[15102]
September 4, 2002
TO: EQUITY MARKETS ADVISORY COMMITTEE No. 22-02
RE: SEC GRANTS DE MINIMIS EXEMPTION FROM THE ITS PLAN’S TRADE-THROUGH
PROVISIONS
The SEC has issued an order1 granting, on a temporary basis, a de minimis exemption for
transactions in certain ETFs from the ITS Plan’s trade-through provisions. In particular, the
Order exempts participants of the ITS Plan and their members from the Plan’s trade-through
provisions from September 4, 2002 through June 4, 20032 with respect to transactions in QQQs,
DIAMONDs, and SPDRs that are executed at a price that is no more than three cents lower than
the highest bid displayed in the Consolidated Quote System (“CQS”) and no more than three
cents higher than the lowest offer displayed in the CQS.
The Order states that with the introduction of decimal pricing and technology changes
that have enabled reduced execution times, the trade-through provisions of the ITS Plan have
increasingly limited the ability of a market participant to provide an automated execution when
a better price is displayed by another market participant that does not offer automated
executions. The Order further states that the trade-through provisions are particularly
restrictive in the case of the QQQs, DIAMONDs and SPDRs, as these ETFs are highly liquid
securities and their value is readily derived from the values of the underlying shares.
Therefore, the ability to obtain an immediate execution at a displayed price may be more
important than the opportunity to obtain a better price.
The Order states that the SEC believes that exempting these types of transactions from
the ITS Plan’s trade-through provisions will, on balance, provide investors with increased
liquidity and with increased choice of execution venues while limiting the possibility that
investors will receive significantly inferior prices.
Ari Burstein
Associate Counsel
1 Securities Exchange Act Release No. 46428 (August 28, 2002) (“Order”). The Order can be found on the SEC’s
website at http://www.sec.gov/rules/other/34-46428.htm
2 The Order states that by granting the exemption on a temporary basis, the SEC will be able to gather data necessary
to study the effects of an exemption from the ITS trade-through provisions and the desirability of extending the
exemption.