SRO Rulemaking, Supplementary Material:
Pacific Exchange Options Linkage Plan

January 20, 2000

The Honorable Arthur Levitt
Chairman
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549

Dear Mr. Chairman:

The Pacific Exchange appreciates your continuing leadership in the development of an electronic linkage for the options markets. At your request, we organized the discussions among the exchanges that recently concluded. We met many times with our colleagues and your staff, in an attempt to forge consensus on the design of such a system. Despite everyone's good faith efforts, we have not reached agreement on one fundamental principle - price-time priority. That principle provides customer orders protection, promotes vigorous price competition, and underlies all other issues in the linkage system's design. We believe that the establishment of a marketplace that promotes vigorous price competition, and ensures that the customer receives the best possible price, best serves retail customers.

In an effort to move beyond this point of disagreement, we offered several ideas, all of which we believe would improve the marketplace for the customer while allowing firms to route orders as they wished. Since none of these suggestions was acceptable to our colleagues, the Exchange is submitting its own plan for an options market linkage, which is enclosed.

Under the PCX proposal, if an exchange receives an eligible order, but is not the best bid or offer, it may only execute that order by stepping up to match the better price and simultaneously sending a principal as agent order to the better market in price-time priority. The receiving market would not be allowed to improve the price to keep the order, as doing so would reward a market maker for not bidding aggressively.

If all exchanges are at the same price, however, but an away market is first in time priority, then the receiving market may execute the order by improving the best bid or offer, thereby creating a new best market.

This approach allows order flow providers to continue routing orders to the marketplace of their choice, and ensures price protection for public customers, across customer limit order books and across exchanges.

We believe that all market changes should be made carefully, and therefore propose to develop the linkage system in phases, where Phase I would cover any order for up to 20 contracts.

This proposal most advances the interests of retail customers. It guarantees that they will receive the best price available, each and every time they trade. It provides incentives for specialists and market makers to quote aggressively, thereby enhancing the quality and competitiveness of the options markets, as well as additional incentives for them to offer price improvement on retail orders. It can be the foundation for an even stronger national market system for options: In time, as the Commission and the exchanges gain experience with this initial linkage system, the parameters for eligible orders can be raised, broadening the benefits for customers.

We strongly support the development of systems to track and measure price improvement and best execution. We look forward to working with the exchanges and the industry to establish clear measurement standards that will help order flow providers evaluate and improve market quality.

We remain committed to pursuing measures that protect and advance the interests of public investors. We have, as you know, an opportunity to strengthen the marketplace with the implementation of the options linkage. Please seize it as a chance to significantly and dramatically enhance our markets and the opportunities they provide for the public investors we serve.

Our thanks, again, for your continued leadership on this subject.

Sincerely,

Philip D. DeFeo
Chairman and Chief Executive Officer

Enclosure
cc: Commissioner Paul R. Carey
Commissioner Isaac C. Hunt
Commissioner Norman S. Johnson
Commissioner Laura S. Unger
Annette L. Nazareth, Director, Division of Market Regulation
Robert L.D. Colby, Deputy Director, Division of Market Regulation
Jonathan G. Katz
Joseph Lombard
William J. Brodsky, Chicago Board Options Exchange
Meyer S. Frucher, Philadelphia Stock Exchange
David Krell, International Securities Exchange
Salvatore F. Sodano, American Stock Exchange

January 20, 2000

Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 5^th Street, N.W.
Washington, D.C. 20549

Re: PCX Inter-Market Linkage Plan
Release No. 34-42029

Dear Mr. Katz:

Enclosed is the Option Linkage Plan of the Pacific Exchange, Inc., which is being submitted in response to the Order of the Securities and Exchange Commission Directing the Options Exchanges to Submit an Inter-Market Linkage Plan.

If you have any questions or concerns, please do not hesitate to call me at (415) 393-4107.

Sincerely,

Michael D. Pierson
Director
Regulatory Policy

Enclosure

PACIFIC EXCHANGE, INC.

