reflects the current state of the market at the Exchange,
the Exchange shall immediately notify the persons specified in
paragraph (b)(3) of SEC Rule 11Ac11 below and, upon such notification,
the obligation imposed upon Exchange members under paragraph (c)(2) of
SEC Rule 11Ac11 and the Exchange under paragraphs (b)(1) and (2) of
SEC Rule 11Ac11 shall be suspended, until a determination by the
Exchange that the unusual market activity or condition has terminated
and the specified persons have been notified that the unusual market activity or condition has terminated:
(i) If a responsible broker or dealer is unable to update his
quotations on a timely basis due to the high level of trading activity
or the existence of an unusual market condition, he shall promptly notify a Floor Official.
(ii) Upon notification by a responsible broker or dealer, the Floor
Official shall promptly verify the existence of the unusual market
activity or condition and if, in his judgment, the responsible broker
or dealer is unable to update his quotations on a timely basis, the
Floor Official shall promptly notify the Market Operations Division of
the Exchange. If a Floor Official, independent of notification by a
responsible broker or dealer, becomes aware of any unusual market
activity or condition which adversely affects a responsible broker or
dealer's ability to promptly communicate quotation data, he shall likewise promptly advise the Market Operations Division.
(iii) If the Exchange is unable to accurately collect, process,
and/or disseminate quotation data owing to the high level of trading
activity or the existence of unusual market conditions, the Market
Operations Division of the Exchange, after consultation with a Floor
Official, shall make a determination that this is the case.
(iv) The Market Operations Division, after receiving notification
from a Floor Official pursuant to either subparagraphs (i) and (iii)
above, shall notify the persons specified in paragraph (b)(3) of SEC
Rule 11Ac11 regarding the Exchange's inability to accurately collect,
process, and make available the quotation data required by SEC Rule
11Ac11. The Exchange shall append to each quotation made available to
a quotation vendor an identifier which will indicate that the
obligation imposed upon Exchange members and the Exchange by SEC Rule 11Ac11 has been suspended.
(v) The Floor Official or the Market Operations Division (as the
case may be) shall monitor the unusual market activity or condition
until it has terminated. Thereupon, the Market Operations Division
shall immediately notify the persons specified in paragraph (b)(3) of
SEC Rule 11Ac11 that the Exchange is once again capable of
disseminating the quotation data required by Rule SEC 11Ac11 and
responsible brokers or dealers shall be once again obligated under SEC
Rule 11Ac11 as made applicable to Exchange members pursuant to this Rule 958A.
* * * * *
* * * Commentary
.01 As of April 1, 2001, the compliance date for application of
SEC Rule 11Ac11 to the trading of options, the Exchange is able to
disseminate to quotation vendors the quotation size or aggregate
quotation size of the best bid or best offer in most, but not all,
option classes. This is not expected to be a permanent condition and it
is anticipated that quotation sizes will be available for all option
classes shortly after the compliance date. However, until such time as
the Exchange is able to disseminate quotation size for all option
classes, for those option classes for which it is unable to do so, it
will collect, process and disseminate the best bid and best offer, and
establish by rule and periodically publish the quotation size for which
the responsible broker or dealer is obligated to execute a customer order to buy or sell an option series in that class.
.02 No specialist shall be deemed to be a responsible broker or
dealer with respect to a published bid or offer that is erroneous as a
result of an error or omission made by the Exchange or any quotation
vendor. If a published bid or published offer is accurate but the
published quotation size (or published aggregate quotation size, as the
case may be) associated with it is erroneous as a result of an error or
omission made by the Exchange or any quotation vendor, then the
specialist who is responsible for the published bid or published offer
shall be obligated to the extent set forth in paragraph (c) of Rule 11Ac11 but only to the extent of one
[[Page 18665]]
unit of trading in the reported security in question.
.03 Absent unusual market conditions, the responsible broker or
dealer shall honor any bid or offer then being displayed by quotation
vendors which is erroneous, up to the quotation size then being so
displayed, which has been displayed for six minutes or more. Provided,
however, that the specialist shall not be required to honor such a bid
or offer which is erroneous as to either price or size or both if:
(i) as a matter or record, an execution, cancellation or update of such bid or offer was in effect or in process;
(ii) in honoring such a bid or offer, the resulting transaction
would violate applicable Exchange rules or federal regulations;
(iii) equipment failure prevents the specialist from monitoring such bid or offer; or
(iv) the price sought upon such quotation is above the current bid
or below the current offer, on the Floor, by (a) $.25 or more in the
case of a reported security trading at $3 or less or (b) $.50 or more
in the case of a reported security trading at more than $3. B. CBOE Proposed Rule Text
Rule 8.51. [Trading Crowd] Firm Disseminated Market Quotes
(a) Rule 8.51. Definitions.
(1) For the purposes of this rule, and SEC Rule 11Ac11 as applied
to the Exchange and members on the floor, the term ``responsible broker
or dealer'' shall mean, with respect to any bid or offer for any
reported security made available by the Exchange to quotation vendors,
the trading crowd in a series or class of option, which shall be the
responsible broker or dealer to the extent of the quotation size specified in (b) or (c) of this rule.
(2) For purposes of this rule, the term ``reported security'' means
any security or class of securities for which transaction reports are
collected, processed and made available pursuant to an effective
national market system plan for reporting transactions in listed options.
(b) Firm Quote Requirement for Nonbrokerdealer Orders. All [The]
classes and series [which] shall be subject to the requirements of this
rule. [will be determined at the discretion of the appropriate Market Performance Committee (``MPC'').]
