[Federal Register Volume 69, Number 129 (Wednesday, July 7, 2004)]
[Notices]
[Pages 41009-41015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15328]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49946; File No. SR-PCX-2004-56]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. to Relating to the Certificate of 
Incorporation and Bylaws of Archipelago Holdings, Inc.

June 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 June 28, 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'' or 
``SEC'') the proposed rule change as described in Items I, II, and III 
below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, through PCXE, is filing with the Commission certain 
organizational documents of Archipelago Holdings, Inc. (``New Arca 
Holdings''), an entity that will succeed Archipelago Holdings, L.L.C. 
(``Current Arca Holdings'') as the sole parent of the current equities 
trading facility of PCX and PCXE, the Archipelago Exchange, L.L.C. 
(``ArcaEx''). New Arca Holdings' proposed Certificate of Incorporation 
and Bylaws are collectively referred to herein as the ``proposed rule 
change'' and are available for viewing on the Commission's Web site, 
http://www.sec.gov/rules/sro.shtml, and at PCX and the Commission.

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. 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
    The Exchange is filing with the Commission the proposed 
organizational documents of New Arca Holdings, the entity that is 
proposed to succeed Current Arca Holdings as the parent company of 
ArcaEx, the operator of the equities trading facility of PCX and PCXE. 
Current Arca Holdings is proposing to convert into a Delaware 
corporation (New Arca Holdings) and effect an initial public offering 
of the common stock of New Arca Holdings, and expects to use the 
proceeds of the offering for general corporate purposes, including to 
provide additional funds for its operations and to expand and diversify 
its product and service offerings, and possibly to acquire new 
businesses, products and technologies.
    In connection with the conversion to a Delaware corporation, each 
of the current members of Current Arca Holdings will receive 0.222222 
shares of common stock of New Arca Holdings for each of their current 
shares in Current Arca Holdings, and one of Current Arca Holdings' 
members, GAP Archa Holdings, Inc., will be merged with and into New 
Arca Holdings.\3\ The stockholders of GAP Archa Holdings, Inc. will 
receive shares of common stock of New Arca Holdings for their shares of 
common stock of GAP Archa Holdings, Inc., and the shares of New Arca 
Holdings common stock owned by GAP

[[Page 41010]]

Archa Holding, Inc. prior to the merger will be cancelled.
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    \3\ Current Area Holdings represents that the following persons 
currently own 5% or more of the shares of Current Area Holdings: The 
Goldman Sachs Group, Inc., GAP Archa Holdings, Inc., Credit Suisse 
First Boston Next Fund, Inc., Fidelity Global Brokerage Group, Inc., 
and Merrill Lynch L.P. Holdings Inc. Telephone Conversation among 
Mai S. Shiver, Acting Director/Senior Counsel, PCX; Kevin O'Hara, 
Chief Administrative Officer and General Counsel, Current Arca 
Holdings; and David Hsu, Attorney, Division of Market Regulation 
(``Division''), Commission, on June 29, 2004.
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    The common stock of New Arca Holdings will have the traditional 
features of common stock, including voting, dividend and liquidation 
rights. Subject to the limitations described below, holders of common 
stock will be entitled to vote on all matters submitted to the 
stockholders for a vote. New Arca Holdings may issue preferred stock in 
the future, the terms of which will be determined by the board of 
directors. In connection with the proposed initial public offering, 
Current Arca Holdings has filed a registration statement on Form S-1 
with the Commission (File No. 333-113226).
    New Arca Holdings will be governed under the direction of a board 
of directors. The number of directors shall be fixed by resolution of 
the board of directors, and is expected to be nine initially. Pursuant 
to New Arca Holdings' Certificate of Incorporation, for so long as 
ArcaEx is a facility of PCX and PCXE and the Amended and Restated 
Facility Services Agreement among PCX, PCXE and Current Arca Holdings 
(the ``Amended and Restated Facilities Agreement'') is in effect, one 
member of New Arca Holdings' board of directors will be required to be 
a member of PCX's Board of Directors or an officer or employee of PCX 
nominated by the PCX Board of Directors. New Arca Holdings will have 
the following committees of the board of directors: an audit committee, 
a corporate governance and nominating committee and a compensation 
committee.
    Current Arca Holdings is currently the sole owner of ArcaEx. As a 
result of the conversion, New Arca Holdings will become the sole owner 
of ArcaEx. New Arca Holdings will operate ArcaEx as the equities 
trading facility of PCX and PCXE. After the conversion of Current Arca 
Holdings into New Arca Holdings, PCX and PCXE will continue to have 
regulatory and oversight obligations with respect to ArcaEx, and New 
Arca Holdings will operate the facility in a manner not inconsistent 
with the regulatory and oversight functions of PCX and PCXE. All 
persons using ArcaEx will continue to be subject to the PCXE rules. The 
regulatory relationship of PCX and PCXE to ArcaEx will not be affected 
by the conversion or the initial public offering. Certain provisions of 
the Certificate of Incorporation and Bylaws of New Arca Holdings are 
intended to ensure that the conversion of the parent company of ArcaEx 
from a privately-owned limited liability company to a publicly-held 
Delaware corporation will not unduly interfere with or restrict the 
ability of the Commission or PCX to effectively carry out its 
regulatory oversight responsibilities under the Act with respect to 
ArcaEx and generally to enable ArcaEx to operate in a manner that 
complies with the federal securities laws, including furthering the 
objectives of Section 6(b)(5) of the Act.
    Certain provisions of the New Arca Holdings Certificate of 
Incorporation relating to ownership and voting limitations on New Arca 
Holdings' stockholders and to the regulatory oversight by the 
Commission, PCX and PCXE are summarized below. In addition, the 
requirements that must be met to amend the Certificate and Bylaws are 
summarized. The proposed terms of the Certificate of Incorporation and 
Bylaws of New Arca Holdings are available for viewing on the 
Commission's Web site, http://www.sec.gov/rules/sro.shtml, and at PCX 
and the Commission.

