[Federal Register Volume 69, Number 37 (Wednesday, February 25, 2004)]
[Notices]
[Pages 8719-8720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4119]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49276; File No. SR-PCX-2003-70]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. To 
Amend PCXE Rule 7.40 To Provide for the Dissemination of a Closing 
Price and Closing Volume

February 19, 2004.
    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 December 22, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE''), 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. On February 12, 2004, the Exchange 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\ On February 12, 2004, the Exchange filed a Form 19b-4, which 
replaced the original filing in its entirety (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify PCXE Rule 7.40 to provide for the 
dissemination of a Closing Price. The text of the proposed rule change 
appears below. Proposed new language is in italics. Proposed deletions 
are in brackets.
* * * * *

Rule 7.40, Trade Execution and Reporting

    Rule 7.40. Executions occurring as a result of orders matched 
against the Arca Book shall be reported by the Corporation to an 
appropriate consolidated transaction reporting system. Executions 
occurring as a result of orders routed away from the Archipelago 
Exchange shall be reported to an appropriate consolidated transaction 
reporting system by the relevant reporting market center. The 
Archipelago Exchange shall promptly notify Users of all executions of 
their orders as soon as such executions take place.
    (1.) Reporting Opening and Closing Prices
    (a)--Reserved
    (b) Dissemination of Closing Price and Volume
    At the conclusion of the Closing Auction, the Archipelago Exchange 
will publish a Closing Price and volume pursuant to the following:
    (i) If a Closing Auction occurs, the Closing Price will be the 
Closing Auction Price with volume executed at the Closing Auction 
Price; or
    (ii) If no Closing Auction occurs, the Closing Price will be the 
volume weighted average price (``VWAP'') based on transactions reported 
to a consolidated transaction reporting system during the last two 
minutes of the Core Trading Session and the associated volume reported 
to a consolidated transaction reporting system during that time period; 
or
    (iii) If there are no transactions reported to a consolidated 
transaction reporting system during the last two minutes of the Core 
Trading Session, the Closing Price will be the last trade price as 
reported to a consolidated transaction reporting system during the 
trading day and the volume reported to a consolidated transaction 
reporting system associated with that trade; or
    (iv) If there are no trades reported to a consolidated transaction 
reporting system during the trading day, the Closing Price and volume 
will be that of the most recent trading day's close for that particular 
security.
* * * * *

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
    The Exchange proposes to amend PCXE Rule 7.40 relating to Trade 
Execution and Reporting to provide for the dissemination of a Closing 
Price and closing volume. This proposal would allow the Archipelago 
Exchange (``ArcaEx'') facility to calculate and report a Closing Price 
for both over-the-counter (``OTC'') and exchange-listed securities 
traded on ArcaEx to the Consolidated Tape and provide Equity Trading 
Permit (``ETP'') Holders and other consumers of market data with 
additional information about the market close.
    The Commission recently approved amendments to PCXE rules regarding 
Closing Auctions (PCXE Rule 7.35(e))\4\ that describe ArcaEx's Closing 
Auction process. The ArcaEx Closing Auction incorporates a Closing 
Auction Price and volume based on the Indicative Match Price, Market 
Imbalance and Total Imbalance relative to the Closing Auction. The 
Commission noted that publishing this information may provide market 
participants with an additional source of closing price information for 
Nasdaq and exchange-listed securities in addition to the information 
disseminated by markets, which should enhance intermarket competition 
by enabling market participants to assess and compare pricing among 
different markets.\5\ The proposed change to PCXE Rule 7.40(1)(b)(i) 
clarifies that in the case where there is a Closing Auction in either 
OTC or exchange-listed securities,\6\ the Closing Price and volume will 
be the Closing Auction Price and the associated volume executed at that 
price.
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    \4\ See Securities Exchange Act Release No. 48883 (December 4, 
2003), 68 FR 69748 (December 15, 2003) (SR-PCX-2003-24).
    \5\ See id.
    \6\ The Exchange intends to implement the Closing Auction 
functionality previously approved by the Commission under SR-PCX-
2003-24 in OTC securities initially and will follow with 
implementation of the Closing Auction functionality in exchange-
listed securities at a later date. Id.
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    Where there is no Closing Auction pursuant to PCXE Rule 7.35(e), 
the Exchange proposes to base the Closing Price for OTC and exchange-
listed securities on a consolidated volume weighted average price 
(``VWAP'') based on transactions reported to a