(1) The appropriate Floor Procedure Committee may establish the
firm quote requirement for each series of option, which shall be for at
least one contract, for nonbrokerdealer orders. The Exchange will
periodically publish the firm quote requirement for each series of
option. In the event the Exchange disseminates quotation size, the firm
quote requirement would be for up to the disseminated size.
[(1) Only nonbroker dealer customer orders shall be entitled to an
execution pursuant to the provisions of this paragraph (a). For the
purposes of this Rule, the term brokerdealer includes foreign broker dealers as defined in Rule 1.1(xx).]
(2) [The firm quote requirement shall be no less than the RAES
contract limit applicable to that class of options, except where the
RAES contract limit is more than fifty contracts for a particular
option class then the firm quote requirement shall be fifty contracts.
However, for those classes where the RAES contract limit is fifty or
less, the appropriate Floor Procedure Committee, in its discretion, may
establish a different firm quote requirement for a particular class of
options that is no less than the RAES contract limit and no more than
50 contracts. For classes or series that are not traded on RAES, the
appropriate Floor Procedure Committee may establish a firm quote
requirement of between 10 and 50 contracts; The firm quote requirement
applies at all times other than during rotation, unless there is a
contrary FloorOfficial ruling pursuant to subparagraph (3) of this paragraph (a).]
The firm quote requirement obligates [a trading crowd] the
responsible broker or dealer to sell(buy) at least the established
number of contracts at the offer(bid) which is displayed when [a] the
responsible broker or dealer receives a buy (sell) order [reaches] at
the trading station where the particular option class is located for
trading. [The Exchange may establish a higher firm quote requirement,
of up to 100 contracts, for the trading crowd for options on the Dow
Jones Industrial Average. Except in the case of rerouted RAES orders
that are eligible for the RAES kick out price in accordance with
Interpretation .04 to Rule 6.8, an order ordinarily will be deemed to
reach the trading station when a Floor Broker represents the order in open outcry at the trading station.]
(3) When orders for the same class (whether for the same series or
different series) from the same beneficial owner are represented at the
trading station at approximately the same time, then only the first of
such orders that cumulatively equal or add up to less than the firm
quote requirement shall be entitled to an execution pursuant to paragraphs (b) and (c) [(a)(2)] above.
[(4) On a case by case basis, any two Floor Officials may grant
exemptions to or suspend the provisions of this paragraph (a) for
either a class or series within a class if, in their determination, to
do so is in the interest of a fair and orderly market. Additionally,
any two Floor Officials may determine that an exemption to Rule 8.51(a)
is warranted, on a case by case basis, upon their determination that an
obvious error occurred in the posting of the disseminated market quote.]
[(5) The senior person then in charge of the Exchange's Control
Room shall have the authority to suspend the firm quote requirements of
this paragraph (a) with respect to a class of options if a system
malfunction or circumstance impairs the Exchange's ability disseminate
or update market quotes in a timely and accurate manner. After
exercising such authority, that senior person shall immediately seek
approval by two Floor Officials, who may confirm or overrule the
decision. If this authority is invoked, the Exchange's Control Room
will disseminate a message notifying the public that the displayed
quotes are not firm because of a data dissemination problem. Once the
problem has been corrected and the market quotes have been updated, the
suspension of the firm quote requirements of paragraph (a), shall be
lifted by either the senior person then in charge of the Exchange's Control Room, or by two Floor Officials.]
([b]c) Firm Quote Requirement for BrokerDealer Orders. The
appropriate Floor Procedure Committee may establish the firm quote
requirement for each series of option, which shall be for at least one
contract, for brokerdealer orders. The Exchange will periodically
publish the firm quote requirement for each series of option. In the
event the Exchange disseminates quotation size, if the disseminated
quotation size is for a lesser amount than the firm quote requirement,
then the brokerdealer firm quote requirement would be for the
disseminated size. For purposes of this Rule, the term brokerdealer
includes foreign brokerdealers as defined in Rule 1.1(xx). [With
respect to orders (or portions of orders) at the displayed offer (bid),
that are not entitled to an pursuant to the provisions of paragraph (a), the trading crowd is required to either
(1) sell (buy) the number of contracts specified in the order; or
(2) change the displayed offer (bid) to reflect that the previously displayed offer (bid) is no longer available.]
(d) Thirty Seconds Rule. Each responsible broker or dealer within
thirty seconds from receiving an order that is greater than the quotation size
[[Page 18666]]
established by paragraph (b) or (c) of this rule must:
(1) Execute the entire order; or
(2) (A) Execute that portion of the order equal to at least the
quotation size established by paragraphs (b) or (c) of this rule; and (B) Revise its bid or offer.
(e) Exemptions to Firm Quote Requirements. NonFirm Mode.