(i) Voting Limitation

    Pursuant to the Certificate of Incorporation, no person,\4\ either 
alone or with its related persons (as defined below), would be entitled 
to (1) vote or cause the voting of shares of stock of New Arca Holdings 
to the extent such shares represent in the aggregate more than 20% of 
the then outstanding votes entitled to be cast on any matter (the 
``Voting Limitation'') or (2) enter into any agreement, plan or 
arrangement not to vote shares, the effect of which agreement, plan or 
arrangement would be to enable any person, either alone or with its 
related persons, to vote or cause the voting of shares that would 
represent in the aggregate more than 20% of the then outstanding votes 
entitled to be cast on any matter (the ``Nonvoting Agreement 
Prohibition''). The Voting Limitation and the Nonvoting Agreement 
Prohibition will apply unless and until (1) a person, either alone or 
with its related persons, delivers to the board of directors of New 
Arca Holdings a notice in writing, at least 45 days (or such shorter 
period as the board of directors of New Arca Holdings expressly 
consents to) prior to the voting of any shares that would cause such 
person, either alone or with its related persons, to violate the Voting 
Limitation or the Nonvoting Agreement Prohibition and (2) such person, 
either alone or with its related persons, receives prior approval from 
the board of directors of New Arca Holdings and the Commission to 
exceed the Voting Limitation or enter into an agreement, plan or 
arrangement not otherwise allowed pursuant to the Nonvoting Agreement 
Prohibition. Specifically, (1) the board of directors of New Arca 
Holdings would be required to adopt a resolution approving such person 
and it related persons to exceed the Voting Limitation or to enter into 
an agreement, plan or arrangement not otherwise allowed pursuant to the 
Nonvoting Agreement Prohibition, (2) the resolution would be required 
to be filed with the Commission as a proposed rule change under Rule 
19b-4 of the Act and (3) such proposed rule change must first become 
effective thereunder.\5\
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    \4\ The Certificate of Incorporation defines ``Person'' to mean 
a natural person, company, government, or political subdivision, 
agency, or instrumentality of a government. New Arca Holdings 
Certificate of Incorporation, Article Fourth.H(2).
    \5\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.C.
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    The Certificate of Incorporation defines ``related persons'' to 
mean with respect to any person (a) any other person(s) whose 
beneficial ownership of shares of stock of New Arca Holdings with the 
power to vote on any matter would be aggregated with such first 
person's beneficial ownership of such stock or deemed to be 
beneficially owned by such first person pursuant to Rules 13d-3 and 
13d-5 under the Act; (b) in the case of a person that is a natural 
person, for so long as ArcaEx remains a facility of PCX and PCXE and 
the Amended and Restated Facility Services Agreement is in full force 
and effect, any broker or dealer that is an ETP Holder (as defined in 
the PCXE rules of PCX, as such rules may be in effect from time to 
time) with which such natural person is associated; (c) in the case of 
a person that is an ETP Holder, for so long as ArcaEx remains a 
facility of PCX and PCXE and the Amended and Restated Facility Services 
Agreement is in full force and effect, any broker or dealer with which 
such ETP Holder is associated; (d) any other person(s) with which such 
person has any agreement, arrangement or understanding (whether or not 
in writing) to act together for the purpose of acquiring, voting, 
holding or disposing of shares of the stock of New Arca Holdings; and 
(e) in the case of a person that is a natural person, any relative or 
spouse of such person, or any relative of such spouse, who has the same 
home as such person or who is a director or officer of New Arca 
Holdings or any of its parents or subsidiaries.\6\

