[Federal Register Volume 63, Number 229 (Monday, November 30, 1998)]
[Notices]
[Pages 65828-65829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31814]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40701; File No. SR-OPRA-98-1]
Options Price Reporting Authority; Order Granting Approval of
Amendment to OPRA Plan Adopting a New Rider to OPRA's Vendor Agreement
Permit Vendors to Utilize Electronic Contracts
November 23, 1998.
I. Introduction
On September 18, 1998, the Options Price Reporting Authority
(``OPRA'')\1\ submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Rule 11Aa3-2 under the
Securities Exchange Act of 1934 (``Exchange Act''), an amendment to the
Plan for Reporting of Consolidated Options Last Sale Reports and
Quotation Information (``Plan''). The proposed amendment adds a new
Electronic Contract Rider (``Rider'') to OPRA's Vendor Agreement that
would permit OPRA's vendors to utilize electronic contracts with
certain categories of Internet or other on-line customers in
satisfaction of the requirement of the Vendor Agreement for written
agreements between vendors and their customers.
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\1\ OPRA is a National Market System Plan approved by the
Commission pursuant to Section 11A of the Exchange Act and Rule
11Aa3-2 thereunder. See Exchange Act Release No. 17638 (March 18,
1981).
The Plan provides for the collection and dissemination of last
sale and quotation information on options that are traded on the
member exchanges. The five exchanges which agreed to the OPRA Plan
are the American Stock Exchange (``AMEX''); the Chicago Board
Options Exchange (``CBOE''); the New York Stock Exchange (``NYSE'');
the Pacific Exchange (``PCX''); and the Philadelphia Stock Exchange
(``Phlx'').
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The proposed amendment was published for comment in the Federal
Register on October 20, 1998.\2\ No comments were received on the
proposal. This order approves the proposal.
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\2\ See Exchange Act Release No. 40547 (October 13, 1998) 63 FR
56051.
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II. Description and Purpose of the Amendment
The purpose of the proposed amendment is to allow OPRA vendors who
wish to offer Internet or other on-line access to options market
information to Nonprofessional Subscribers or PC Dial-Up customers to
make use of electronic contracts in satisfaction of the requirement of
the Vendor Agreement that there be written agreements between OPRA's
Vendors and these categories of customers. This amendment is proposed
in response to requests from an increasing number of OPRA vendors
(including some whose activities as vendors are in support of their
primary function as electronic brokers) to be able to conduct all of
their business with customers electronically, including contract
administration.
The Rider imposes several conditions on the use of these electronic
contracts by vendors. As a threshold matter, a vendor is permitted to
use these electronic contracts only if the vendor's other agreements
with its customers may be entered into electronically. In addition, the
vendor is required to submit for OPRA's approval an ``Attachment A''
that describes the procedures and systems the vendor intends to utilize
in administering its electronic contracts. The Rider requires vendors
to use the forms of electronic contracts (one for Nonprofessional
Subscribers and one for Dial-Up Customers), except that vendors are
permitted to use their own forms of electronic contracts for Dial-Up
Customers, subject to the approval of OPRA. In this respect the Rider
is comparable to the existing Vendor Agreement, which requires the use
of a specified form of written Nonprofessional Subscriber Agreement and
requires OPRA's approval of each form of Dial-Up Agreement.
The Rider imposes certain requirements on vendors concerning the
manner in which they present electronic contracts to their customers
and how customers may indicate their assent to these contracts. These
requirements are intended to assure that customers are given an
opportunity to read the full text of each contract before they are
asked to assent to it, and that procedures are in place to verify the
identity of the customers who enter into agreements electronically and
to confirm the terms of the electronic contracts to which they have
agreed. Vendors are required to maintain detailed records of all
electronic contracts entered into, and to make such records available
for OPRA's inspection. Finally, each time a customer accesses the
Options Information Service, the vendor must give the customer notice
concerning the electronic contract and must make the text of that
contract available for the customer's review.
Vendors are also required to indemnify OPRA against loss in the
[[Page 65829]]
event electronic contracts are held to be invalid or unenforceable by
reason of their having been entered into or administered
electronically. Because the law on electronic contracts is still
developing, OPRA believes it is reasonable to ask those vendors who
wish to use electronic contracts to assume any risk that such contracts
may be found to be unenforceable or invalid.
The Rider also provides OPRA with the right to modify or terminate
the electronic contracts in the event of changes in the law or industry
practice concerning electronic contracts or if OPRA determines that the
required electronic contracts are likely to be held unenforceable or
invalid for any reason. In light of the continuing evolution of the law
of electronic contracts, OPRA believes it should be able to amend or
withdraw permission to use electronic contracts if such contracts are
likely to be held invalid or unenforceable or are otherwise found to be
deficient.
III. Discussion
After careful review, the Commission finds that the proposed
amendment is consistent with the requirements of the Act and the rules
and regulations thereunder.\3\ Specifically, the Commission believes
that the proposed amendment, which accommodates the use of electronic
contracts by vendors, is consistent with Rule 11Aa3-2 in that it will
contribute to the maintenance of fair and orderly markets and remove
impediments to and perfect the mechanisms of a national market system.
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\3\ In approving this rule, the Commission has considered the
proposed Plan Amendment's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
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The Commission notes that the proposed amendment will require a
number of conditions intended to ensure that OPRA's interests are
protected, regardless of the type of contract used by its vendors.
First, OPRA limits the use of electronic contracts to those vendors
that allow their customers to enter into other agreements
electronically. Second, vendors must submit for OPRA's approval an
``Attachment A,'' describing the vendors' procedures and systems.\4\
Third, OPRA requires vendors to use OPRA's forms for electronic
contracts, except that vendors may use their own forms for Dial-Up
Customers, subject to OPRA's approval. Fourth, vendors must keep
detailed records of all electronic contracts, and make such records
available for review by OPRA. Fifth, the vendor must give the customer
notice and make the text of the electronic contract available for the
customer's review every time the customer accesses the Options
Information Service. Sixth, vendors must indemnify OPRA against loss
due to a determination that any electronic contract is invalid or
unenforceable. Finally, the amendment also grants OPRA the right to
modify or terminate the electronic contracts in the event of changes in
the law or industry practice or if OPRA determines that the required
electronic contracts are likely to be held unenforceable or invalid for
any reason.
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\4\ In its review of vendors' Attachment A, OPRA will consider
``the reasonableness of the procedures that the vendor plans to use
to identify its customers, to ensure that those customers are who
they say they are, and to keep track of the exact form of agreement
that is assented to by each customer'' in light of the then-current
industry practices. OPRA will also review the security procedures
that vendors will use. See Letter from Lisa Winger, Schiff, Hardin &
Waite, to Deborah Flynn, Division of Market Regulation, Commission,
dated October 21, 1998.
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The Commission believes that, in the absence of substantial
historical experience with electronic contracts and given the current
unsettled state of the law in this area, it is reasonable for OPRA to
take precautions, such as those proposed, to protect its interests. The
Commission believes that the above-mentioned conditions imposed by OPRA
on vendors desiring to use electronic contracts are reasonable and
consistent with the Act. Accordingly, the Commission believes that the
proposed amendment will provide additional flexibility to OPRA vendors
by allowing them to use electronic contracts under certain
circumstances while providing OPRA with the contractual protections
that it requires.
IV. Conclusion
It is therefore ordered, pursuant to Rule 11Aa3-2 of the Act, that
the proposed Plan amendment (SR-OPRA-98-1) is approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-31814 Filed 11-27-98; 8:45 am]
BILLING CODE 8010-01-M