(1) With respect to paragraph (b)(3) of SEC Rule 11Ac11:
(i) Any two Floor Officials, on a case by case basis, for either a
class or series within a class, may make a determination, that the
level of trading activity or the existence of unusual market conditions
are such that the Exchange is incapable of collecting, processing and
making available to quotation vendors bids, offers and quotation sizes
with respect to one or more class or series within a class of option in
a manner which accurately reflects the current state of the market on
the floor. During any period that the market in a reported security is
in a nonfirm mode, the responsible broker or dealer shall be relieved
of their obligations under SEC Rule 11Ac11 as applicable to such
members under this Rule 8.51 with respect to such reported security,
but the responsible broker or dealer shall report bids and offers or
revised bids and offers in such reported security, for publication, on a ``best efforts'' basis; or
(ii) The senior person, then in charge of the Exchange's Control
Room, shall have the authority to suspend the firm quote requirements
of paragraphs (b) or (c) with respect to a class of options if he or
she determines that the level of trading activity or the existence of
unusual market conditions are such that the Exchange is incapable of
collecting, processing and making available to quotation vendors bids,
offers and quotation sizes with respect to one or more class or series
of option in a manner which accurately reflects the current state of
the market on the floor. After exercising such authority, that senior
person shall immediately seek approval by two Floor Officials, who may
confirm or overrule the decision. During any period that the market in
a reported security is in a nonfirm mode, the responsible broker
dealer shall be relieved of their obligations under SEC Rule 11Ac11 as
applicable to such members under this Rule 8.51 with respect to such
reported security, but the responsible broker or dealer shall report
bids and offers or revised bids and offers in such reported security, for publication, on a ``best efforts'' basis.
(iii) Whenever two Floor Officials or the senior person then in
charge of the Exchange's Control Room make a determination under
subparagraphs (i) or (ii) above with respect to any reported security,
the Exchange's Control Room will disseminate a message notifying the specified persons that the displayed quotes are not firm.
(iv) During any period that the market in a reported security is in
a nonfirm mode, the Floor Officials shall monitor the activity or
condition, which formed the basis for his or their determination. No
more than 30 minutes after such market has been designated to be in a
nonfirm mode, the DPM shall review the condition of such market with
the Floor Officials. Continuation of the nonfirm mode for longer than
30 minutes shall require the reaffirmation of the reviewing Floor
Officials. Such review and reaffirmation shall occur not less
frequently than every 30 minutes thereafter while the nonfirm mode is in effect.
(v) When the Exchange is once again capable of collecting,
processing and making available to quotation vendors bids and offers
with respect to a reported security that is in a nonfirm mode in a
manner which accurately reflects the current state of the market on the
floor then the senior person then in charge of the Exchange's Control
Room, or two Floor Officials shall lift the nonfirm mode designation.
Once the nonfirm mode designation has been lifted, responsible broker
dealers shall be obligated for the firm quote requirement as stated in paragraphs (b) or (c).
(2) No responsible broker or dealer shall be obligated to execute a
transaction for any listed option as provided in paragraphs (b) and (c) of this rule \11\ when:
\11\ This section is pursuant to SEC Rule 11Ac1(d)(4). The
responsible broker or dealer shall also be relieved of their obligations under SEC Rule 11Ac11(c)(2).
(i) (A) Prior to the presentation of an order to sell(buy), a
responsible broker or dealer has communicated to the exchange, a revised quotation size; or
(B) At the time an order to sell(buy) is presented, a responsible
broker or dealer is in the process of effecting a transaction in such
class and/or series of option, and immediately after the completion of
such transaction, it communicates to the exchange a revised quotation
size, such responsible broker or dealer shall not be obligated by
paragraphs (b), (c) or (d) of this Rule to sell(buy) that option in an amount greater than such revised quotation size.
(C) Before the order sought to be executed is presented, a
responsible broker or dealer has communicated to the exchange, a revised bid or offer; or
(D) At the time the order sought to be executed is presented, a
responsible broker or dealer is in the process of effecting a
transaction in such class or series of option, and, immediately after
the completion of such transaction, a responsible broker or dealer
communicates to the exchange, a revised bid or offer; provided,
however, that the responsible broker or dealer shall nonetheless be
obligated to execute any such order as provided in paragraphs (b) or
(c) of this rule at its revised bid or offer in any amount up to its published quotation size or revised quotation size; or
(ii) The order for the purchase or sale of a listed option is presented during a trading rotation in that listed option.
(f) Each member on the floor shall abide by such rules and
procedures adopted by the Exchange, in order to enable the Exchange to meet its quotation dissemination requirements. \12\
\12\ See SEC Rule 11Ac11.
* * * Interpretations and Policies:
.01 With respect to subsection [(a)] (b) of this Rule, if the
disseminated bid (offer) is on behalf of an order represented by a
Floor Broker, DPM, or OBO and is for less than the firm quote
requirement applicable for that class of options, [the trading crowd] a
responsible broker or dealer is obligated to buy or sell the necessary
number of contracts needed to make the disseminated quote firm for the firm quote requirement for that class of options.
.02 Where a Floor Broker, DPM, or OBO has caused a bid or offer to
be disseminated and the order is subsequently filled or canceled, the
Floor Broker, DPM, or OBO will be responsible for causing such
disseminated bid or offer to be removed. Failure to do so will result
in the Floor Broker, DPM, or OBO being responsible for satisfying the
firm disseminated quote commitment pursuant to subsection [(a)](b) or
(c) of this Rule. [A MarketMaker] Any member who has caused a bid or
offer to be disseminated is equally responsible for removing such bid or offer when he leaves the trading crowd.
[.03 In broadbased index options, orders for accounts exempted
from the firm quote treatment as defined in paragraph (a)(1) that in
each case are for less than the firm quote requirement applicable for
that class of options, and are represented in the crowd by a Floor
Broker or DPM need not be reflected in the displayed market quote. In
all option classes other than broadbased index option classes, orders for accounts
[[Page 18667]]
exempted from the firm quote treatment as defined in paragraph (a)(1)
that in each case are for less than ten contracts, and are represented
in the crowd by a Floor Broker or DPM need not be reflected in the
displayed market quote. However, a Floor Broker or DPM remains
obligated to use due diligence in the representation of such orders as set forth in Rule 6.73.]
