Joint Industry Plan; Order Approving Joint Amendment No. 5 to the Options Intermarket Linkage Plan To Provide a Process for Potential New Options Exchanges To Have Interim Access to Linkage Information

I. Introduction

On November 8, 2002, November 14, 2002, November 15, 2002, November 26, 2002, and December 6, 2002, the Philadelphia Stock Exchange, Inc. (“Phlx”), International Securities Exchange, Inc. (“ISE”), Chicago Board Options Exchange, Inc. (“CBOE”), American Stock Exchange LLC (“Amex”), and Pacific Exchange, Inc. (“PCX”) (collectively the “Participants”) respectively submitted to the Securities and Exchange Commission (“SEC” or “Commission”) in accordance with section 11A of the Securities Exchange Act of 1934 (“Act”) and rule 11Aa3-2 thereunder, a proposed amendment to the Options Intermarket Linkage Plan (the “Plan”). The amendment proposes to provide a process for potential new options exchanges to have interim access to Linkage information to help such exchanges prepare to join the Plan.

The proposed amendment to the Plan was published in the Federal Register on December 26, 2002. No comments were received on the proposed amendment. This order approves the proposed amendment to the Plan.

II. Description of the Proposed Amendment

Currently, the Plan allows a new exchange to join the Linkage by executing the Plan, filing an amendment to the Plan including themselves as a participant, and paying the then-applicable participation fee if that exchange is already a participant in The Options Clearing Corporation and is a party to the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information (“OPRA Plan”). Proposed Amendment No. 5 will provide conditional interim access to Linkage information by permitting an applicant to have access to Linkage documentation, testing and other necessary Linkage facilities once the Commission has published for comment the applicant's proposed rules governing the trading of standardized options.

Proposed Amendment No. 5 also requires that the applicant affirm that it is seriously pursuing the establishment of an options market and pay a refundable deposit towards the participation fee. Once an applicant is granted interim access, such access will remain in effect for one year. If the applicant has not yet joined the Linkage after this time period, it can request an additional period of access, and the Linkage participants will not unreasonably deny such a request.

III. Discussion

After careful consideration, the Commission finds that the proposed amendment to the Plan is consistent with the requirements of the Act and the rules and regulations thereunder. Specifically, the Commission finds that the proposed amendment to the Plan is consistent with section 11A of the Act and rule 11Aa3-2 thereunder, in that it is appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets.

The current provisions of the Plan effectively require that an applicant exchange have rules for the trading of options approved by the Commission before it can become a participant in the Linkage. While the Commission believes that this is a reasonable requirement for full participation in the Linkage, this structure does not recognize that an entity proposing to develop an options market reasonably needs access to Linkage information, particularly technical information, in order to build its market and prepare for Linkage participation. The proposed Amendment will provide an applicant with conditional interim access to Linkage information before it is able to meet the requirements for full participation.

The Commission recognizes, however, that new entrants to the Linkage will require the existing Participants to expend time and resources working with an applicant on both technical and policy issues. Therefore, the Commission believes that it is reasonable to place requirements on applicants that act as a safeguard to limit access to serious applicants fully committed to pursuing the development of an options market.

To this end, Amendment No. 5 proposes that in order to be eligible for interim access to the Linkage, proposed rules governing the trading of standardized options of an applicant must be published for comment by the Commission and the applicant must affirm that it is seriously pursuing the establishment of an options market. An applicant also must pay a refundable deposit towards the participation fee. The Commission believes that these requirements are reasonably tailored to ensure that only serious applicants are given access to sensitive Linkage information before becoming a full participant.

Amendment No. 5 also proposes to limit the duration of interim access to one year. The Commission believes that this time frame is reasonable, and anticipates that one year will be sufficient for most applicants to be prepared to join the Linkage as full participants. The Commission notes that in the event that an applicant has not joined the Linkage after one year, Amendment No. 5 provides that it can request an additional period of access, and the Linkage participants will not unreasonably deny such a request.

In sum, the Commission believes that implementation of Amendment No. 5 will generally enhance competition by providing a potential new options market with earlier access to Linkage-related material and thus, facilitate its ability to prepare to join the Linkage.

IV. Conclusion

It is therefore ordered, pursuant to section 11A of the Act and rule 11Aa3-2 thereunder, that the proposed Linkage Plan amendment is approved.