[Federal Register Volume 69, Number 66 (Tuesday, April 6, 2004)]
[Notices]
[Pages 18146-18147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7691]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45906; File No. SR-PCX-2004-22]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. 
Amending PCXE Rule 7.31 to Create a New Order Type Entitled ``Auto Q 
Order''

March 30, 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 March 19, 2004 the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with 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 PCX. On March 29, 2004, the Commission 
received 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 Mai S. Shiver, Acting Director and Senior 
Counsel, PCX, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated March 26, 2004 (``Amendment No. 
1''). Amendment No. 1 superseded and replaced the original rule 
filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    PCX proposes to amend its rules governing the Archipelago Exchange, 
the equities trading facility of PCX Equities, Inc. (``PCXE''), by 
adding an automatic updating feature (``Auto Q Order'') that will 
enable Q orders to be refreshed automatically based upon market maker 
determined parameters.
    The text of the proposed rule change appears below. Proposed new 
language is in italics. Proposed deletions are in [brackets].
* * * * *

Rule 7.31. Orders and Modifiers

    (k) Q Order.
    (1) A Q Order is a [A] limit order submitted to the Archipelago 
Exchange by a Market Maker. A Q Order may not be a Working Order.
    (2) Auto Q Order. A Q Order may be designated as an Auto Q Order 
that would automatically repost a Q Order after an execution in the 
ArcaEx book at a designated increment inferior to the price determined 
by the Market Maker and for the same amount of shares. The Auto Q order 
would continue to repost in the ArcaEx book pursuant to Rule 7.36 upon 
execution at the determined increment and size until the total tradable 
size threshold is reached. When entering an Auto Q Order, a Market 
Maker would establish the following parameters: (i) price; (ii) size; 
(iii) buy or sell; (iv) increment update; and (v) total tradable size.
* * * * *

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

    In its filing with the Commission, PCX 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. 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 the 
Archipelago Exchange (``ArcaEx'') facility, PCX is proposing to 
implement a new functionality type that would enable Market Makers \4\ 
to automatically update their Q Orders.\5\ The Exchange

[[Page 18147]]

proposes to add an automatic updating feature called ``Auto Q'' that 
would automatically repost a Q Order in the ArcaEx book, after an 
execution, at a designated increment inferior to the price determined 
by the Market Maker and for the same amount of shares. The Auto Q Order 
would continue to repost in the ArcaEx book, after an execution, at the 
determined increment and size until the total tradable size threshold 
is reached.
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    \4\ PCXE Rule 1.1(u) defines Market Maker as an ETP Holder that 
acts as a Market Maker pursuant to PCXE Rule 7.
    \5\ See PCXE Rule 7.31 (defining ``Q Orders'' as limit orders 
that are submitted to ArcaEx by Market Makers) and 7.34 (specifying 
Market Makers' obligations to enter Q Orders).
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    When entering an Auto Q Order, a Market Maker would establish the 
following parameters: (i) price; (ii) size; (iii) buy or sell; (iv) 
increment update; and (v) total tradable size.
    For example, (1) NBBO is 30.00 x 30.10.
    (2) Market Maker enters an Auto Q Order buy 500 shares at 30.05 
with an increment of .02 and total tradable size 2000.
    (3) NBBO becomes 30.05 x 30.10.
    (4) Inbound market sell order comes into ArcaEx for 1000 shares.
    (5) Market sell executes against 30.05 for 500 shares.
    (6) Auto Q Order updates to buy 500 shares at 30.03.
    (7) Assuming there are no other superior priced bids, ArcaEx 
executes the remaining portion of the market sell order at 30.03.
    (8) Auto Q Order would update to 30.01 for 500 shares. Reposting 
would occur until maximum of 2000 shares in the aggregate had been 
executed against the Auto Q Order.
    Auto Q Orders will be governed by the price, time priority rules 
and order execution rules established in PCXE Rules 7.36 and 7.37. For 
example, superior priced displayed orders would be executed prior to 
Auto Q Orders and Auto Q Orders will not have precedence over same-
priced displayed orders that are superior in time. Each reposted Auto Q 
Order would be assigned a new price, time priority as of the time of 
each reposting.\6\ Further, Auto Q Orders that are reposted at the same 
price as a non-displayed order would take precedence in accordance with 
PCXE Rule 7.36.
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    \6\ Telephone call between Tania J.C. Blanford, Staff Attorney, 
Regulatory Policy Department, PCX, and Leah Mesfin, Attorney, 
Division, Commission on March 30, 2004.
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    The Exchange believes that the implementation of the aforementioned 
order type will facilitate enhanced order interaction and foster price 
competition. The Exchange believes that the proposal promotes a more 
efficient and effective market operation, and enhances the investment 
choices available to investors over a broad range of trading scenarios. 
The Exchange also believes that the proposed rule change will permit 
increased execution opportunities of Market Maker orders.\7\
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    \7\ Telephone call between Tania J.C. Blanford, Staff Attorney, 
Regulatory Policy Department, PCX; Bridget Farrell, Regulatory 
Analyst, Archipelago Holdings, LLC; and Leah Mesfin, Attorney, 
Division, Commission on March 30, 2004.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \8\ of the Act, in general, and further the 
objectives of Section 6(b)(5),\9\ in particular, because it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
In addition, the Exchange believes that the proposed rule change is 
consistent with Section 11A(a)(1)(B) of the Act, which states that new 
data processing and communications techniques create the opportunity 
for more efficient and effective market operations.
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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 Exchange does not believe that the proposed rule change, as 
amended, will result in 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 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 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, 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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-PCX-2004-22. 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 hardcopy 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, as amended, that are filed with 
the Commission, and all written communications relating to the proposed 
rule change, as amended, 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 number SR-PCX-2004-22 and 
should be submitted by April 27, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-7691 Filed 4-5-04; 8:45 am]
BILLING CODE 8010-01-P