Options Exchanges Commit To Timetable For Intermarket Linkage

The Securities and Exchange Commission today announced that the five U.S. options exchanges have committed to a timetable for testing and implementing their intermarket linkage. The options intermarket linkage is an important step in improving options customers' ability to receive the best prices available.

In a March 15 letter to SEC Chairman Harvey L. Pitt, the chairmen of the options committed to the following:

• The options exchanges will begin intermarket testing of the linkage they are developing by Dec. 1, 2002, and will implement the first phase of the linkage no later than Feb. 1, 2003 and the second phase of the linkage no later than April 30, 2003.
• The options exchanges also agreed to file with the Commission, by April 15, 2002, an amendment to the options intermarket linkage plan to incorporate this testing and implementation timetable, and to require that each exchange provide to the Commission a detailed implementation project plan, as well as monthly reports on the status of its implementation project. If the Commission approves this amendment, any failure by the exchanges to meet the testing and implementation deadlines would be a violation of Commission rules.
• Finally, the options exchanges agreed that the amendment they will file by April 15, 2002, will include a change to the options intermarket linkage plan that would permit a participating exchange to withdraw from the linkage plan only if it can satisfy the Commission that it can accomplish, through alternative means, the same goals as the plan of limiting the likelihood of customers' order being executed at prices inferior to the best available price.

If the Commission approves this change to the options intermarket linkage plan, the principal purpose of the Commission's Trade-Through Disclosure Rule, Rule 11Ac1-7 under the Securities Exchange Act of 1934 - to require customers' orders to be executed on exchanges that participate in the linkage, absent disclosure to the contrary - would be accomplished. The Commission adopted the Trade-Through Disclosure Rule in November 2000 but has twice extended the initial compliance date for the Rule, more recently until April 1, 2002.

In light of the options exchanges' recent commitments and the expectation that the amendment will be filed within the next two weeks, the Commission granted a temporary exemption, until July 1, 2002, for broker-dealers from the Trade-Through Disclosure Rule. In addition, the Commission directed the staff to develop a proposal to repeal the Trade-Through Disclosure Rule. At the time the Commission considers whether to propose such a repeal, it will also consider an extension of the temporary exemption to allow sufficient time for consideration of comments and, if appropriate, to finalize the repeal.