PLAN FOR THE PURPOSE OF CREATING AND OPERATING

AN INTERMARKET OPTIONS LINKAGE

Submitted: January 19, 2000

Table of Contents

Section 1 - Preamble

The Participants submit to the SEC this Plan providing for an option intermarket communications linkage that will link the various option markets maintained by the Participants. The Participants developed this Plan pursuant to an order issued by the SEC on October 19, 1999, directing the Participants to develop an option intermarket linkage plan. The Participants request that the SEC issue an order pursuant to Section 11A(a)(3)(B) of the Exchange Act and Rule 11Aa3-2 thereunder evidencing its approval of the Plan.

Section 2 - Definitions

1) "Administrative Message" means a message sent pursuant to Section 6(c) of the Plan.

2) "Best" as used with reference to bids (offers) means the bid (offer) that is highest (lowest)except that the Best bid or offer applicable to the Firm Customer Quote Size means the bid (offer) that is highest (lowest) and that was disseminated first in time.

3) "Block Trade" means a trade on a Participant that:

(a) is of "block size," that is, involves 500 or more contracts and has a premium value of at least $150,000;

(b) is effected at a price outside of the NBBO; and

(c) involves either:

(i) a cross (where a member of the Participant represents all or a portion of the both sides of the trade), or

(ii) any other transaction (i.e., in which such member represents an order of block size on one side of the transaction only) that is not the result of an execution at the current bid or offer on the Participant.

Contemporaneous transactions at the same price on a Participant shall be considered a single transaction for the purpose of this definition.

4) "Broker/Dealer" means an individual or organization registered with the SEC in accordance with Section 15(b)(1) of the Exchange Act or a foreign broker or dealer exempt from such registration pursuant to Rule 15a-6 under the Exchange Act.

5) "Customer" means an individual or organization that is not a Broker/Dealer. Used with reference to a Linkage Order, it means an order which, if executed, would result in the purchase or sale for an account in which no Broker/Dealer has an interest.

6) "Eligible Exchange" means a national securities exchange registered with the SEC in accordance with Section 6(a) of the Exchange Act that is: (a) a Participant Exchange in OCC (as that term is defined in Section VII of the OCC by-laws); and (b) a party to the OPRA Plan (as that term is described in Section I of the OPRA Plan).

7) "Eligible Market Maker," with respect to an Eligible Options Class, means a Market Maker that:

(a) is assigned to, and is providing two-sided quotations in, the Eligible Option Class;

(b) is participating in its market's automatic execution system in such Eligible Option Class; and

(c) is not prohibited from sending Principal Orders in such Eligible Option Class through the Linkage pursuant to Section 8(b)(iii) of the Plan.

The Participants agree to approve and submit to the SEC for its consideration uniform rules governing more specifically who may be an Eligible Market Maker.

8) "Eligible Option Class" means all option series overlying a security (as that term is defined in Section 3(a)(10) of the Exchange Act) or group of securities, including both put options and call options, which class is traded on two or more Participants.

9) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

10) "Exchange Systems" are the means and related mechanisms of Participants that perform such functions as message validation, processing, logging, routing and execution (including electronic and automatic execution) of Linkage Orders, and related confirmations.

11) "Firm Customer Quote Size" with respect to a P/A Order means the the number of option contracts that the Participant receiving a P/A Order guarantees it will automatically execute at its disseminated quotation in a series of an Eligible Option Class for Customer orders entered directly for execution in that market. The Firm Customer Quote Size will be at least 20 contracts for each series of an Eligible Option Class.

12) "Firm Principal Quote Size" means the number of option contracts that a Participant guarantees it will execute at its disseminated quotation for incoming Principal Orders in an Eligible Option Class. This number shall be no fewer than 10.

13) "Immediate or Cancel Order" means a limited price order that is to be executed in whole or in part as soon as such order is received, and the portion not executed, if any, is immediately cancelled.

14) "Linkage" means the systems and data communications network that link electronically the Participants to one another for the purpose of sending and receiving Linkage Orders, related confirmations, order statuses and Administrative Messages.

15) A "Linkage Access Device" is the means through which authorized members and employees of a Participant, can send Linkage Orders and Administrative Messages through the Linkage, and can include a direct system interface between a Participant's Exchange System and the Linkage.