.03[.04] Where a disseminated market quote is revised, as provided
for in paragraph (e) [(b)] of this Rule, it shall be considered conduct
inconsistent with just and equitable principles of trade for [the
trading crowd] a responsible broker or dealer immediately to redisplay
the previously disseminated market quote, unless such action is warranted by a change in market conditions.
.04[.05] Floor Officials may, as provided for under Rules 6.20(c)
and 17.50(g)(6), impose a fine on members of the trading crowd for
violations of this Rule and its Interpretations and Policies.
.05[.06] The requirement of paragraphs [subsection] (b) and (c) of
this Rule that [that the trading crowd] the responsible broker or
dealer must honor displayed quotations up to the firm quote requirement
subject to the conditions of the Rule applies not only to orders to buy
or to sell options, but also to twopart spread or straddle for
[equity] all options orders which may be executed at displayed
quotations for both parts of the order. This obligation of [the trading
crowd] a responsible broker or dealer applies to twopart orders where
the two sides are on opposite sides of the market in a onetoone
ratio, and extends to the amount of the firm quote requirement on each side of the order.
.06[.07] Pursuant to Rule 6.20 Interpretation .09, the reference
to any two Floor Officials in Rule 8.51 and its Interpretations and
Policies includes, but is not limited to, members of the appropriate Market Performance Committee.
.07[.08 Pursuant to Rule 6.6, if a] Under paragraph (e) of this
Rule, when two Floor Officials may determine that a market in a class
or series of option is fast [market is declared] pursuant to Rule 6.6,
the Floor Officials may determine the market constitutes a level of
trading activity or such unusual market conditions that the Exchange is
incapable of collecting, processing and making available to quotation
vendors bids, offers and quotation sizes in a manner that accurately
reflects the current state of the market on the floor, and thus,
suspend the firm quote requirement. [any two Floor Officials have the
power, but are not required, to suspend the firm quote requirement of Rule 8.51(a).]
.08[. 09] The trading crowd shall not be deemed to be a
responsible broker or dealer with respect to a published bid or offer
that is erroneous as a result of an error or omission made by the
Exchange or any quotation vendor. If a published bid or published offer
is accurate but the published quotation size (or published aggregate
quotation size, as the case may be) associated with it is erroneous as
a result of an error or omission made by the Exchange or any quotation
vendor, then the trading crowd responsible broker or dealer is
responsible for the published bid or published offer shall be obligated
to the extent set forth in paragraph (c) of Rule 11Ac11 but only to
the extent of one contract of the listed option in question. * * * * *
Rule 6.6. Unusual Market Conditions
* * * * *
(b) If a market is declared fast, any two Floor Officials shall
have the power to do one or more of the following with respect to the class or classes involved.
* * * * *
(iv) Suspend the firm quote requirement as permitted [of] under Rule 8.51[(a)].
* * * * *
Rule 6.20. Admission to and Conduct on the Trading Floor; Member Education
* * * * *
.09 Members of the appropriate Market Performance Committee may
perform the functions of a Floor Official for the purpose of enforcing
trading conduct policies, including but not limited to, enforcing
policies and acting pursuant to rules related to the Retail Automatic
Execution System, fast markets, and the firm quote requirement of Rule 8.51[(a)].
* * * * *
Rule 26.11. MarketMakers
* * * * *
[(e) Firm Disseminated Quotations. The trading crowd (including the
DPM) at the trading station for a class of market baskets is required
to sell (buy) one contract, or such greater number as shall be
indicated, at the offer (bid) which is displayed when a buy (sell) order reaches that trading station.]
Supplements Rule 8.5 and replaces Rules 8.3, 8.7, and 8.50 [and 8.51].
* * * * *
Rule 27.6. Application of Certain Rules to BOUNDs
For purposes of Rule 6.51, a transaction in BOUNDs need not be identified as a put or a call. [The requirements contained in Rule 8.51 regarding trading crowd firm disseminated market quotes will not apply to BOUNDs.] For purposes of Rule 9.15, the requirement to deliver an Options Disclosure Document shall include the obligation to deliver any supplement thereto pertaining to BOUNDs with respect to any customer whose account is approved for trading in BOUNDs.
This Rule supplements Rules 6.51, [8.51] and 9.15
C. ISE Proposed Rule Text
Rule 804. Market Maker Quotations
(a) No change.
(b) Size Associated with Quotes. A market maker's bid and offer for
a series of options contracts shall be accompanied by the number of
contracts at that price the market maker is willing to buy from or sell
[at that price] to (i) Public Customers (the ``Public Customer Size'')
and (ii) NonCustomers (the ``NonCustomer Size''). Unless the Exchange
has declared a fast market pursuant to Rule 704, a market maker may not
initially enter a bid or offer [for] with a Public Customer Size of
less than ten (10) contracts. Where the size associated with a market
maker's bid or offer falls below ten (10) contracts due to executions
at that price and consequently the size of the best bid or offer on the
Exchange would be for less than ten (10) contracts, the market maker
shall enter a new bid or offer for at least ten (10) contracts, either
at the same or a different price. Every market maker bid or offer must have a NonCustomer Size of at least one (1) contract.
(c) No change.
