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SEC orders options links
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October 19, 1999: 3:37 p.m. ET
Four exchanges must submit plan to link trading in next 90 days
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NEW YORK (CNNfn) - The Securities and Exchange Commission today ordered the four main options exchanges to come up with a plan to link, apparently dissatisfied with the rate of progress since it first suggested such a move in February.
The four exchanges -- the Chicago Board Options Exchange, the American Stock Exchange, the Pacific Exchange and the Philadelphia Stock Exchange -- must develop "an inter-market linkage plan for multiply traded options" within 90 days and submit it to the SEC.
As part of the order, the SEC also requested the participation of the International Securities Exchange. The ISE is an electronic options-trading platform that has filed for exchange status and hopes to offer options trading by next March. Since it is not yet an exchange, the SEC cannot order it to participate, but the effect is the same.
Though there have been multiple options listings for much of this decade, the four exchanges had a "gentleman's agreement" not to trade each other's most-popular offerings. That changed this year, and they now list most of each other's options.
But because there is no consolidated tape for options quotations, for instance, an investor getting a price on one exchange is not guaranteed the best price, if it's on another exchange.
There is also no equivalent of the Intermarket Trading System, which links stock trading between exchanges, for options trading.
As Chairman Arthur Levitt made clear in a speech last night, the SEC wants the options exchanges to come up with their own plan to link rather than having one forced upon them. He sent a letter in February requesting the exchanges to link and asking for ideas.
There has been little or no progress since, and Wall Street's top cop clearly has become dissatisfied with what he feels is a situation that opens investors to unnecessary risks. Last night he said the SEC would step in "in the next few days" and will force links if necessary.
The U.S. Department of Justice and the SEC both are investigating whether the four exchanges have violated antitrust laws and engaged in anticompetitive practices. Options-exchange officials have been uncomfortable meeting under those circumstances, a spokesman at the Pacific Exchange said. But this now gives them a mandate to hook up.
The order came after officials of the four exchanges and the ISE met with SEC officials in Washington Tuesday. The meeting wasn't rancorous, according to one executive who attended. But the SEC has forced a link and clearly pushed the exchanges to set aside any agendas they may have for keeping their trading distinct. 
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