[Federal Register Volume 69, Number 117 (Friday, June 18, 2004)]
[Notices]
[Pages 34211-34213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13845]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49835; File No. SR-PCX-2004-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Preventing Locks and Crosses in PNP Orders for ITS Trade-
Through Exempt Securities by Amending PCXE Rule 7.31

June 8, 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 June 3, 2004, the Pacific Exchange, Inc. (``PCX'' or ``Exchange''), 
through its wholly owned subsidiary PCX Equities, Inc. (``PCXE''), 
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 the Exchange. The Exchange has filed the 
proposed rule change pursuant to section 19(b)(3)(A) of the Act,\3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 204.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend PCXE Rule 7.31 (``Orders and 
Modifiers''), which governs the Archipelago Exchange (``ArcaEx''), an 
equities trading facility of PCXE, by modifying the behavior of PNP 
Orders for ITS Trade-Through Exempt Securities \5\ to systematically 
prevent such orders from locking and crossing the National Best Bid or 
Offer (``NBBO''). The text of the proposed rule change appears below. 
New text is in italics. Deleted text is in brackets.
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    \5\ See PCXE Rule 7.37 for the definition of ``ITS Trade-Through 
Exempt Securities.''
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* * * * *

Rule 7

Equities Trading

Trading Sessions
    Rule 7.31(a)-(v)--No change.
    (w) PNP Order (Post No Preference). A limit order to buy or sell 
that is to be

[[Page 34212]]

executed in whole or in part on the Corporation, and the portion not so 
executed is to be ranked in the Arca Book, without routing any portion 
of the order to another market center; provided, however, the 
Corporation shall cancel a PNP Order that would lock or cross the NBBO 
except as provided in Rule 7.31(w)(1). The NBBO price protection 
provision set forth in Rule 7.37 will not apply to PNP Orders in Nasdaq 
securities.
    (1) PNP Orders for ITS Trade-Through Exempt Securities (as defined 
in Rule 7.37). PNP Orders for ITS Trade-Through Exempt Securities [(as 
defined in Rule 7.37)] will not be canceled at the time of order entry 
if such orders would lock or cross the NBBO. Such orders will be ranked 
in the Arca Book in price, time priority with an undisplayed price and 
size until: (i) Such orders are executed; or (ii) such orders no longer 
lock or cross the NBBO at which time they would be displayed in the 
Arca Book and ranked based upon original price and the original order 
entry time. The lock and cross restrictions set forth in this rule will 
only apply to bids or offers included in the NBBO that are for greater 
than 100 shares pursuant to Rule 7.56(d)(2)(E). PNP Orders in ITS 
Trade-Through Exempt Securities may be executed at a price no more than 
three cents ($0.03) away from the NBBO [displayed in the Consolidated 
Quote]. All PNP Orders whether displayed or undisplayed will execute in 
price, time priority. [The NBBO price protection provision set forth in 
Rule 7.37 will not apply to PNP Orders in Nasdaq securities.]

    (x)-(cc)--No change.
* * * * *

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
    Currently, PCXE Rule 7.31(w) establishes that PNP Orders for ITS 
Trade-Through Exempt Securities will not be canceled at the time of 
order entry if the PNP Order would lock or cross the NBBO. The Exchange 
seeks to modify the rule to provide that PNP Orders in ITS Trade-
Through Exempt Securities will not be displayed in the instance when 
the order will lock or cross the NBBO. In such cases, the PNP Orders 
would remain in the Arca Book ranked in price, time priority but will 
not be displayed until the order: (i) is executed; or (ii) no longer 
locks or crosses the NBBO at which time they would be displayed in the 
Arca Book and ranked based upon the original price and the original 
order entry time.
    Pursuant to PCXE Rule 7.56(d)(2)(E), the lock/cross restrictions do 
not apply to 100 share markets. Thus, this proposed rule change 
regarding the display of PNP Orders in ITS Trade-Through Exempt 
Securities will apply only to bids and offers of more than 100 shares. 
Therefore, if the PNP Order would lock or cross a bid or offer of 100 
shares, the Exchange would display the PNP Order in the Arca Book in 
price, time priority.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) \6\ of the Act, in general, and further the 
objectives of section 6(b)(5),\7\ 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, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, and 
to protect investors and the public interest. In addition, the Exchange 
believes that the proposed rule change is consistent with provisions of 
section 11A(a)(1)(B) \8\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78k-1(a)(1)(B).
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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 were neither solicited nor received with respect 
to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate the proposed rule change if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative period to implement the proposed rule change as soon as the 
technical changes are completed. The Commission believes that waiving 
the 30-day operative period is consistent with the protection of 
investors and the public interest because it will allow the PCX to 
immediately provide a mechanism to prevent Locks and Crosses in trading 
certain ITS securities, consistent with the ITS Plan.\11\
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    \11\ For purposes of waiving the operative period date of this 
proposal only, the Commission has considered the proposed rule's 
impact on efficiency, competition and capital formation. 15 U.S.C. 
78c(f).
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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. Comments may be submitted by any of 
the following methods:

[[Page 34213]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml);
     Send an e-mail to [email protected]. Please include 
File Number SR-PCX-2004-52 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-2004-52. 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 Room. Copies of the 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-
2004-52 and should be submitted on or before July 9, 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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13845 Filed 6-17-04; 8:45 am]
BILLING CODE 8010-01-P