(d) Firm Quotes. (1) [With respect to Public Customer Orders,
market] Market maker bids and offers are firm for Public Customer
Orders and NonCustomer Orders both under this Rule and Rule 11Ac11
under the Exchange Act (``Rule 11Ac11'') for the number of contracts
specified for each according to the requirements of paragraph (b) above
[associated with each, unless:]. Market maker bids and offers are not firm under this Rule and Rule 11Ac11 if:
(i) the Exchange determines that an exception is warranted, on a case by case basis, because of an obvious error; [or]
(ii) a system malfunction or other circumstance impairs the Exchange's ability to disseminate or update market
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quotes in a timely and accurate manner[.];
(iii) the level of trading activities or the existence of unusual
market conditions is such that the Exchange is incapable of collecting,
processing, and making available to quotation vendors the data for the
option in a manner that accurately reflects the current state of the
market on the Exchange, and as a result, the market in the option is declared to be ``fast'' pursuant to Rule 704;
(iv) during trading rotations; or
(v) any of the circumstances provided in paragraph (c)(3) of Rule 11Ac11 exist.
(2) Within thirty seconds of receipt of a Public Customer Order
(NonCustomer Order) to buy or sell an option in an amount greater than
the Public Customer Size (NonCustomer Size), that portion of the order
equal to the Public Customer Size (NonCustomer Size) will be executed and the bid or offer price will be revised.
[(2) With respect to NonCustomer Orders, market makers must either
buy or sell the number of contracts specified in their quotes or change
their quotes to reflect that the previously displayed quote is no longer available.]
Paragraphs (e)(f): No change.
Rule 704. [Unusual Market Conditions] Collection and Dissemination of Quotations
[(a) Whenever an Exchange official who is designated by the Board
shall have the power to determines, because of an influx of orders or
other unusual conditions or circumstances and the interest of
maintaining a fair and orderly market so requires, such designated
Exchange official may declare the market in one or more classes of options contracts to be ``fast.'']
(a) Each market maker shall communicate to the Exchange its bid and
offers in accordance with the requirements of Rule 11Ac11 under the Exchange Act and the Rules of the Exchange.
(b) The Exchange will disseminate to quotation vendors the highest
bid and the lowest offer, and the aggregate quotation size associated
therewith that is available to Public Customer Orders, in accordance
with the requirements of Rule 11Ac11 under the Exchange Act. (c) Unusual Market Conditions.
(1) An Exchange official designated by the Board shall have the
power to determine that the level of trading activities or the
existence of unusual market conditions is such that the Exchange is
incapable of collecting, processing, and making available to quotation
vendors the data for the option in a manner that accurately reflects
the current state of the market on the Exchange. Upon making such a
determination, the Exchange shall designate the market in such option
to be ``fast.'' When a market for an option is declared fast, the
Exchange will provide notice that its quotations are not firm by appending an appropriate indicator to its quotations.
[(b)] (2) If a market is declared fast, designated Exchange
officials shall have the power to: (i) Direct that one or more trading
rotations be employed pursuant to Rule 701; (ii) suspend the minimum
size requirement of Rule 804(b); or (iii) take such other actions as
are deemed in the interest of maintaining a fair and orderly market.
[(c)] (3) The Exchange will monitor the activity or conditions that
caused a fast market to be declared, and a designated Exchange official
shall review the condition of such market at least every thirty (30)
minutes. Regular trading procedures shall be resumed by the Exchange
when a designated Exchange official determines that the conditions
supporting a fast market declaration no longer exist. The Exchange will
provide notice that its quotations are once again firm by removing the indicator from its quotations.
[(d)] (4) If the conditions supporting a fast market declaration
cannot be managed utilizing one or more of the procedures described
above [contained in paragraphs (b) of this Rule], then a designated
Exchange official shall halt trading in the class or classes so affected.
D. PCX Proposed Rule Text
para. 4935 Obligations of Market Makers
RULE 6.37(a)(c)No change.
[(d) Trade or Update. When an order is represented at a trading
post for execution at the currently disseminated bid or offer, Market
Makers or Lead Market Makers at the trading post, if they do not
satisfy the order in its entirety, shall lower their bid or raise their
offer. Thereafter, the dissemination of such revised bid or offer must
be maintained for a reasonable period of time, as specified in Commentary .09.]
Commentary:
.01.09No change.
[.10 For purposes of subsection (d), two minutes shall be presumed
to be ``reasonable'' period of time in which to maintain a revised bid
or offer. However, a revised market may be further revised before two minutes pass if the following market changes occur:
(1) A change in the market quote in the underlying security or a change in the size of the market quoted; or
(2) In the case of another option series on the same underlying
security, a quote change of twice the minimum price differential resulting from a customer order.
Two Floor Officials may grant exemption from the rule on a caseby
case basis if the individual situation warrants such action.] * * * * *
5221 [Guaranteed Markets] Firm Quotes
Rule 6.86Deleted in its entirety.
RULE 6.86 (a) Definitions
(1) For purposes of this Rule the terms ``bid and offer,''
``quotation size,'' ``quotation vendor,'' ``reported security,''
``listed option,'' ``option series'' and ``trading rotation'' will have the meanings set forth in SEC Rule 11Ac11.
(2) For purposes of this Rule and SEC Rule 11Ac11 as applied to
the Exchange and its members, the term ``Responsible Broker or Dealer''
means that with respect to any bid or offer for any listed option made
available by the Exchange to quotation vendors, the Lead Market Maker
and any registered Market Makers constituting the trading crowd in such
option series will collectively be the Responsible Broker or Dealer to the extent of the aggregate quotation size specified.
(b) Dissemination Requirements
(1) Price. The Exchange will, at all times that it is open for
trading, collect, process and make available to quotation vendors the
best bid and best offer for each option series that is a reported
security. The Exchange may collect, process and make available to
quotation vendors a best bid and best offer determined by an automated quotation system.
