[Federal Register Volume 68, Number 209 (Wednesday, October 29, 2003)]
[Notices]
[Pages 61711-61712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27229]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48676; File No. SR-PCX-2003-38]


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 Cross-and-Post Order Type

October 21, 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 July 23, 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 the PCX has 
prepared. On September 25, 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\ Amendment No. 1 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''), is proposing to adopt new rules for the implementation of a 
new order type called a ``Cross-and-Post Order'' for use on the 
Archipelago Exchange (``ArcaEx'').
    The text of the proposed rule change is below. Proposed additions 
are in italics.
* * * * *

PCX Equities, Inc.

Rule 7

Equities Trading

Orders and Modifiers

    Rule 7.31 (a)-(cc)--(No change.)
    (dd)-(ee)--Reserved.
    (ff) Cross-and-Post Order. A Cross Order that is to be executed in 
whole or in part on the Corporation pursuant to Rule 7.31(s) where any 
unexecuted portion of the Cross-and-Post Order will be displayed in the 
Arca Book at the cross price.
    The Corporation will cancel the Cross-and-Post Order at the time of 
order entry, if:

[[Page 61712]]

    (1) The cross price would cause an execution at a price that trades 
through the NBBO; or
    (2) The cross price is between the BBO and does not improve the BBO 
by the MPII pursuant to Rule 7.6(a), Commentary .06.
* * * * *

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 adopt a new order type called a 
``Cross-and-Post Order.'' The PCX believes that this new order type 
will provide ETP Holders and Sponsored Participants (collectively 
``Users'') with more flexibility to facilitate cross transactions.
    The PCX proposes to add PCXE Rule 7.31(ff) to define a Cross-and-
Post Order. The PCX proposes that a Cross-and-Post Order would be an 
order that is executed pursuant to the existing cross rules \4\ while 
allowing for any residual portion of the cross order to be displayed in 
the Arca Book; provided, however, that the ArcaEx trading system would 
cancel a Cross-and-Post Order at the time of order entry if: (i) The 
cross price would cause an execution at a price that trades through the 
NBBO; or (ii) the cross price is between the BBO and does not improve 
the BBO by the minimum price improvement increment (``MPII'') pursuant 
to PCXE Rule 7.6(a), Commentary .06.\5\ The PCX believes that Cross-
and-Post Orders would facilitate order interaction and provide for 
greater execution frequency of cross orders in their entirety. In 
addition, the PCX believes that the new order type would increase 
investor choices with respect to executing orders. For example, in the 
current system, any portion of a cross order that remains unexecuted is 
canceled. Customers must then re-enter the residual portion of the 
order if they wish to have it posted in the Arca Book. The Cross-and-
Post order would enable electronic posting of the residual portion of 
the order pursuant to PCXE Rule 7.36.
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    \4\ See PCXE Rule 7.31(s).
    \5\ The MPII on ArcaEx is equal to $0.01 or 10% of the NBBO 
spread, whichever is greater. See PCXE Rule 7.6(a), Commentary .06. 
Under current PCXE rules, the MPII requirements must be satisfied in 
the execution of Cross Orders. See PCXE Rule 7.31(s).
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    The PCX believes that the implementation of the Cross-and-Post 
order type would facilitate enhanced order interaction and foster price 
competition. The PCX also believes that the proposal would promote a 
more efficient and effective market operation, and enhance the 
investment choices available to investors over a broad range of trading 
scenarios. Finally, the PCX believes that the proposed rule changes 
would permit the execution of cross transactions in a manner consistent 
with PCXE rules applicable to price-time priority, price improvement 
requirements, and NBBO price protection.
2. Statutory Basis
    The PCX believes that the proposed rule change is consistent with 
Section 6(b) \6\ of the Act and furthers the objectives of Section 
6(b)(5) \7\ 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, to remove 
impediments and perfect 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 is consistent with provisions of 
Section 11A(a)(1)(B) of the Act,\8\ which states that new data 
processing and communications techniques create the opportunity for 
more efficient and effective market operations.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 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 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 after 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; 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 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-2003-38 and should 
be submitted by November 19, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27229 Filed 10-28-03; 8:45 am]
BILLING CODE 8010-01-P