[[Page 8720]]

consolidated transaction reporting system \7\ during the last two 
minutes of the Core Trading Session and the associated volume reported 
to a consolidated transaction reporting system during that time period. 
The Exchange believes that this will serve to provide a market wide 
Closing Price and an accurate indication of the Closing Price to 
investors. If there are no consolidated trades reported during the last 
two minutes of the Core Trading Session, the Exchange proposes that the 
Closing Price and volume will be the last consolidated price reported 
during the trading day. In the event there are no consolidated trades 
reported during the trading day, the Exchange proposes to establish the 
Closing Price and volume as that of the most recent trading day's 
Closing Price and volume. Consistently, the Exchange will set the 
closing volume as the volume associated with the trades in each of the 
stated scenarios above.
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    \7\ Consolidated transaction reporting system refers to the UTDF 
data feed pursuant to the OTC/UTP Plan with respect to OTC 
securities and the Network A and Network B tickers pursuant to the 
CTA Plan with respect to exchange-listed securities.
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    To provide investors and users of the Closing Price data with 
transparency and clarity on the calculation of the Closing Price, the 
Exchange will provide a thorough description of the Closing Price 
calculation including the source of data used in determining the 
Closing Price in a notice to members that will be disseminated via the 
ArcaEx Web site, www.archipelago.com. Furthermore, the Closing Price 
will be disseminated via the Consolidated Tape utilizing a trade 
modifier \8\ to indicate the Closing Price and volume.
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    \8\ For OTC securities, the Exchange will utilize a ``.M'' 
modifier to indicate the Closing Price which is currently available 
for OTC/UTP participants. The Exchange will work with the OTC/UTP 
Committee to develop an additional modifier that will be used to 
indicate the Closing Price when it is based on consolidated data 
rather than the ArcaEx Closing Auction. This modifier will be 
disseminated in addition to ``.M'' upon receiving approval from the 
OTC/UTP Committee. In addition, given that there is currently no 
modifier in use to indicate the Closing Price in exchange-listed 
securities, the Exchange will work with the CTA Committee and 
Securities Industry Automation Corporation (``SIAC'') to establish 
an appropriate modifier to signify the Closing Price in exchange-
listed securities and an additional modifier to use when the Closing 
Price is based on exchange-listed consolidated data rather than the 
ArcaEx Closing Auction.
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    The Exchange believes that providing investors with an accurate 
representation of the market close is of critical importance. The 
Nasdaq Stock Market, Inc.\9\ received approval to implement an official 
closing price in Nasdaq-listed securities. Moreover, Standard & Poors 
(``S&P'') recently announced plans to utilize the American Stock 
Exchange, LLC closing price for twelve Nasdaq-listed stocks in the S&P 
500. The Exchange believes that its proposed Closing Price calculation 
would provide a competitive alternative to other markets' closing price 
calculations.
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    \9\ See Securities Exchange Act Release No. 47517 (March 18, 
2003), 68 FR 14446 (March 25, 2003) (SR-NASD-2002-158).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)\10\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\11\ 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 the 
mechanisms of a free and open market and to protect investors and the 
public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.

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 self-regulatory organization consents, the Commission will:
    A. By order approve the 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, as amended, is consistent with the Act. In particular, the 
Commission solicits comment on whether the Exchange should take any 
further steps to disclose to market participants when the Closing Price 
is based on transactions that occur on other exchanges or markets. 
Persons making written submissions should file six copies thereof with 
the Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-0609. Comments may also be submitted 
electronically at the following e-mail address: [email protected]. 
All comment letters should refer to File No. SR-PCX-2003-70. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
comments should be sent in hard copy or by e-mail but not by both 
methods. 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-2003-70 and should be submitted by March 17, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4119 Filed 2-24-04; 8:45 am]
BILLING CODE 8010-01-P