(2) Size. The Exchange will for each listed option, establish by
rule and periodically publish the quotation size for which the
Responsible Broker or Dealer is obligated to execute an order to buy or
sell an option series that is a reported security at its published bid or offer as set forth in subsection (c) below.
(3) The Exchange's obligation to collect, process and make available data as set forth above will not include:
(A) collecting, processing or making available any such bid or
offer that is executed immediately after being made in the trading
crowd and any such bid or offer that is cancelled or withdrawn if not executed immediately after being made; or
(B) data communicated during any period when trading in such
reported security: (i) has been suspended or halted; (ii) prior to the commencement
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of trading in such reported security on any trading day; or (iii) during a trading rotation.
(c) Obligations of Responsible Brokers or Dealers
(1) Customer Orders. Except as provided in subsection (d), below,
each Responsible Broker or Dealer is obligated to execute any customer
order in a listed option series in an amount up to the quotation size
established by rule and periodically published by the Exchange. The
minimum quotation size established by rule and published by the
Exchange for customer orders will be 20 contracts for each option series.
(2) BrokerDealer Orders. Except as provided in subsection (d),
below each Responsible Broker or Dealer is obligated to execute any
order in a listed option for the account of a broker or dealer in an
amount up to the quotation size established by rule and periodically
published by the Exchange. The minimum quotation size established by
rule and published by the Exchange for brokerdealer orders will be one contract for each option series.
(3) Each Responsible Broker or Dealer, within thirty seconds of
receiving an order to buy or sell a listed option in an amount greater
than the quotation size required pursuant to subsections (c)(1) or (c)(2), above, must either:
(A) execute the entire order; or
(B) execute the portion of the order that is equal to the size
required pursuant to this subsection (c) and revise its bid or offer. (d) Exception for Unusual Market Conditions
(1) If the Exchange determines, in accordance with the procedures
set forth below, that the level of trading activity or the existence of
unusual market conditions is such that the Exchange cannot collect,
process and make available to quotation vendors quotation data in a
manner that accurately reflects the current state of the market at the
Exchange, the Exchange will immediately notify the persons specified in
SEC Rule 11Ac11(b)(3) and, upon such notification, the obligation
imposed upon Exchange members under SEC Rule 11Ac11(c)(2) and the
Exchange under subsection (b), above, will be suspended, until the
Exchange determines that the unusual market activity or condition has
terminated and the specified persons have been notified that the unusual market activity or condition has terminated.
(A) If a Responsible Broker or Dealer is unable to update its
quotations on a timely basis due to the high level of trading activity
or the existence of unusual market conditions, the Responsible Broker or Dealer will promptly notify a Floor Official.
(B) Upon notification by a Responsible Broker or Dealer, the Floor
Official will promptly verify the existence of the unusual market
activity or condition and if, in the Floor Official's judgment, the
Responsible Broker or Dealer is unable to update its quotations on a
timely basis, the Floor Official will promptly notify the Exchange. If
a Floor Official, independent of notification by a responsible broker
or dealer, becomes aware of any unusual market activity or condition
that adversely affects a Responsible Broker or Dealer's ability to
promptly communicate quotation data, the Floor Official will likewise promptly advise the Exchange.
(C) If the Exchange is unable to accurately collect, process, or
disseminate quotation data owing to a high level of trading activity or
the existence of unusual market conditions, the Exchange, after
consultation with a Floor Official, will make a determination that this is the case.
(D) The Exchange, after receiving notification from a Floor
Official pursuant to either subsection (A) or (B), above, will notify
the persons specified in SEC Rule 11Ac11(b)(3) regarding the
Exchange's inability to accurately collect, process, and make available
the quotation data required by SEC Rule 11Ac11. The Exchange will
append to each quotation made available to a quotation vendor an
identifier that will indicate that the obligation that is imposed upon
Exchange members and the Exchange by SEC Rule 11Ac11 has been suspended.
(E) The Floor Official or Exchange staff (as the case may be) will
monitor the unusual market activity or condition until it has
terminated. Thereupon, the Exchange will immediately notify the persons
specified in SEC Rule 11Ac11(b)(3) that the Exchange is once again
capable of disseminating the quotation data required by SEC Rule 11Ac1
1 and Responsible Brokers or Dealers will be once again obligated under SEC Rule 11Ac11.
Commentary:
.01 As of April 1, 2001, the compliance date for the application
of SEC Rule 11Ac11 to the trading of options, the Exchange will
collect, process and disseminate the best bid and best offer in each
option series, and establish by rule and periodically publish the
quotation size for which the responsible broker or dealer is obligated
to execute a customer order to buy or sell an option in that series.
.02 No Lead Market Maker or Marker Maker will be deemed to be a
Responsible Broker or Dealer with respect to a published bid or offer
that is erroneous as a result of an error or omission made by the
Exchange or any quotation vendor. If a published bid or offer is
accurate but the published quotation size associated with it is
erroneous as a result of an error or omission made by the Exchange or
any quotation vendor, then the Lead Market Maker or Market Maker who is
responsible for the published bid or published offer will be obligated
to the extent set forth in SEC Rule 11Ac11(c), but only to the extent of one unit of trading in the option series in question.
E. Phlx Proposed Rule Text
Rule 1082. Firm Quotations
(a) Definitions
(i) The term ``disseminated price'' shall mean the bid (or offer)
price for an options series that is made available by the Exchange and
displayed by a quotation vendor on a terminal or other display device.