[[Page 41011]]

PCX and PCXE believe that this definition will permit New Arca Holdings 
to monitor the ownership of its stock by monitoring filings on 
Schedules 13D and 13G by its stockholders. In addition, stockholders 
will be able to effectively monitor their shareholdings in New Arca 
Holdings using systems they already have in place.
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    \6\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.H(3). The Certificate of Incorporation further provides that 
``related persons'' includes, with respect to any person (1) any 
other person beneficially owning pursuant to Rules 13d-3 and 13d-5 
under the Act shares of stock of New Arca Holdings with the power to 
vote on any matter that also are deemed to be beneficially owned by 
such first person pursuant to Rules 13d-3 and 13d-5 under the Act; 
(2) any other person that would be deemed to own beneficially 
pursuant to Rules 13d-3 and 13d-5 under the Act shares of stock of 
New Arca Holdings with the power to vote on any matter that are 
beneficially owned directly or indirectly by such first person 
pursuant to Rules 13d-3 and 13d-5 under the Act; and (3) any 
additional person through which such other person would be deemed to 
directly or indirectly own beneficially pursuant to Rules 13d-3 and 
13d-5 under the Act shares of stock of New Arca Holdings with the 
power to vote on any matter.
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    In approving any such resolution, the board of directors of New 
Arca Holdings must determine that: (1) The exercise of such voting 
rights or the entering into of such agreement, plan or arrangement, as 
applicable, by such person, either alone or with its related persons, 
would not impair New Arca Holdings,'' PCX's or PCXE's ability to 
discharge its responsibilities under the Act and the rules and 
regulations thereunder and is otherwise in the best interests of New 
Arca Holdings and its stockholders; (2) the exercise of such voting 
rights or the entering into of such agreement, plan or arrangement 
would not impair the Commission's ability to enforce the Act; (3) such 
person and its related persons are not subject to any statutory 
disqualification (as defined in Section 3(a)(39) of the Act); and (4) 
such person and its related persons are not ETP Holders. In making such 
determinations, the board of directors of New Arca Holdings may impose 
any conditions and restrictions on such person and its related persons 
owning any shares of stock of New Arca Holdings entitled to vote on any 
matter as the board of directors of New Arca Holdings in its sole 
discretion deems necessary, appropriate or desirable in furtherance of 
the objectives of the Act and the governance of New Arca Holdings.\7\
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    \7\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.C.
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    If votes are cast in excess of the Voting Limitation, New Arca 
Holdings shall disregard such votes cast in excess of the Voting 
Limitation. The provisions described in this section shall not apply to 
(1) any solicitation of any revocable proxy from any stockholder of New 
Arca Holdings by or on behalf of New Arca Holdings or by an officer or 
director of New Arca Holdings acting on behalf of New Arca Holdings or 
(2) any solicitation of any revocable proxy from any stockholder of New 
Arca Holdings by any other stockholder that is conducted pursuant to, 
and in accordance with, Regulation 14A promulgated pursuant to the 
Act.\8\
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    \8\ Id.
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    PCX and PCXE believe that these provisions would prevent any 
stockholder, or any stockholders acting together, from exercising undue 
control over the operation of New Arca Holdings and, therefore, ArcaEx. 
Specifically, PCX and PCXE believe that these provisions are designed 
to prohibit any person, either alone or with its related persons, from 
having the power to control a substantial number of outstanding votes 
entitled to be cast on any matter without Commission review. PCX and 
PCXE believe that the imposition of a voting limitation on any person 
that, either alone or with its related persons, owns more than 20% of 
the then outstanding votes entitled to be cast on any matter, would 
help ensure that New Arca Holdings would not be subject to undue 
influence from a stockholder or group of stockholders that controls a 
substantial number of outstanding votes entitled to be cast on any 
matter that may be adverse to PCX's, PCXE's and the Commission's 
regulatory oversight responsibilities. These provisions, along with the 
related ownership limitations discussed below, would serve to protect 
the integrity of PCX's, PCXE's and the Commission's regulatory 
oversight responsibilities and would allow the Commission to review, 
and subject to public notice and comment, the acquisition of 
substantial voting power by any stockholder and its related persons.