16) "Linkage Order" means an Immediate or Cancel Order routed through the Linkage containing the information required in Section 7(b)(i) of the Plan. There are three types of Linkage Orders:

(a) "Principal Acting as Agent ("P/A") Order," which is an order for the principal account of a Market Maker that is authorized to represent Customer orders, reflecting the terms of a related unexecuted Customer order for which the Market Maker is acting as agent;

(b) "Principal Order," which is an order for the principal account of an Eligible Market Maker and is not a P/A Order; and

(c) "Satisfaction Order," which is an order, for the principal account of a member who initiated a Trade-Through, sent through the Linkage to satisfy the liability arising from that Trade-Through.

17) "Linkage Trade" means any trade that results from the execution of a Linkage Order.

18) "Market Maker" has the meaning assigned to it in Section 3(a)(22) of the Exchange Act, and includes, but is not limited to, specialists, designated primary marker makers, lead market makers, market makers, registered option traders, primary market makers and competitive market makers.

19) "NBBO" means the national Best bid and offer in a series of an Eligible Option Class calculated by a Participant.

20) "Non-Firm" means, with respect to quotations in an Eligible Option Class, that members of a Participant are relieved of their obligations under that Participant's firm quote rule in that Eligible Option Class.

21) "OCC" means the Options Clearing Corporation.

22) "OPRA" means the Options Price Reporting Authority.

23) "OPRA Plan" means the plan filed with the SEC pursuant to Section 11Aa(1)(C)(iii) of the Exchange Act, approved by the SEC and declared effective as of January 22, 1976, as from time to time amended.

24) "Participant" means an Eligible Exchange whose participation in the Plan has become effective pursuant to Section 4(c) of the Plan.

25) "Plan" means the plan amended and restated in this instrument as from time to time amended in accordance with its provisions.

26) "Price and Time Priority" means the Best price that was disseminated by a Participant first in time.

27) "Reference Price" means the limit price attached to a Linkage Order by the sending Participant. Except with respect to a Satisfaction Order, the Reference Price is equal to the bid disseminated by the receiving Participant at the time that the Linkage Order is transmitted in the case of a Linkage Order to sell and the offer disseminated by the receiving Participant at the time that the Linkage Order is transmitted in the case of a Linkage Order to buy. With respect to a Satisfaction Order, the Reference Price shall be the price to which the member in the sending Participant is entitled under Section 8(c)(ii)(B)(1) of the Plan.

28) "SEC" means the United States Securities and Exchange Commission.

29) "Third Participating Market Center Trade-Through" means a Trade-Through in a series of an Eligible Option Class that is effected by executing a Linkage Order, and such execution results in a sale (purchase) at a price that is inferior to the Best bid (offer) being disseminated by a third Participant.

30) "Trade-Through" means a transaction in a series of an Eligible Option Class at a price that is inferior to the NBBO.

31) "Verifiable Number of Customer Contracts" means the number of Customer contracts in the book of a Participant.

Section 3 - Purpose of the Plan

The purpose of the Plan is to enable the Participants to act jointly in planning, developing, operating and regulating the Linkage as may be agreed upon by the Participants and described in the Plan so as to further the objectives of Congress as set forth in Section 11A(a) of the Exchange Act. These objectives include, but are not limited to, increasing market efficiency, enhancing competition, increasing the information available to brokers and dealers and investors, facilitating the offsetting of investors' orders and contributing to the best execution of such orders.

Section 4 - Parties to the Plan

(a) List of Parties

The parties to the Plan are as follows:

American Stock Exchange LLC ("AMEX"), registered as a national securities exchange under the Exchange Act and having its principal place of business at 86 Trinity Place, New York, New York 10006.

Chicago Board Options Exchange, Inc. ("CBOE"), registered as a national securities exchange under the Exchange Act and having its principal place of business at 400 South LaSalle Street, Chicago, Illinois 60605.

International Securities Exchange LLC ("ISE"), to be registered as a national securities exchange under the Exchange Act and having its principal place of business at 60 Broad Street, New York, New York 10004.

Pacific Exchange, Inc. ("PCX"), registered as a national securities exchange under the Exchange Act and having its principal place of business at 301 Pine Street, San Francisco, California 94104.

