[Federal Register Volume 68, Number 49 (Thursday, March 13, 2003)]
[Notices]
[Pages 12133-12134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6069]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47457; File No. SR-PCX-2003-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to the Eligibility of Timed Orders During the Opening Auction 
and Market Order Auction, Amending PCXE Rules 7.34 and 7.35

March 6, 2003.
    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 March 3, 2003, the Pacific Exchange, Inc. (``PCX'') filed with the 
Securities and Exchange Commission the proposed rule change as 
described in Items I and II, below, which the PCX has prepared. 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\ 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 PCX, through its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE''), proposes to amend its rules governing the Archipelago 
Exchange (``ArcaEx''), the PCXE's equities trading facility, by: (1) 
Amending PCXE Rule 7.34(d) to clarify that a specific type of Limited 
Price Order; namely a Timed Order \3\ designated as good from 5 a.m. 
(Pacific Time) or good from 6:30 a.m. (Pacific Time), will be excluded 
from eligibility for execution during the Opening Auction and Market 
Order Auction, respectively; and (2) amending PCXE Rule 7.35(a) through 
(c) to exclude specified Timed Orders during the applicable auctions. 
The text of the proposed rule change is below. New text is italicized.
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    \3\ See PCXE Rule 7.31(q) (definition of a ``Timed Order'').
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Rule 7--Equities Trading

Orders and Modifiers

Trading Sessions
    Rule 7.34(a)-(c)--No change.
    (d) Order Permitted in Each Session.
    (1) During the Opening Session:
    (A)-(F)--No change.
    (G) Limited Price Orders are eligible for execution during the 
Opening Session; provided, however, a Timed Order designated for the 
Opening Session and designated as good from 5 am (Pacific Time) is not 
eligible for execution during the Opening Auction. Similarly, a Timed 
Order designated for the Opening Session and designated as good from 
6:30 am (Pacific Time) is not eligible for execution during the Market 
Order Auction
    (H)--No change.
    (2)-(3)--No change.
    (e)-(f)--No change.

Opening Session Auctions

    Rule 7.35(a) Order Entry and Cancellation Before Opening Auction
    (1)--No change.
    (2) Only Limited Priced Orders designated for the Opening Session 
will be eligible for the Opening Auction. However, a Limited Price 
Order designated for the Opening Session and entered as a Timed Order 
good from 5 am (Pacific Time), is not eligible for execution during the 
Opening Auction. Market orders entered before the Opening Auction or 
during the Opening Session will participate in the Market Order 
Auction. However, a Limited Price Order designated for the Opening 
Session and entered as a Timed Order good from 6:30 am (Pacific Time), 
is not eligible for execution during the Market Order Auction. Limited 
Price Orders, including Timed Orders, designated for the Core Trading 
Session and not designated for the Opening Session will become eligible 
for execution at the commencement of the Market Order Auction pursuant 
to Rule 7.35(c).
    (3)-(4)--No change.
    (b) Opening Auction.
    (1) At 5 am (Pacific Time), Limited Priced Orders designated for 
the Opening Session are matched and executed in the Opening Auction; 
provided, however, a Limited Price Order designated for the Opening 
Session and entered as a Timed Order good from 5 am (Pacific Time), is 
not eligible for execution during the Opening Auction.
    (2)-(3)--No change.
    (4) A Limited Price Order designated for the Opening Session and 
entered as a Timed Order good from 6:30 am (Pacific Time) is not 
eligible for execution during the Market Order Auction.
    (c)-(f)--No change.

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

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

1. Purpose
    ArcaEx commenced operations on March 22, 2002, replacing the PCXE's 
traditional trading floor facilities. As part of its continuing review 
of the system's functionality and its duty to ensure the reporting of 
current, accurate, and consistent information regarding the Indicative 
Price Match \4\ and Imbalances \5\ on ArcaEx, the PCXE proposes to 
amend its rule to exclude Timed Orders designated as good from 5 a.m. 
(Pacific Time) or 6:30 a.m. (Pacific Time) from execution during the 
Opening Auction and Market Order Auction, respectively.
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    \4\ PCXE Rule 1.1(r) provides, in part: ``[f]or purposes of the 
Opening Auction [and] the Market Auction, as the case may be, * * * 
the term ``Indicative Match Price'' shall mean for each security (1) 
the price at which the maximum volume of shares are executable; or 
(2) if there are two or more prices at which the maximum volume of 
shares are executable, the price that is closest to the closing 
price of the previous day's normal market hours * * * as determined 
by the Consolidated Tape will establish the opening price, provided 
that such price would trade through an eligible Limited Price Order 
designated for such an auction, then the opening price will occur at 
the best price level available where no trade through occurs.''
    \5\ PCXE Rule 1.1(q) provides, in part: ``[f]or purposes of the 
Opening Auction [and] the Market Auction * * * as the case may be, 
the term ``Imbalance'' shall mean the number of buy or sell shares 
that can not be matched with other shares at the Indicative Match 
Price at any given time.''
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    ArcaEx operates three trading sessions each day the PCXE is open 
for business.\6\ The proposed rule change concerns only the Opening 
Session. The Opening Session begins at 5 a.m. (Pacific Time) and 
concludes at 6:30 a.m. (Pacific Time) with the