(ii) Ownership Limitations.

    Concentration Limitation. Pursuant to the Certificate of 
Incorporation, no person, either alone or with its related persons, may 
own beneficially shares of stock of New Arca Holdings representing in 
the aggregate more than 40% of the then outstanding votes entitled to 
be cast on any matter.\9\ The 40% ownership limitation will apply 
unless and until (1) a person, either alone or with its related 
persons, delivers to the board of directors of New Arca Holdings a 
notice in writing, at least 45 days (or such shorter period as the 
board of directors of New Arca Holdings expressly consents to) prior to 
the acquisition of any shares that would cause such person, either 
alone or with its related persons, to own beneficially shares of stock 
of New Arca Holdings in excess of the 40% ownership limitation and (2) 
such person, either alone or with its related persons, receives prior 
approval by the board of directors of New Arca Holdings and the 
Commission to exceed the 40% ownership limitation. Specifically, (1) 
the board of directors of New Arca Holdings would be required to adopt 
a resolution approving such person and its related persons to exceed 
the ownership limitation, (2) the resolution would be required to be 
filed with the Commission as a proposed rule change under Rule 19b-4 of 
the Act and (3) such proposed rule change must first become effective 
thereunder.\10\
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    \9\ In considering whether a person owns shares of stock of New 
Arca Holdings or has voted shares of stock of New Arca Holdings in 
violation of the applicable ownership and voting limitations, New 
Arca Holdings will consider any filings made with the Commission 
under Section 13(d) and Section 13(g) of the Act by such person and 
its related persons and will aggregate all shares owned or voted by 
such person and its related persons to determine such person's 
beneficial ownership.
    Currently, no person or related persons owns more than 40% of 
the shares of Current Arca Holdings. Telephone conversation among 
Mai S. Shiver, Acting Director/Senior Counsel, PCX; Kevin O'Hara, 
Chief Administrative Officer and General Counsel; and David Hsu, 
Attorney, Division, Commission, on June 29, 2004.
    \10\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.D(1).
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    In approving any such resolution, the board of directors of New 
Arca Holdings must determine that: (1) Such acquisition of beneficial 
ownership by such person, either alone or with its related persons, 
would not impair any of New Arca Holdings', PCX's or PCXE's ability to 
discharge its responsibilities under the Act and the rules and 
regulations thereunder and is otherwise in the best interests of New 
Arca Holdings and its stockholders; (2) such acquisition of beneficial 
ownership by such person, either alone or with its related persons, 
would not impair the Commission's ability to enforce the Act; and (3) 
such person and its related persons are not subject to any statutory 
disqualification (as defined in Section 3(a)(39) of the Act). In making 
such determinations, the board of directors of New Arca Holdings may 
impose any conditions and restrictions on such person and its related 
persons owning any shares of stock of New Arca Holdings entitled to 
vote on any matter as the board of directors of New Arca Holdings in 
its sole discretion deems necessary, appropriate or desirable in 
furtherance of the objectives of the Act and the governance of New Arca 
Holdings.\11\
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    \11\ Id.
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    If a person, either alone or with its related persons, owns 
beneficially

[[Page 41012]]