(ii) The term ``disseminated size'' shall mean with respect to the
disseminated price for any quoted options series, the AUTOX guarantee
for the quoted option, except that the disseminated size of bids and
offers of limit orders on the book shall be ten (10) contracts.
(iii) The term ``SEC Quote Rule'' shall mean Rule 11Ac11 under the Securities Exchange Act of 1934, as amended.
(iv) The terms ``customer,'' ``responsible broker or dealer,'' and
``specified persons'' shall have the meaning set forth in the SEC Quote Rule.
(b) Except as provided in paragraph (c) of this Rule, all
quotations made available by the Exchange and displayed by quotation
vendors shall be firm for customer orders at the disseminated price in
an amount up to the disseminated size. Responsible brokers or dealers
bidding (or offering) at the disseminated price shall be collectively
required to execute orders presented to them at such price up to the
disseminated size in accordance with Rule 1015, or, if the responsible
broker or dealer is representing (as agent) a limit order, such
responsible broker or dealer shall be responsible (as agent) up to the
size of such limit order, but may be responsible as principal for all
or a portion of the excess of the disseminated size over the size of such limit order to the extent provided in Rule 1015.
(c) The requirements of paragraph (b) or (d) of this Rule shall not apply to
[[Page 18670]]
displayed quotations: (i) when the level of trading activities or the
existence of unusual market conditions is such that the Exchange is
incapable of collecting, processing, and making available to quotation
vendors the data for a subject security required to be made available
pursuant to the SEC Quote Rule in a manner that accurately reflects the
current market on the Exchange as determined by two Floor Officials,
with the concurrence of the Director of Surveillance, or his designee;
(ii) during a trading rotation; (iii) if any of the circumstances
provided in paragraph (c)(3) of the SEC Quote Rule exist; or (iv) on a
case by case basis where it is determined that an exemption is
warranted for an obvious error in the posting of the disseminated price
or disseminated size due to reporter error or system malfunction. The
Exchange shall immediately notify all specified persons of such a
determination. Regular trading procedures shall be resumed when two
Floor Officials determine that the conditions supporting that
declaration no longer exist. The Exchange shall immediately notify all specified persons of such a determination.
Any exemption granted pursuant to paragraph (c)(iv) shall be in
writing and shall set forth the basis upon which the exemption is granted.
(d) In accordance with paragraph (d)(1)(ii) of the SEC Quote Rule,
the quotation size for a disseminated price with respect to an order
for the account of a broker or dealer (``brokerdealer order'') shall
be one (1) contract (``quotation size''), and all quotations made
available by the Exchange and displayed by quotation vendors shall be
firm for brokerdealer orders at the disseminated price in an amount up
to the quotation size. The quotation size for brokerdealer orders
provided in this paragraph (d) shall be periodically published by the
Exchange. Responsible brokers or dealers bidding (or offering) at the
disseminated price shall be collectively required to execute broker dealer orders at such price up to the quotation size.
(e) If responsible brokers or dealers receive an order to buy or
sell a listed option at the disseminated price in an amount greater
than the disseminated size (for customer orders) or the quotation size
(for brokerdealer orders), such responsible broker or dealer shall,
within thirty (30) seconds of receipt of the order, (i) execute the
entire order at the disseminated price (or better), or (ii) execute
that portion of the order equal to the disseminated size (in the case
of a customer order) or the quotation size (in the case of a broker
dealer order) at the disseminated price (or better), and revise its bid or offer.
A3 Requesting Market Quotations
A Specialist may request an ROT in the crowd to state his current
bid and offer (including size) for any series of options traded at the
post. A Specialist may request that staff or a Floor Official call for additional ROTs to enter the trading crowd.
A11 Responsibility to [Make TenUp Markets] Fill Customer Orders
(a) Execution [Quotation] Guarantees[Public] C[c]ustomer market
or marketable limit orders in any options series on the Exchange are to
be filled at the best market, in accordance with Rule 1082, to a
minimum of the disseminated size [ten contracts] by floor traders (i.e., Specialists and ROTs) in the crowd as follows:
(i) If only one floor trader is quoting the availed upon best bid
(or offer), that floor trader is responsible for providing a fill for the disseminated size [on the minimum ten contracts].
(ii) If more than one floor trader is quoting the availed upon best
bid (or offer), and their combined quote size is less than the
disseminated size [ten contracts], participation for the additional
contracts needed to meet the disseminated size [minimum ten contract]
requirement shall be decided upon agreement by those floor traders or otherwise divided proportionately among them.
(iii) If the availed upon best bid (or offer) is established by
someone other than a floor trader and is not for at least the
disseminated size [ten contracts], participation for the additional
contracts needed to meet the disseminated size [minimum ten contract]
requirement shall be supplied at that same price by the floor trader
with the immediately prior best bid (or offer). If more than one floor
trader was on the prior bid (or offer), participation for the
additional contracts shall be decided upon agreement by those floor
traders or otherwise divided proportionately among them. For example,
if a 2\1/4\ or 2.25 bid by an ROT is followed by a 2\1/2\ or 2.50 bid
for five contracts by a customer, the ROT who was bidding 2\1/4\ or
2.25 will be responsible for buying the other five contracts at 2\1/2\ or 2.50.
[(iv) ROT orders for less than ten contracts that are represented
at a trading post by a Floor Broker shall not be disseminated and shall
have no standing in the crowd. Floor Brokers shall otherwise remain
obligated to use due diligence in the representation of orders pursuant to Rule 155.]
([v]iv) The ``availed upon best bid (or offer)'' for purposes of
this Advice shall be the disseminated price (as defined in Rule 1082)
[crowd markets or the displayed or screen markets, whichever is better.
