[Federal Register Volume 69, Number 95 (Monday, May 17, 2004)]
[Notices]
[Pages 27966-27967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11054]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49664; File No. SR-PCX-2004-22]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the Pacific 
Exchange, Inc. and Notice of Filing and Order Granting Accelerated 
Approval To Amendment No. 2 Creating a New Order Type Entitled ``Auto Q 
Order''

May 6, 2004.

I. Introduction

    On March 19, 2004, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change regarding a new order type. On March 29, 2004, PCX 
submitted Amendment No. 1 to the proposal.\3\ The proposed rule change, 
as modified by Amendment No. 1, was published for notice and comment in 
the Federal Register on April 6, 2004.\4\ The Commission received no 
comment letters on the proposal. On May 5, 2004, the PCX submitted 
Amendment No. 2 to the proposal.\5\
---------------------------------------------------------------------------

    \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 (``Division''), Commission, dated March 26, 2004 
(``Amendment No. 1''). Amendment No. 1 superseded and replaced the 
original rule filing in its entirety.
    \4\ See Securities Exchange Act Release No. 45906 (March 30, 
2004), 69 FR 18146.
    \5\ See letter from Mai S. Shiver, Acting Director and Senior 
Counsel, PCX, to Nancy J. Sanow, Assistant Director, Division, 
Commission, dated May 4, 2004 (``Amendment No. 2''). In Amendment 
No. 2, PCX revised the rule text to clarify that Auto Q Orders would 
be assigned a new price time priority as of the time of each 
reposting.
---------------------------------------------------------------------------

    This order approves the proposed rule change, as modified by 
Amendment No. 1. Simultaneously, the Commission provides notice of 
filing of Amendment No. 2 and grants accelerated approval of Amendment 
No. 2.

II. Description of the Proposed Rule Change

    As part of its efforts to enhance participation on the Archipelago 
Exchange facility(``ArcaEx''), PCX proposes to amend its rules 
governing ArcaEx to implement a new functionality type that would 
enable Market Makers \6\ to automatically update their Q Orders.\7\ The 
Exchange 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 at which 
it was originally posted 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.
---------------------------------------------------------------------------

    \6\ PCXE Rule 1.1(u) defines Market Maker as an ETP Holder that 
acts as a Market Maker pursuant to PCXE Rule 7.
    \7\ 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).
---------------------------------------------------------------------------

    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. Auto Q Orders will be 
governed by the price, time priority rules and order execution rules 
established in PCXE Rule 7.36. 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.\8\ 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.
---------------------------------------------------------------------------

    \8\ See Amendment No. 2, supra note 5.
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether it is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

[[Page 27967]]

    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an E-mail to [email protected]. Please include 
File Number SR-PCX-2004-22 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of PCX. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-PCX-2004-22 
and should be submitted on or before June 7, 2004.

IV. Commission Findings and Order Granting Accelerated Approval

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange \9\ 
and the requirements of Section 6 of the Act.\10\ In particular, the 
Commission finds that the proposal is consistent with section 6(b)(5) 
of the Act \11\ in that the rule 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 to perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission believes that 
the Auto Q Order type may facilitate ArcaEx's market makers' compliance 
with their obligation to enter Q Orders. Further, the Commission notes 
that the application of the price time priority rules for each reposted 
Auto Q Order should prevent any unfair advantage for such orders vis-a-
vis other order types. The Commission believes that the implementation 
of the Auto Q Order type may permit increased execution opportunities 
of Q Orders and promote a more efficient and effective market 
operation.
---------------------------------------------------------------------------

    \9\ The Commission has considered the proposal's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds good cause for approving Amendment No. 2 prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. In determining to grant accelerated approval, the 
Commission notes that Amendment No. 2 merely codifies a technical 
aspect of the proposal that was published for public comment.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-PCX-2004-22), as 
amended by Amendment No. 1, be, and it hereby is, approved, and that 
Amendment No. 2 to the proposed rule change be, and hereby is, approved 
on an accelerated basis.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-11054 Filed 5-14-04; 8:45 am]
BILLING CODE 8010-01-P