Philadelphia Stock Exchange, Inc. ("PHLX"), registered as a national securities exchange under the Exchange Act and having its principal place of business at 1900 Market Street, Philadelphia, Pennsylvania 19103.

(b) Compliance Undertaking

By subscribing to and submitting the Plan for filing with the SEC, each Participant agrees to enforce compliance by its members in their use of the Linkage through its facilities with the provisions of the Plan and with all actions taken by the Operating Committee, as defined in Section 5(a) of the Plan.

(c) New Participants

The Participants agree that any other Eligible Exchange may become a Participant by: (i) executing a copy of the Plan, as then in effect; (ii) providing each then-current Participant with a copy of such executed Plan; (iii) effecting an amendment to the Plan as specified in Section 5(c) of the Plan; and (iv) paying the then-current fee applicable to new Participants, as specified in Section 11(b) of the Plan.

Section 5 - Administration of the Plan

(a) Operating Committee

(i) Composition. Each Participant shall select from its staff one individual to represent such Participant as a member of the Operating Committee under the Plan, together with a substitute for such individual. Such substitute may participate in the deliberations of the Operating Committee and shall be considered a voting member thereof only in the absence of the primary representative.

(ii) Authority. The Operating Committee shall (1) oversee development and implementation of the Linkage in accordance with the specifications therefore agreed upon by each Participant, (2) monitor the Participants' use of the Linkage and (3) advise the Participants with respect to any deficiencies, problems or recommendations as the Committee may deem appropriate in its administration of the Plan. In this connection, the Operating Committee shall have authority to develop procedures and make administrative decisions necessary to facilitate the operation of the Linkage in accordance with the provisions of the Plan.

The Operating Committee shall have the specific powers and responsibilities stated in the Plan. Any instances of possible misuse or improper use of the Linkage that come to the attention of the Operating Committee may, by action of the Operating Committee, be referred to the Participant(s) having responsibility for the market(s) in which such misuse or improper use may have occurred for such action as such Participant(s) may deem appropriate.

(iii) Voting. Each Participant shall have one vote on all matters considered by the Operating Committee. Except as may otherwise be specifically provided herein, action taken pursuant to the vote of a majority of the members of the Operating Committee participating in a meeting of the Operating Committee at which a majority of the full Operating Committee is participating shall be deemed to be the action of the Operating Committee.

(b) Member Advisory Committee

Each Participant shall select from its membership at least one, and no more than three, individual(s) to represent such Participant as members of the Member Advisory Committee under the Plan. The Member Advisory Committee shall act as an advisory body to the Operating Committee and shall advise the Operating Committee with respect to any deficiencies, problems or recommendations as the Member Advisory Committee may deem appropriate in the implementation and operation of the Linkage. Each Participant shall have one vote on the Member Advisory Committee, notwithstanding how many individuals the Participant selects to serve on such committee. Action taken pursuant to majority vote of the Member Advisory Committee in a meeting of the committee at which representatives of a majority of Participants are present shall be deemed to be the action of the Member Advisory Committee.

(c) Amendments to the Plan

(i) General Amendment Authority. Except with respect to the addition of new Participants to the Plan, any proposed change in, addition to, or deletion from the Plan may be effected only by means of a written amendment to the Plan that is unanimously approved by the Participants and that: (A) sets forth the change, addition or deletion; (B) is approved by the Operating Committee pursuant to Section 5(a)(iii) of the Plan; (C) is executed on behalf of each Participant; and (D) is approved by the SEC or otherwise becomes effective pursuant to Section 11A of the Exchange Act and Rule 11Aa3-2 thereunder.

(ii) New Participants. With respect to new Participants, an amendment to the Plan may be effected by a new Eligible Exchange executing a copy of the Plan, as then in effect (with the only change being the addition of the new Participant's name in Section 4(a) of the Plan), submitting such executed Plan to the SEC, and paying the then-current fee applicable to new Participants, as specified in Section 11(b) of the Plan. Such amendment will be effective at the later of (A) the amendment being approved by the SEC or otherwise becoming effective pursuant to Section 11A of the Exchange Act and Rule 11Aa3-2 thereunder and (B) the new Participant paying the then-current fee applicable to new Participants.

