[Federal Register Volume 68, Number 200 (Thursday, October 16, 2003)]
[Notices]
[Pages 59661-59663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26100]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48603; File No. SR-PCX-2003-48]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto, by the Pacific Exchange, Inc. 
Relating to the Establishment of a New Total Order Imbalance Indicator

October 8, 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 September 22, 2003, the Pacific Exchange, Inc. (``PCX'') submitted 
to the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the PCX. On September 30, 2003, the PCX submitted 
Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Peter D. Bloom, Managing Director, 
Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation, Commission, dated September 29, 2003 
(``Amendment No. 1''). In Amendment No. 1, the PCX submitted a new 
Form 19b-4, which replaced the original filing in its entirety.
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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 facility (``ArcaEx''), the equities trading facility of PCXE, 
by: (1) amending PCXE Rule 1.1(q) to add the definition of Total 
Imbalance and Market Imbalance; and (2) amending PCXE Rule 7.35 to add 
a new Total Imbalance indicator to its Market Order Auction and Trading 
Halt Auction display.
    The text of the proposed rule change, as amended, is below. 
Proposed additions are in italics.
* * * * *

PCX Equities, Inc.

Rule 1--Definitions
Rule 1.1--(No change).
    (a)-(p)--(No change).
    (q) For the purposes of the Opening Auction, the Market Order 
Auction and the Trading Halt Auction, as the case may be[,]:
    (1) the term ``Imbalance'' shall mean the number of buy or sell 
shares that [can not] cannot be matched with other shares at the 
Indicative Match Price at any given time.
    (A) the term ``Total Imbalance'' shall mean the net Imbalance of 
buy (sell) orders at the Indicative Match Price for all orders that are 
eligible for execution during the applicable auction.
    (B) the term ``Market Imbalance'' shall mean the imbalance of any 
remaining buy (sell) Market Orders that are not matched for execution 
during the applicable auction.
    (r)-(aaa)--No change.
* * * * *
Rule 7--Equities Trading
Opening Session Auctions
Rule 7.35 (No change).
    (a)-(b)--(No change.)
    (c) Market Order Auction.
    (1) Publication of Indicative Match Price and Imbalances
    (A) Beginning at 5:00 am (Pacific Time), and updated real-time 
thereafter, [various times thereafter as determined from time to time 
by the Corporation,] the Indicative Match Price of the Market Order 
Auction and the volume of Market and Limit orders available to trade at 
such price, and the Market and Total Imbalance associated with the 
Market Order Auction, if any, shall be published via electronic means 
[as determined from time to time by the Corporation. If such a price 
does not exist (i.e., there is an Imbalance of market orders), the 
Archipelago Exchange shall indicate via electronic means that an 
Indicative Match Price does not exist]. Market orders shall be included 
for purposes of calculating the Total Imbalance and Market Imbalance. 
Limit orders shall only be included in the Total Imbalance 
calculations.

Example 1:

    (1) Market order to buy 5000 shares;
    (2) Auction-Only Limit Order to sell 1000 at 50;
    (3) Limit order to sell 1000 at 50.50; and
    (4) Limit order to sell 500 at 50.75.
    The Archipelago Exchange will publish an Indicative Match Price of 
50.75, a volume of 2500 shares, a buy Market Imbalance of 2500 shares, 
and a Total Imbalance of 2500 shares.

Example 2:

    (1) Market order to buy 3000 shares;
    (2) Market order to sell 1000 shares;
    (3) Limit order to sell 1000 shares at 41.00; and
    (4) Limit order to sell 1000 shares at 41.25.
    The Archipelago Exchange will publish an Indicative Match Price of

[[Page 59662]]

41.25 and a match volume of 3000 shares and will not publish an 
Imbalance.
    (B) If an Indicative Match Price does not exist, the Archipelago 
Exchange shall indicate via electronic means that an Indicative Match 
Price does not exist. [Beginning at 5:00 am (Pacific Time), and various 
times thereafter as determined from time to time by the Corporation, 
the market order Imbalance associated with the Market Order Auction, if 
any, shall be published via electronic means as determined from time to 
time by the Corporation.]
    (C) If the difference between the Indicative Match Price and the 
closing price of the previous trading day's normal market hours, as 
determined by the Consolidated Tape, is equal to or greater than a pre-
determined amount, as determined from time to time by the Corporation, 
the Archipelago Exchange will assign a ``SIG'' designator to such 
Indicative Match Price and publish such designator via electronic means 
as determined from time to time by the Corporation.

[Example:

    (1) Market order to buy 5000 shares;
    (2) Auction-Only Limit Order to sell 1000 at 50;
    (3) Limit order to sell 1000 at 50.50; and
    (4) Limit order to sell 500 at 50.75.

    The Archipelago Exchange will publish an Indicative Match Price of 
50.75, a volume of 2500 shares, and a buy Imbalance of 2500 shares.]