In the instance of a broker quoting a market on behalf of a tenup
eligible order, once the crowd market has been sought, the screen
market (if superior) is available on an immediate basis and if not availed upon the displayed market may be revised].
[(vi) In each case where the responsibility to make tenup markets
based on displayed or screen quotations generally applies, an exemption
will exist for the first three minutes following completion of the
rotation in each series for which a quotation update to the opening
quote has not yet occurred. While any such exemption is in effect, the
tenup market guarantee will be based on the crowd markets.]
([vii]v) Orders received by a member from a customer may not be
unbundled for the primary purpose of availing upon the execution
guarantee [ten up market] requirement, nor may a Firm solicit a
customer to unbundle an order for the primary purpose of availing upon the execution guarantee [ten up market requirement].
([viii]vi) Floor Brokers must make reasonable efforts to ascertain
whether each order entrusted to them is for the account of a customer
or a brokerdealer. If it is ascertained that the order is for the
account of a brokerdealer, the responsible Floor Broker must advise
the crowd of that fact prior to bidding/offering on behalf of the order
or executing the order. The responsible floor agent must legibly mark
the floor ticket as ``B/D'' when it has been determined that the order is for an account of a broker/dealer.
([ix]vii) The disseminated size requirement shall not apply when
Exchange quotations are not required to be firm pursuant to paragraph
(c) of Rule 1082. [Exemptions from the tenup requirement may be
granted by two Floor Officials with the concurrence of the Director of
Surveillance or his designee, (1) under exceptional circumstances or
for good cause shown (e.g., in fast market conditions) for all or part
of a trading session; or (2) on a casebycase basis where it is
determined that an exemption is warranted for an obvious error in the
posting of the displayed market quote due to reporter error or system
malfunction. Any such exemption shall be in writing and shall set forth the basis upon which the exemption is granted.]
(b) Trade or Fade When paragraph (e) of Rule 1082 is applicable to an order
[[Page 18671]]
received by a responsible broker or dealer, participation by
Specialists or ROTs above their stated size to fill the order
completely or meet the disseminated size requirement (for customer
orders) or the quotation size requirement (for brokerdealer orders)
shall be decided upon agreement by such Specialists or ROTs or otherwise divided proportionately among them.
[With respect to nonpublic customer orders to buy (sell) at the
displayed offer (bid), or portions of customer orders greater than the
minimum size guarantee in that option, the trading crowd is required to
either: (1) sell (buy) the number of contracts specified in the order;
or (2) change the displayed offer (bid) to reflect that the previously
displayed offer (bid) is no longer available.] Where the [a]
disseminated market quote of a responsible broker or dealer is revised,
as provided for in Rule 1082 [this paragraph], it shall be considered
conduct inconsistent with just and equitable principles of trade for
such responsible broker or dealer [the trading crowd] to immediately
redisplay its [the] previously disseminated market quote, unless such action is warranted by a change in market conditions.
F7 Bids and Offers
All bid and offer prices shall be general ones and shall not be specified for acceptance by particular members.
In the absence of a stated size to any bid or offer voiced or displayed on the Options Floor, the person responsible for such bid and offer is deemed to be quoting for one contract, except in those instances where predetermined volume guarantees are provided for the facilitation of specific account types. Floor traders (Specialists and ROTs) are [may], however, [be] required to trade more than one contract in connection with the execution of a customer order pursuant to [provisions under] Advice A11.
The size of any disseminated bid or offer by the Exchange shall be
equal to the AUTOX guarantee for the quoted option and shall be firm,
except that the disseminated size of bids and offers of limit orders on
the book [customer limit orders] shall be ten (10) contracts and shall be firm regardless of the actual size of such orders.
F10 Unusual [Extraordinary] Market Conditions [(Fast Markets)]
In the interest of maintaining a fair and orderly market under
unusual [trading] market conditions for one or more classes of options,
two Floor Officials, with the concurrence of the Director of
Surveillance or his designee, may [declare a ``fast market'' for these
options] determine that the level of trading activities or the
existence of unusual market conditions is such that the Exchange is
incapable of collecting, processing, and making available to quotation
vendors the data for a subject security required to be made available
pursuant to the SEC Quote Rule in a manner that accurately reflects the
current market on the Exchange. The Exchange shall immediately notify
all specified persons of such a determination. Regular trading
procedures shall be resumed when two Floor Officials determine that the
conditions supporting that declaration no longer exist. During the
period for which [a fast market is in effect] such a determination has
been made, displayed quotes for the respective options are not firm (as
required by Rule 1082) and volume guarantees of [Option] Advice A11
and Rule 1015 are not applicable, but the respective Specialists and
trading crowds are required to use best efforts to update quotes and
fill incoming orders in accordance with Advice A11 and Rule 1015. Rule 1015. [Quotation] Execution Guarantees
(a) Execution [Quotation] Guarantees[Public] C[c]ustomer market
or marketable limit orders in any options series on the Exchange are to
be filled at the best market, in accordance with Rule 1082, to a
minimum of the disseminated size [ten contracts] by floor traders (i.e., Specialists and ROTs) in the crowd as follows:
(i) If only one floor trader is quoting the availed upon best bid
(or offer), that floor trader is responsible for providing a fill for the disseminated size [on the minimum ten contracts].
(ii) If more than one floor trader is quoting the availed upon best
bid (or offer), and their combined quote size is less than the
disseminated size [ten contracts], participation for the additional
contracts needed to meet the disseminated s