(d) Participants' Rights

No action or inaction by the Operating Committee shall prejudice any Participant's right to present its views to the SEC or any other person with respect to any matter relating to the Linkage or to seek to enforce its views in any other forum it deems appropriate.

(e) Resolution of Disputes

The Operating Committee may delegate authority to render interpretative opinions to a Panel of Operating Committee members when there exists a dispute between Participants as to the application of the Plan.

(i) Applicability. A Participant may request an interpretive opinion as to the appropriateness of a ruling made by another Participant regarding the application of the Plan to any situation involving a loss of $5,000 or more that has been established pursuant to the Plan, including the mitigation provisions of the Plan (the "disputed ruling"). A request for an interpretive opinion can be made only by a Participant whose member is a party to the situation. All routine internal Participant surveillance reviews respecting the disputed ruling must have been completed prior to such request.

(ii) Panel Selection. All Operating Committee members, other than those representing the Participants involved in the situation, shall be eligible to serve as panelists. The affected Participants shall seek to select one Operating Committee member to render an interpretive opinion. If they are unable to agree on a single selection, each shall select one Operating Committee member, and the two so selected shall select one additional Operating Committee member. If a panelist selected in either way is unavailable, such panelist may designate that panelist's substitute as provided in Section 5(a)(i) of the Plan, if acceptable to the Participant(s) or panelists making the selection. If unacceptable, the Participant(s) or panelists may select another Operating Committee member.

(iii) Panel Discretion. The Panel may decline to hear any matter that it believes in its discretion is outside the scope of this Section 5(e) of the Plan, is not appropriate for an interpretive opinion, or otherwise does not present an issue appropriate for interpretation. The Panel may decline to render an interpretive opinion where the affected Participants come to agreement prior to its determination and may decline to do so where a Participant fails to cooperate. Participants may present, and the Panel may request, any information reasonably related to the disputed ruling.

(iv) Panel Determination. If the Panel finds that the facts presented are inconclusive, the disputed ruling prevails. An interpretive opinion shall not bind the affected Participants and shall not serve as binding precedent for any future interpretive assistance.

(v) Operating Committee Review. Periodic reports on the functioning of, and experience under, the dispute resolution process (particularly where a difference of opinion continues to exist) will be submitted to the Operating Committee for its information and review to engender discussion of the effectiveness of the process and of any need for amending the Plan or its interpretations so as to achieve uniformity among the Participants in the application of the Plan.

Section 6 - Linkage Overview

(a) Linkage Monitoring

Each Participant is responsible for providing a Linkage supervisory function to oversee and assure efficient and effective operation of the Linkage. In fulfillment of that responsibility, each Participant shall commit sufficient resources to address intermarket trade problems in a prompt and thorough manner. As part of this function, each Participant will operate a supervisory facility from which it will allow for direct communications with authorized persons to assure the effective operation of the Linkage. Such facility is to be used by authorized persons to resolve inter-market trading disputes and to communicate other matters related to achieving the overall objectives of the Plan. This supervisory facility shall not to be used to route Linkage Orders, confirmations, or any other information unrelated to the purposes stated above.

(b) General Operation

(i) Clearing Corporation. All Linkage Trades shall be cleared and settled through OCC.

(ii) Eligible Option Classes. The Linkage is designed to accommodate trading in all series of any Eligible Option Class.

(iii) Implementation Phase. The Linkage will be implemented in multiple phases. During Phase I, Customer orders to buy or sell 20 contracts or less that are electronically entered for execution on a Participant will be subject to further handling, as provided in Section 7(a)(ii)(A) of this Plan. Orders other than Customer orders to buy or sell 20 contracts may be executed as provided in Section 7(a)(ii)(B)-(C) of this Plan. During Phase I, the Participants will conduct a study to assess the impact of the Linkage operation or the options markets and, based on that study, will develop an amendment to this Plan for a second phase.

(c) Administrative Messages

Administrative Messages, as distinguished from orders and reports related thereto, may be sent through the Linkage. Administrative Messages may consist of free form text or fixed format messages and, depending upon the type of Administrative Message, may be sent to one, some or all trading locations, in some or all Participants.

