[Federal Register Volume 65, Number 23 (Thursday, February 3, 2000)]
[Notices]
[Pages 5383-5384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2389]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42357; File No. SR-PCX-99-50]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. Relating to Non-Agency Orders in 
P/COAST

January 27, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 18, 1999, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend its rules to allow non-agency 
orders to be executed in the P/COAST system.\3\ The text of the 
proposed rule change is available at the Office of the Secretary, the 
PCX and at the Commission.
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    \3\ P/COAST, the ``Pacific Computerized Order Access SysTem,'' 
is the Exchange's communication, order routing and execution system 
for equity securities. It operates on a dual processing system, with 
mainframe computers in San Francisco and Los Angeles. The system 
allows trading to be integrated from two separate trading floors. 
See PCX Rule 5.25.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, pursuant to PCX Rule 5.25(b)(1), only ``agency'' orders 
are permitted to be routed through and executed in the P/COAST 
system.\4\ While the PCX Rules do not currently define the term 
``agency orders,''\5\ the Exchange notes that, in general, all orders 
are either ``agency'' orders or ``principal'' orders, i.e., orders for 
the principal account of a registered broker-dealer.\6\ In any event, 
under the Exchange's proposal, the distinction will be abolished so the 
both agency and principal orders will be permitted to be executed 
through the P/COAST system.
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    \4\ Cf. Boston Stock Exchange (``BSE'') Rules, ch. XXXIII, sec. 
1(d); Cincinnati Stock Exchange (``CSE'') Rules 11.8 and 11.9; 
Chicago Stock Exchange (``CHX'') Rules, art. XX, Rule 37; and 
Philadelphia Stock Exchange (``Phlx'') Rule 229.
    \5\ Cf. CSE Rule 11.8(b) (``For purposes of Rule 11.8, a public 
agency order shall mean any order for the account [of] a person 
other than a member, which order is represented, as agent, by a 
member''); CSE Rule 11.9(a)(7) (``The term `public agency order' 
means any order for the account of a person other than a member, an 
Approved Dealer or a person who could become an Approved Dealer by 
complying with this Rule with respect to his use of the System, 
which order is presented, as agent, by a User''); CSE Rule 
11.9(a)(8) (``The term `professional agency order' means an order 
entered by a User as agent for the account of a broker-dealer, a 
futures commission merchant, or a member of a contract market''); 
NASD Manual--The Nasdaq Stock Market, Rule 4710(h) (``The term 
`agency order' shall mean public customer orders which are executed 
by the SOES Order Entry Firm on an agency basis. It shall also 
include, for purposes of these rules, an order entered into SOES on 
a principal basis by a SOES Order Entry Firm that is not a market 
maker in the SOES security, in SOES or otherwise, where the SOES 
Order Entry Firm has contemporaneously received an order from a 
customer and executed the transaction on a riskless principal 
basis''); and Phlx Rule 229, Supp. Mat. .02 (``For purposes of the 
PACE System, an agency order is any order entered on behalf of a 
public customer, and does not include any order entered for the 
account of a broker-dealer, or any account in which a broker-dealer 
or an associated person of a broker-dealer has any direct or 
indirect interest''). See also New York Stock Exchange Information 
Memo No. 96-36 re New Audit Trail Identifiers (defining the term 
``As Agent for Other Member, Competing Market-Maker'' as ``a member 
or member organization trading as agent for another member's 
competing market-maker account'' and also defining ``Other Agency'' 
as a member or member organization trading as agent for ``any other 
customer (including institutions, non-member broker/dealers and 
managed accounts'').
    \6\ See supra notes 2-3.
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    The Exchange is proposing to eliminate Rule 5.25(b)(1) as a 
competitive measure. The Exchange believes that the rule change will 
help to attract new market participants to the PCX and will result in 
an increase in the amount of order flow currently sent to the Exchange.
    The Exchange is not proposing to change its existing rules 
regarding the priority of bids and offers,\7\ which do not currently 
distinguish between agency and principal orders.\8\ Accordingly, agency 
and principal orders will, in general, be on a par with respect to 
their priority for execution in the P/COAST system.
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    \7\ See, e.g., PCX Rule 5.8(c).
    \8\ However, the Exchange notes that the rule change will not 
alter the rule that orders for the proprietary accounts of PCX 
specialists and floor brokers must yield priority, parity and 
precedence to other orders (unless an exception applies). See SEC 
Rule 11a-1 et seq.
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2. Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \9\ of the Act, in general, and furthers the objectives of 
section 6(b)(5),\10\ in particular, that it is designed to facilitate 
transactions in securities, to promote just and equitable principles of 
trade, to protect investors and the public interest, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
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    \9\ 15 U.S.C. 78(f)(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

[[Page 5384]]

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
PCX. All submissions should refer to File No. SR-PCX-99-50 and should 
be submitted by February 23, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 15 U.S.C. 78f(b)(5).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-2389 Filed 2-02-00; 8:45 am]
BILLING CODE 8010-01-M