[[Page 12134]]

commencement of the Core Trading Session. The Opening Session is 
comprised of the Opening Auction and, thereafter, the Market Order 
Auction.\7\ Limited Price Orders are matched in the Opening Auction or 
the Market Order Auction and executed at the Indicative Match Price.
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    \6\ The three trading sessions are (1) the Opening session; (2) 
the Core Session; and (3) the Late Trading Session. See PCXE Rule 
7.34(a).
    \7\ See PCXE Rule 7.35(b) and PCXE Rule 7.35(c), respectively, 
for a detailed discussion of the Opening Auction and Market Order 
Auction.
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    ArcaEx currently permits a Timed Order designated as good from 5 
a.m. (Pacific Time) and designated for the Opening Session to 
participate in the Opening Auction. Conversely, a Timed Order 
designated as good from 6:30 a.m. (Pacific Time) and designated for the 
Opening Session does not participate in the Market Order Auction. The 
proposed rule change is intended to reconcile the treatment of Timed 
Orders during the Opening Session. Accordingly, Timed Orders designated 
as good from 5 a.m. (Pacific Time) or 6:30 a.m. (Pacific Time) and 
designated for the Opening Session will not be eligible for inclusion 
in the Opening Auction or the Market Order Auction and, therefore, will 
not be reported for purposes of the Indicative Match Price and 
Imbalance. The PCX believes that the proposed change will facilitate 
ArcaEx's dissemination of consistent information.
2. Basis
    The PCX believes that the proposed rule change is consistent with 
Section 6(b) of the Act \8\ and furthers the objectives of Section 
6(b)(5) of the Act \9\ because it is designed to promote just and 
equitable principals of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments and perfect the mechanisms of a free and open 
market, and to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The PCX 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

    The PCX neither solicited nor received written comments on the 
proposed rule change.

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

    The PCX submitted a draft of this filing, including the proposed 
new rule text, to the Commission in fulfillment of the five-day draft 
notice period of Rule 19b-4(f)(6).\10\ The PCX has further designated 
that the proposed rule change: (1) Does not significantly affect the 
protection of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) does not become operative 
for 30 days from the date of filing, or such shorter time as the 
Commission may designated if consistent with the protection of 
investors and the public interest. Therefore, the proposed rule change 
has become effective immediately upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \13\ does not 
become operative until 30 days after the date of filing or such shorter 
time as the Commission may designate if such action is consistent with 
the protection of investors and the public interest. The PCX believes 
that the proposed rule change will reconcile the treatment of Timed 
Orders during the Opening Session and will eliminate any potential 
confusion with respect to the use of this order modifier. The PCX also 
believes that the rule change is necessary and appropriate in order to 
promote a fair, orderly, and competitive market. Therefore, the PCX has 
requested that the Commission accelerate the implementation of the 
proposed rule changes so that it may become operative immediately, 
before the 30-day period specified in Rule 19b-4(f)(6)(iii).\14\
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    \13\ Id.
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that it is consistent with the protection 
of investors and the public interest to waive the 30-day period and to 
designate that the proposed rule change has become operative as of 
March 3, 2003, the date the PCX filed the proposal with the 
Commission.\15\ At any time within 60 days after the filing of the 
proposed rule change, the Commission may summarily abrogate the rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \15\ The Commission notes that it has considered the proposed 
rule's impact on efficiency, competition, and capital formation for 
the sole purpose of accelerating the operative date of the proposed 
rule change. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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-2003-10 and should be 
submitted by April 3, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6069 Filed 3-12-03; 8:45 am]
BILLING CODE 8010-01-P