(d) Facilities Manager

The Operating Committee shall determine the manner in which to build and operate the Linkage. If the Operating Committee determines to select a facilities manager to build and/or to operate all or part of the Linkage, it shall issue a request for proposals describing the required functionality of the Linkage and any other information that the Operating Committee deems appropriate. Such request for proposals shall contain a specification that the Linkage be developed in a manner that can accommodate, in the future, the ability to route P/A Orders based on a price-time basis, or some other pricing algorithm, as may be determined through adoption of an amendment to the Plan. The selection of the facilities manager shall require an affirmative vote of at least two-thirds of the members of the entire Operating Committee. A decision to remove, or not to renew the contract of, a facilities manager also will require the affirmative vote of at least two-thirds of the members of the entire Operating Committee. Similarly, the selection of any future facilities manager will be conducted through the request for proposals process, and any such selection will require the affirmative vote of at least two-thirds of the members of the entire Operating Committee.

Section 7 - Linkage Operations

(a) General Operation

(i) Quotations. The Linkage facilitates trades between members of different Participants. Through the Linkage, a member in any Participant may transmit, or cause to be transmitted, a Linkage Order in a series of any Eligible Option Class only as specified below, provided that continuous two-sided quotations in such series are required to be, and are, furnished by or on behalf of such Participant to the other Participants. Each Participant shall assure that orders to trade a series of an Eligible Option Class are not sent from or accepted at such Participant unless continuous two-sided quotations in such security are being furnished by such Participant.

(A) Receipt of Quotations. The generation and management of quotation information is not part of the Linkage. However, the Plan assumes that the members of each Participant have access to, for each series of an Eligible Option Class that they are trading, the Best bid and the Best offer from among the bids and offers then being furnished to the Participant. For each series of an Eligible Options Class that a Participant trades, each Participant must make available to its members trading such Eligible Option Class, the Best bid and the Best offer from among the bids and offers then being furnished to that Participant by or on behalf of the other Participants. Each Participant also agrees that it shall make available to its members that trade an Eligible Option Class the bid price and the offer price for such series then being furnished to that Participant by or on behalf of the other Participants.

(B) Furnishing of Quotations. As to each series of an Eligible Option Class, each Participant shall furnish, or cause to be furnished, to OPRA the current bid-ask quotation emanating from its market. Each Participant shall, to the best of its ability, assure that accurate and timely quotations are furnished to OPRA. Each quotation so furnished shall be considered "firm" to the extent provided in the Plan.

(ii) Linkage Transactions. During Phase I, orders to buy or sell contracts of a series of an Eligible Option Class will be handled with respect to the Linkage as follows:

(A) P/A Orders Eligible for Automatic Execution in Receiving Market.

(1) Requirements. A Customer Order for 20 contracts or less that is entered for execution in the automatic execution system of a Participant may be automatically executed by that Participant if it is disseminating a quote with Price and Time Priority. However, if a Participant receives a Customer order to buy (sell) 20 contracts or less for execution on that Participant's automatic execution system, and that Participant is not disseminating a quote with Price and Time Priority, then the following requirements will apply:

(a) at the time it receives a Customer order to buy (sell) 20 contracts or less for automatic execution, the Participant must automatically generate a P/A Order and transmit it to the Participant that is disseminating a quotation with Price and Time Priority for execution on that Participant's automatic execution system.

(b) If the Participant is disseminating a quote at the NBBO at the time that it receives a Customer order to buy (sell) 20 contracts or less for automatic execution, but that Participant was not the first to disseminate that quote, then that Participant must either: (i) automatically generate a P/A Order and transmit it to the Participant that is disseminating a quotation with Price and Time Priority for execution on that Participant's automatic execution system; or (ii) execute the order at a price that gives the Customer a better price than the customer would have received if the order were executed at the NBBO.

Notwithstanding the foregoing, a Participant who receives a Customer order to buy (sell) 20 contracts or less in an Eligible Option Class for automatic execution on that Participant is not required to send a P/A Order to another Participant with Price and Time Priority if that other Participant does not provide a Firm Customer Quote Size of at least 20 contracts in that particular Eligible Option Class.