[Example:

    (1) Market order to buy 3000 shares;
    (2) Market order to sell 1000;
    (3) Limit order to sell 1000 at 41.00; and
    (4) Limit order to sell 1000 at 41.25.
    The Archipelago Exchange will publish an Indicative Match Price of 
41.25 and a volume of 3000 shares and will not publish an Imbalance.]
    (2)-(3)--(No change).
    (d) Re-Opening After Trading Halts. To re-open trading in a 
security following a trading halt in that security, the Archipelago 
Exchange shall conduct a Trading Halt Auction, as described below:
    (1)--(No change).
    (2) Publication of Indicative Match Price and Imbalances.
    (A) Immediately after trading is halted in a security, and updated 
real-time thereafter [various times thereafter as determined from time 
to time by the Corporation], the Indicative Match Price of the Trading 
Halt Auction and the volume available to trade at such price, shall be 
published via electronic means [as determined from time to time by the 
Corporation]. If such a price does not exist [(i.e., there is an 
Imbalance of market orders)], the Archipelago Exchange shall indicate 
via electronic means that an Indicative Match Price does not exist.
    (B) Immediately after trading is halted in a security, and [various 
times thereafter as determined from time to time by the Corporation] 
updated real-time thereafter, the [m]Market [order] and Total Imbalance 
associated with the Trading Halt Auction, if any, shall be published 
via electronic means [as determined from time to time by the 
Corporation]. Market orders shall be included for purposes of 
calculating the Total Imbalance and Market Imbalance. Limit orders 
shall only be included in the Total Imbalance calculations.
    (C)--(No change).
    (3)-(6)--(No change).
    (e)-(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 on the proposed rule change. 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 such statements.

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

1. Purpose
    As part of its continuing efforts to enhance participation on 
ArcaEx, the PCX is proposing to add a new imbalance indicator to its 
Market Order Auction and Trading Halt Auction display to reflect the 
total net imbalance of market and limit orders at the indicative match 
price. This imbalance indicator will be in addition to the already 
existing market imbalance indicator that displays the imbalance of 
unmatched market orders. The PCX believes that the display of the new 
total imbalance indicator will provide ETP Holders and Sponsored 
Participants (collectively ``Users'') with more information regarding 
auction imbalances. Furthermore, the PCX proposes to add the terms 
``Total Imbalance'' and ``Market Imbalance'' to PCXE Rule 1.1(q). The 
PCX is also proposing to amend PCXE Rule 7.35(c) and (d) to clarify 
that the published Total Imbalance or Market Imbalance (if any exist) 
may contain market and/or limit orders.
    Currently, PCXE Rule 1.1(q) refers to the term ``Imbalance.'' The 
PCX proposes to amend PCXE Rule 1.1(q) to define the terms ``Total 
Imbalance'' and ``Market Imbalance'' for clarity. Total Imbalance shall 
mean the net imbalance of buy (sell) orders at the Indicative Match 
Price for all orders that are eligible for execution during the 
applicable auction. The term ``Market Imbalance'' shall mean the 
imbalance of any remaining buy (sell) Market Orders that are not 
matched for execution during the applicable auction.
    The PCXE's current rules governing the publication of imbalances 
associated with its Market Order Auction and Trading Halt Auction are 
set forth in PCXE Rule 7.35. The PCX now proposes to add to PCXE Rule 
7.35(c) and (d) a Total Imbalance indicator. The current rule only 
refers to publishing a Market Imbalance. In order to provide more 
information about the auction imbalance during the Market Order Auction 
and Trading Halt Auction, the PCX proposes to also publish the Total 
Imbalance, if any exists, to reflect the fact that the total size of 
the order imbalance includes both market and limit orders. The 
dissemination of this new imbalance indicator does not impact the 
operation of the existing Market Order Auction or Trading Halt Auction 
processes as described in PCXE Rule 7.35(c) and (d), respectively.
    The PCX believes that the dissemination of the aforementioned 
imbalance indicators would provide Users with additional information 
with which to make trading decisions during the auction process. 
Accordingly, this would facilitate enhanced order interaction and 
foster price competition. The PCX believes that the proposed rule 
change, as amended, would provide a more efficient and effective market 
operation, and would enhance the information available to investors.
2. Statutory Basis
    The PCX believes that the proposed rule change, as amended, is 
consistent with Section 6(b) \4\ of the Act, in general, and further 
the objectives of Section 6(b)(5),\5\ in particular, because it is 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments and perfect

[[Page 59663]]

the mechanisms of a free and open market and to protect investors and 
the public interest. In addition, the PCX believes that the proposed 
rule change, as amended, is consistent with provisions of Section 
11A(a)(1)(B) of the Act,\6\ which states that new data processing and 
communications techniques create an opportunity for more efficient and 
effective market operations.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78k(a)(1)(B).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The PCX does not believe that the proposed rule change, as amended, 
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 concerning 
the proposed rule change.

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 PCX consents, the Commission will:
    (A) by order approve such proposed rule change, as amended; or
    (B) institute proceedings to determine whether the proposed rule 
change, as amended, 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, as amended, 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 filings will also be available for inspection and 
copying at the principal office of the PCX. All submissions should 
refer to File No. SR-PCX-2003-48 and should be submitted by November 6, 
2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-26100 Filed 10-15-03; 8:45 am]
BILLING CODE 8010-01-P