[Federal Register Volume 69, Number 107 (Thursday, June 3, 2004)]
[Notices]
[Pages 31440-31442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12550]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49773; File No. SR-PCX-2004-46]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, by the Pacific Exchange, Inc. 
Relating to Modifying the Market Imbalance Calculation

May 26, 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 May 14, 2004, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
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 May 24, 2004, 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 Mai Shiver, Acting Director, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Commission, 
dated May 21, 2004 (``Amendment No. 1''). In Amendment No. 1, the 
PCX replaced and superceded the original filing in its entirety.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 (``ArcaEx''), the equities trading facility of PCXE, to modify 
and clarify current ArcaEx practices with respect to the calculation of 
the Market Imbalance provided for in PCXE Rule 1.1.
    The text of the proposed rule change is below. Proposed additions 
are in italics.
* * * * *
PCX Equities, Inc.
Rule 1
Definitions
Rule 1.1(a)-(p)--No Change.
Imbalance
    (q) For the purposes of the Opening Auction, the Market Order 
Auction, the Closing 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 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:
    (i) as it relates to the Market Order Auction, the imbalance of any 
remaining buy (sell) Market Orders that are not matched for execution 
against Market Orders during the applicable auction.
    (ii) As it relates to the Closing Auction, the imbalance of any 
remaining buy (sell) Market-on-Close Orders that are not matched for 
execution against Market-on-Close Orders during the applicable auction.
* * * * *

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
    The Exchange proposes to modify PCXE Rule 1.1 for the purpose of 
modifying the ArcaEx calculation of the Market Imbalance. Currently, 
the Market Imbalance, as it relates to the Market Order Auction, is 
defined as the imbalance of any remaining buy (sell) Market Orders that 
are not matched for execution during the Market Order

[[Page 31441]]

Auction.\4\ As such, all eligible Market and Limit Orders that are 
eligible for execution in the auction against Market Orders are taken 
into consideration when calculating the Market Imbalance for the Market 
Order Auction. Similarly, the Market Imbalance for the Closing Auction 
is defined as the imbalance of any remaining buy (sell) Market-on-Close 
(``MOC'') Orders that are not matched for execution during the Closing 
Auction.\5\ As such, all eligible MOC, Limit and Limit-on-Close 
(``LOC'') Orders that are eligible for execution in the Closing Auction 
against MOC Orders are taken into consideration when calculating the 
Market Imbalance for the Closing Auction.
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    \4\ PCXE Rule 1.1(q).
    \5\ Id.
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    The Exchange proposes to modify the Market Imbalance calculation 
for both the Market Order Auction and the Closing Auction such that it 
will only take into consideration Market Orders (for the Market Order 
Auction) and MOC Orders (for the Closing Auction) in determining the 
Market Imbalance. For example, the Market Imbalance will be calculated 
as the imbalance of any buy (sell) Market Orders (for the Market Order 
Auction) and buy (sell) MOC Orders (for the Closing Auction) that 
remain after executing against sell (buy) Market Orders (for the Market 
Order Auction) and executing against sell (buy) MOC Orders (for the 
Closing Auction). Accordingly, the new Market Imbalance calculation 
will not take Limit and LOC Orders eligible for execution in the 
applicable auction into consideration.
    The Exchange believes that by modifying the Market Imbalance 
calculation, it provides better information about the nature of the 
imbalances in the applicable auction. In particular, currently the 
Market Imbalance results in zero if there are a sufficient number of 
Limit Orders or LOC Orders in the auction that are executable against 
Market Orders or MOC Orders. By limiting the Market Imbalance 
calculation to exclusively Market Orders and MOC Orders matched for 
execution, the Exchange would provide Users \6\ with more information 
about the number of Market Orders and MOC Orders available for 
execution on the side of the market with an excess number of such 
orders during the applicable auction.
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    \6\ See PCXE Rule 1.1(yy) for the definition of ``User.''
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    The following example illustrates the impact of the proposed 
modification on the calculation of the Market Imbalance as it relates 
to the Closing Auction:

Current Market Imbalance Calculation

Buy 100,000 MOC
Sell 50,000 LOC @22.00
Sell Limit Orders in the book = 90,000 @23.00
Matched Volume = 100,000
Indicative Match Price = 23.00
Total Imbalance =-40,000
Market Imbalance = 0

Proposed Market Imbalance Calculation

Buy 100,000 MOC
Sell 50,000 LOC @22.00
Sell Limit Orders in the book = 90,000 @23.00
Matched Volume = 100,000
Indicative Match Price = 23.00
Total Imbalance =-40,000
Market Imbalance = +100,00
If a User were to enter a Sell 25,000 MOC Order, then
Market Imbalance = +75,000.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5),\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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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 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

    No written comments were solicited or received with respect to 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. Comments may be 
submitted by any of the following methods:

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-2004-46 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-2004-46. 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 the 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-2004-46 and 
should be submitted on or before June 24, 2004.


[[Page 31442]]


    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. 04-12550 Filed 6-2-04; 8:45 am]
BILLING CODE 8010-01-P