- Fund Regulation
- Retirement Security
- Trading & Markets
- Fund Governance
- ICI Comment Letters
SEC Proposes Rule and Amendments Regarding Options Markets
Washington, DC, August 29, 2000 - The Securities and Exchange Commission has issued a proposal containing a new rule under the Securities Exchange Act, Rule 11Ac1-7—and amendments to an existing rule, Securities Exchange Act Rule 11Ac1-1—to increase information to investors regarding the quality of executions in the options markets and to require market makers to be firm for their quotes. Comments on the proposals are due to the SEC no later than September 18, 2000
Trade-Through Disclosure Rule
Proposed Rule 11Ac1-7 would require a broker-dealer to disclose to a customer when the customer’s order to buy or sell a listed option was executed at a price inferior to the best quote published at the time of execution of the customer’s order. The disclosure would be required to be made on the customer’s confirmation delivered pursuant to Securities Exchange Act Rule 10b-10. The disclosure would not be required, however, if the transaction was effected on an options exchange that participates in an intermarket linkage plan that has explicit provisions reasonably designed to limit trade-throughs.
The proposed rule does not explicitly prohibit trade-throughs, as the Release states that the SEC recognizes that there may be times when a customer would rather receive an immediate execution rather than pursue an opportunity for price improvement. The rule is intended, however, to provide incentives for markets to develop means to access one another to avoid trade-throughs.
Amendments to the Quote Rule
The Release states that the Trade-Through Disclosure Rule would not be meaningful if the market publishing a better quote is not firm for a specified number of contracts at that quote. The SEC therefore, in conjunction with the proposed rule, is proposing amendments to Securities Exchange Act Rule 11Ac1-1, the "Quote Rule," that would require options exchanges and options market makers to publish firm quotes. Currently, the Quote Rule does not apply to options.