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U.S. Securities and Exchange Commission

SEC Announces Positive Early Results of Penny Quoting Pilot Program


Washington, D.C., June 29, 2007 - The Securities and Exchange Commission announced today that early results from the Penny Quoting Pilot program show lowered trading costs for retail trades. An analysis of reports from the options exchanges by the Commission's Office of Economic Analysis indicate that the Pilot has been successful in narrowing average quoted spreads, which enables investors to trade options at better prices. The reduction in spreads also has led to a reduction in payment for order flow.

The Penny Quoting Pilot began in January 2007 after SEC Chairman Christopher Cox urged each of the options exchanges to begin quoting a limited number of options in pennies.

"The Penny Quoting Pilot is showing that smaller increments can result in better prices for investors," said Chairman Cox. "As we consider expanding the pilot to a broader number of options, however, we will want to proceed carefully to assure that the market quality in these options will improve, and that market participants can process the increased volume of quotations."

The Penny Quoting Pilot has reduced the size quoted at the best price. This result is consistent with the move to penny quoting in stocks. Nonetheless, the average size of the best quote in the Pilot options is still large enough to fill the average individual investor order.

At the same time, the number of quotations in these options has increased appreciably. This increase has been handled by the exchanges and the Options Price Reporting Authority without disruptions in the dissemination of quotes.

The Commission has not concluded that penny quoting in all options is appropriate. Before approving exchange rules to expand the Pilot, the Commission will carefully analyze the results of the Pilot in assessing which additional options would most benefit investors if quoted in smaller increments. The Penny Quoting Pilot is scheduled to end on July 25, 2007.

The reports from the options exchanges can be found on their Web sites:

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  Additional materials: Options Exchanges Begin Penny Quoting Pilot: http://www.sec.gov/news/press/2007/2007-10.htm



Modified: 06/29/2007