[Federal Register Volume 69, Number 129 (Wednesday, July 7, 2004)]
[Notices]
[Pages 41005-41006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15284]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49942; File No. SR-PCX-2004-12]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto by the 
Pacific Exchange, Inc. Creating an Additional Processing Capability for 
PNP Orders Called ``PNP Plus''

June 29, 2004.
    On February 23, 2004, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly-owned subsidiary, PCX Equities, Inc., 
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 to 
amend the rules governing the Archipelago Exchange (``ArcaEx'') to 
create an additional processing capability for Post No Preference 
(``PNP'') Orders designated as PNP Plus. On April 23, 2004, PCX 
submitted Amendment No. 1 to the proposal.\3\ PCX submitted Amendments 
No. 2 \4\ and 3 \5\ on April 28, 2003 and May 11, 2004, respectively. 
The proposed rule change, as amended, was published for notice and 
comment in the Federal Register on May 24, 2004.\6\ The Commission 
received no comment letters on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Steven B. Matlin, Senior Attorney, 
Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
April 22, 2004 (``Amendment No. 1''). Amendment No. 1 superseded and 
replaced the original rule filing in its entirety. In Amendment No. 
1, the PCX changed the proposal to make PNP Plus Order election an 
order-by-order designation, made conforming and clarifying changes 
in the rule text, and provided an example of how a PNP Plus Order 
would be processed.
    \4\ See letter from Steven B. Matlin, Senior Attorney, 
Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, 
Division, Commission, dated April 27, 2004 (``Amendment No. 2''). In 
Amendment No. 2, the PCX corrected typographical errors and made 
clarifying changes in the rule text.
    \5\ See letter from Steven B. Matlin, Senior Attorney, 
Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, 
Division, Commission, dated May 10, 2004 (``Amendment No. 3''). In 
Amendment No. 3, the PCX made a clarifying edit to the rule text.
    \6\ See Securities Exchange Act Release No. 49713 (May 17, 
2004), 69 FR 29609.
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    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

[[Page 41006]]

exchange \7\ and, in particular, the requirements of Section 6(b)(5) of 
the Act.\8\ Section 6(b)(5) requires, among other things, that the 
rules of an exchange be 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 national market system, and, in general, to 
protect investors and the public interest.
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    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposed rule change creates an 
additional processing capability for PNP Orders designated as PNP Plus. 
While an ordinary PNP Order is automatically cancelled in the event 
that such order locks or crosses the national best bid or offer 
(``NBBO''), a PNP Plus designation would avoid such cancellation in the 
event that the PNP Order would lock or cross the NBBO by re-pricing the 
PNP Order by one penny greater than the national best bid (for sell 
orders) or one penny lower than the national best offer (for buy 
orders) and posting the re-priced PNP Order in the ArcaEx Book. With 
each subsequent change in the NBBO, the PNP Order would continue to be 
re-priced and re-posted in this manner until such time that the 
original PNP Order price would not lock or cross the NBBO, at which 
time the PNP Order would revert to its original price. The Commission 
notes that such order would be assigned a new price time priority as of 
the time of each re-posting in the ArcaEx Book. The Commission believes 
that the PNP Plus designation should extend additional flexibility to 
PNP Orders and that it should provide ETP Holders and Sponsored 
Participants with enhanced trading options. Further, the Commission 
believes that the proposed rule change should help improve the 
efficiency of order interaction on ArcaEx by increasing the opportunity 
for PNP Orders to execute, while avoiding locked and crossed markets. 
Therefore, the Commission finds that the proposed rule change, as 
amended, is consistent with the Act.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-PCX-2004-12), as amended by 
Amendment Nos. 1, 2, and 3, be, and hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    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. 04-15284 Filed 7-6-04; 8:45 am]
BILLING CODE 8010-01-P