The receiving Participant must execute the P/A Order in its automatic execution system, if available, if its disseminated quotation is equal to or better than the Reference Price when that order arrives at the receiving Participant. That Participant then must immediately report the trade to OPRA for dissemination under the OPRA Plan with the identifier assigned to the receiving Participant. Except as explicitly provided in paragraph (ii)(B)(1)(b), no member may break up a Customer Order that is larger than the Firm Customer Quote Size into multiple orders, one or more of which is equal to or smaller than the Firm Customer Quote size, so that such orders could be represented as multiple P/A Orders through the Linkage. A Market Maker may not send a P/A Order eligible for automatic execution at a price inferior to the NBBO.

(2) Example. As a non-exclusive example of how such a Customer order would be executed, assume that a Broker/Dealer receives a Customer order to sell 20 contracts of an Eligible Option Class that is traded on Exchanges A, C and P, and the Broker/Dealer directs the order to Exchange A. At the time the order is received on Exchange A, Exchange A is disseminating a bid of 4.20, Exchange C is disseminating a bid of 4.30 and Exchange P is disseminating a bid of 4.30. If Exchange C was first to disseminate its bid of 4.30, then Exchange A would be required to automatically generate a P/A Order for 20 contracts and transmit it to Exchange C.

(3) Second Example. As an additional non-exclusive example of how such a Customer order would be executed, assume that a Broker/Dealer receives a Customer order to sell 20 contracts of an Eligible Option Class that is traded on Exchanges A, C and P, the Broker/Dealer directs the order to Exchange A. Exchange A, Exchange C and Exchange P are each disseminating bids of 4.30, with Exchange P having first time priority. Exchange A may then either send a P/A order to Exchange P, or alternatively, may automatically execute the order at a price higher than 4.30.

(B) P/A Orders Not Eligible for Automatic Execution in Receiving Market.

(1) Requirements. There are two ways in which an Eligible Market Maker may send through the Linkage a P/A Order for execution at the NBBO outside of the automatic execution system of the receiving Participant if the size of such P/A Order is larger than the Firm Customer Quote Size. These two ways are:

(a) The member of the sending Participant can send a P/A Order representing the entire Customer order. If the receiving Participant's disseminated quotation is equal to or better than the Reference Price when the P/A Order arrives at that market, the receiving Participant must execute the P/A Order at its disseminated quotation for at least the Firm Customer Quote Size. Within 15 seconds of receipt of such order (or such longer period as the Operating Committee may determine), it must reply to the sending Participant, informing that Participant of the amount of the order that it executed and the amount, if any, that was canceled; or

(b) The member of the sending Participant can send an initial P/A Order for the Firm Customer Quote Size pursuant to paragraph (A) above. If the Participant that executed that P/A Order continues to disseminate the same quote at the NBBO 15 seconds after reporting the execution of the initial P/A Order, the member that sent the original P/A Order may send an additional P/A Order to the same Participant. If sent, such additional P/A Order must be for at least the lesser of 100 contracts or the entire remainder of the Customer order.

In each instance, the receiving Participant will immediately report any trade to OPRA for dissemination under the OPRA Plan with the identifier assigned to the receiving Participant. In addition, if the receiving Participant does not execute the P/A Order in full, it must move its quote to a price inferior to the Reference Price of the P/A Order. An Eligible Market Maker may not send a P/A Order ineligible for automatic execution at a price inferior to the NBBO.

(2) Example. As a non-exclusive example of how such a P/A Order would be routed, assume that a Broker/Dealer receives a Customer order to sell 200 contracts of a series of an Eligible Option Class that is traded on exchanges A, C and P, and directs the order to exchange A for execution. Further assume that the Firm Customer Quote Size is 25 contracts on each of the three exchanges. In this example, the Market Maker on exchange A handling the order would attempt to execute the order on that exchange at the NBBO or better. Quotation information available at the location where the Market Maker is located shows the bids and offers being disseminated by Participants other than exchange A, identifying the Participant with the Best bid and the Participant with the Best offer. The Market Maker on exchange A finds that the highest bid on exchange A is 2.70. The Market Maker observes higher bids of 2.75 being disseminated by exchanges C and P. Having learned this information, the Market Maker on exchange A would attempt to sell the contracts on behalf of its Customer at 2.75 through the Linkage by directing P/A Orders to exchange A and/or exchange P at 2.75 . Any such P/A Order is firm and irrevocable. The two ways in which the Market Maker on exchange A can represent the Customer order through the Linkage are as follows:

(a) The Market Maker may choose to enter the 200 contract P/A Order into the Linkage as a single order. In that case, if the 2.75 bid is disseminated when the P/A Order to sell is received at the receiving Participant, or if a higher bid is available, the order shall be executed at such bid for at least 25 contracts, the Firm Customer Quote Size. The receiving Participant will have 15 seconds from receipt of the P/A Order to inform the Market Maker on exchange A of the quantity executed and the quantity, if any, that was not filled and to move its quote if it did not execute the order in full; or

(b) The Market Maker may choose to send a P/A Order for 25 contracts, the Firm Customer Quote Size, to either exchange C or exchange P. Assume that the Market Maker sends the sell order to exchange C and that exchange provides an automatic execution of the order. If exchange C continues to disseminate the same bid 15 seconds after reporting the execution of the initial P/A Order, and that bid continues to be the NBBO, the Market Maker then may (but is not obligated to) send an additional P/A Order to exchange C. If the Market Maker does send an additional P/A Order to Exchange C, that order must be for at least 100 contracts (up to the remaining 175 contracts). Since this order is for greater than the Firm Customer Quote Size, exchange C will have 15 seconds from receipt of the P/A Order to inform the Market Maker on exchange A of the quantity executed (and to move its quote if it did not execute the order in full), and exchange C must be firm for at least 25 contracts, the Firm Customer Quote Size.

(C) Principal Orders. An Eligible Market Maker may access the Linkage on behalf of its principal trading account by sending a Principal Order at the NBBO as specified in this section. An Eligible Market Maker may not send a Principal Order through the Linkage at a price inferior to the NBBO. If the Principal Order is not larger than the Firm Principal Quotation Size, the receiving Participant shall execute the Principal Order in its automatic execution system, if available, if its disseminated quotation is equal to or better than the price specified in the Principal Order when that order arrives at the receiving Participant. If the Principal Order is larger than the Firm Principal Quotation Size, the receiving Participant must (1) execute the Principal Order at its disseminated quotation for at least the Firm Principal Quote Size and (2) within 15 seconds of receipt of such order, reply to the sending Participant, informing that Participant of the amount of the order that was executed and the amount, if any, that was canceled. In addition, if the receiving Participant does not execute the Principal Order in full, it must move its quote to a price inferior to the Reference Price of the Principal Order.

If an Eligible Market Marker on a Participant sends a Principal Order to another Participant for automatic execution in a series of an Eligible Option Class, the sending Participant cannot send another Principal Order in the same Eligible Option Class for at least 15 seconds unless there is a change of price in the receiving Participant's disseminated offer (bid) in the series of the Eligible Option Class in which the first Principal Order was executed and such price continues to be at the NBBO. After this 15 second period, and until there is such a change in the disseminated offer (bid), the Participant that sent the initial Principal Order for automatic execution may only send Principal Orders for greater than the Firm Principal Quotation Size. This restriction on sending Principal Orders for automatic execution will expire one minute after the time of the initial automatic execution.

(D) Satisfaction Order. Any member of a Participant may send a Satisfaction Order to satisfy a Trade-Through as specified in Section 8(c) of the Plan.

(iii) Failure to Respond in a Timely Manner to a P/A Order or Principal Order. A member that sends a P/A Order or Principal Order through the Linkage, and who does not receive a reply to such order within 30 seconds from sending the order, may reject any response received thereafter purporting to report an execution of all or part of that order. The member that sent the original P/A Order or Principal Order must inform the receiving Participant that it is rejecting the response within 15 seconds of receipt of such response. Upon receipt of such rejection, the receiving Participant must report the cancellation of the transaction to OPRA.

(b) Technical Matters

(i) Linkage Order Information. A Linkage Order shall, at the minimum: