Speech by SEC Chairman:
Opening Statement at the SEC Open Meeting — Access to Listed Options
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
April 14, 2010
Next, we will consider a recommendation designed to increase transparency in the markets and promote greater fairness and efficiency.
Specifically, we will consider whether to propose an amendment to Rule 610 of Regulation NMS. This proposal would put in place two measures in options markets which currently exist in stock markets:
First, it would prohibit an options exchange from unfairly impeding access to the quotations it displays.
Second, it would limit the fees an options exchange can charge investors and others wishing to access a quote on its exchange.
Proposed Amendments to Regulation NMS
At present, there are eight exchanges that trade listed options and most listed options trade across multiple exchanges.
It is important that investors have the ability, free of unfair discrimination, to access the best prices available, regardless of the exchange that is posting the quotation.
In addition, when investors seek to buy or sell an option that is listed on an exchange, they need to be able to better understand the cost of executing that transaction.
In practice, however, the displayed quotation on an options exchange does not generally reflect the actual amount an investor will pay. That is because the investor sometimes incurs an additional cost to execute the transaction, including the cost of accessing the exchange's quotation.
Currently, there are many different fees across options exchanges, across different categories of options participants, and across different product types. So, it is not easy to estimate the total — or "all-in" — cost of executing against a quotation.
Today's proposal is designed to address these issues by extending to listed options certain features of Rule 610 which currently apply only to transactions involving exchange-listed stocks.
First, Rule 610 prohibits exchanges from unfairly limiting access to an exchange by non-members seeking to access quotations through members. This anti-discrimination rule is designed to remove barriers that an exchange might erect to keep non-members from accessing a quotation on the exchange. This requirement, however, does not currently apply to quotations in listed options. Today's proposal is designed to expand the rule's scope and apply this anti-discrimination requirement to the options markets.
Second, our proposal would generally establish a limit on the fees that an exchange can impose to execute an order. The proposed limit would be $0.30 per-contract — a limit consistent with the maximum fee limit currently in place for exchange-listed stocks under Rule 610.
This is designed to:
- Ensure that the total cost of the transaction does not vary significantly from the displayed price.
- Ensure greater transparency in the cost of accessing quoted prices.
- Ensure that an exchange does not charge substantial fees to those required to access the exchange's quotations.
To ensure the smooth functioning of the options markets, it is vital that there be fair and efficient access to displayed quotations of listed options. Existing prohibitions on executing an order on one exchange at a price inferior to a price displayed on another exchange (a trade-through) heighten the need for the displayed price to more accurately reflect the cost of a transaction.
By expanding the protections that are available in the options markets, today's proposal is designed to help provide investors with the ability to achieve best execution for their orders.
I would like to thank the staff of the Division of Trading and Markets for their work on this matter, specifically Robert Cook, Jamie Brigagliano, Heather Seidel, Jennifer Colihan, Edward Cho, and Brian O'Neill. I would also like to thank their colleagues in the Office of the General Counsel, specifically Meridith Mitchell, Lori Price, and Deborah Flynn, as well as the Division of Risk, Strategy, and Financial Innovation, specifically Henry Hu, Stewart Mayhew, Amy Edwards, Tim McCormick, Chuck Dale, Adam Glass, and Daniel Aromi.
Now I'll turn the meeting back over to Robert Cook, Director of the Division of Trading and Markets, to hear more about the Division's recommendation.