shares of stock of New Arca Holdings in excess of the 40% limitation 
without prior approval, New Arca Holdings shall call from such person 
and its related persons that number of shares of stock entitled to vote 
that exceeds the 40% limitation at a price equal to the par value of 
the shares of stock.\12\ PCX and PCXE believe that these provisions 
would provide the Commission with the authority to review and subject 
to public notice and comment any substantial acquisition of ownership 
of shares of stock of New Arca Holdings with the power to vote that may 
allow a person, either alone or with its related persons, to control 
New Arca Holdings and which the Commission may deem to have the 
potential to affect PCX's, PCXE's and the Commission's regulatory 
oversight responsibilities regarding ArcaEx.
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    \12\ Id. New Arca Holdings will call the number of shares of 
stock of New Arca Holdings from such person and its related persons 
necessary to decrease the beneficial ownership of such person and 
its related persons to 40% of the outstanding shares of stock 
entitled to vote on any matter after giving effect to the redemption 
of the shares.
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    Limitation on Ownership by ETP Holders. Notwithstanding any other 
provision of the Certificate of Incorporation other than paragraph 
(2)(b) of Section (D) of Article Fourth, as described in the next 
paragraph, for so long as ArcaEx is a facility of PCX and PCXE and the 
Amended and Restated Facility Services Agreement is in effect, no ETP 
Holder, either alone or with its related persons, may own beneficially 
shares of stock of New Arca Holdings representing in the aggregate more 
than 20% of the then outstanding votes entitled to be cast on any 
matter.\13\ If an ETP Holder, either alone or with its related persons, 
owns beneficially shares of stock of New Arca Holdings in excess of 
this 20% limitation, New Arca Holdings shall call from such ETP Holder 
and its related persons that number of shares of stock entitled to vote 
that exceeds the 20% limitation at a price equal to the par value of 
the shares of stock.\14\
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    \13\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.D(2).
    \14\ New Arca Holdings will call the number of shares of stock 
of New Arca Holdings from such person and its related persons 
necessary to decrease the beneficial ownership of such person and 
its related persons to 20% of the outstanding shares of stock 
entitled to vote on any matter after giving effect to the redemption 
of the shares.
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    Members of Current Arca Holdings who were ETP Holders as of the 
date of the Certificate of Incorporation, either alone or with their 
related persons, have a temporary exemption, not to extend past July 
31, 2014, from this ownership limitation to the extent of their 
beneficial ownership, either alone or with their related persons, of 
shares of stock of New Arca Holdings after giving effect to the initial 
public offering of shares of common stock of New Arca Holdings.\15\ 
Members of Current Arca Holdings qualifying for this exemption may not 
increase their beneficial ownership of New Arca Holdings above their 
beneficial ownership at the time of the initial public offering.
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    \15\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.D(2). Currently, only one member of Current Arca Holdings 
that is an ETP Holder owns more than 20% of the shares of Current 
Arca Holdings. Telephone conversation among Mai S. Shiver, Acting 
Director/Senior Counsel, PCX; Kevin O'Hara, Chief Administrative 
Officer and General Counsel, Current Arca Holdings; and David Hsu, 
Attorney, Division, Commission, on June 29, 2004.
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    New Arca Holdings shall not register the purported transfer of any 
shares of stock of New Arca Holdings that would result in a violation 
of the 40% ownership limitation and the ownership limitation applicable 
to ETP Holders.\16\ In practical terms, this limitation would apply 
only in situations where a stockholder is the record owner of shares.
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    \16\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.D(3).
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    For the purposes of the 40% ownership limitation and the ownership 
limitation applicable to ETP Holders, no person shall be deemed to have 
any agreement, arrangement or understanding to act together with 
respect to voting shares of stock of New Arca Holdings solely because 
such person or any of such person's related persons has or shares the 
power to vote or direct the voting of such shares of stock pursuant to 
a revocable proxy given in response to a public proxy or consent 
solicitation conducted pursuant to, and in accordance with, Regulation 
14A promulgated pursuant to the Act, except if such power (or the 
arrangements relating thereto) is then reportable under Item 6 of 
Schedule 13D under the Act (or any similar provision of a comparable or 
successor report).\17\
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    \17\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.D(4).
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(iii) New Arca Holdings' Right To Require Information From 
Stockholders.

    Pursuant to the Certificate of Incorporation, the board of 
directors of New Arca Holdings has the right to require any person and 
its related persons reasonably believed (1) to be subject to the 20% 
voting limitation or the prohibition on certain agreements not to vote 
shares of stock of New Arca Holdings, (2) to own beneficially (within 
the meaning of Rules 13d-3 and 13d-5 under the Act) shares of stock of 
New Arca Holdings entitled to vote on any matter in excess of the 40% 
ownership limitation, (3) to own beneficially (within the meaning of 
Rules 13d-3 and 13d-5 under the Act) an aggregate of 5% or more of the 
then outstanding shares of stock of New Arca Holdings entitled to vote 
on any matter, which ownership such person, either alone or with its 
related persons, has not reported to New Arca Holdings, (4) to be 
subject to the ownership limitation applicable to ETP Holders described 
above or (5) to own shares of stock of New Arca Holdings entitled to 
vote on any matter in excess of 20% that is subject to any statutory 
disqualification (as defined in Section 3(a)(39) of the Act) to provide 
New Arca Holdings complete information as to all shares of stock of New 
Arca Holdings beneficially owned by such person and its related persons 
and any other factual matter relating to the applicability or effect of 
Article Fourth of the Certificate of Incorporation as may reasonably be 
requested of such person and its related persons.\18\
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    \18\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.G.
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    PCX and PCXE believe that this provision would enable New Arca 
Holdings to obtain information about the ownership of its shares of 
stock in order to determine whether a person, either alone or with its 
related persons, is in violation of the voting and ownership 
limitations set forth in the Certificate of Incorporation.

(iv) Responsibilities of the Directors.

    Pursuant to the Certificate of Incorporation, in discharging his or 
her responsibilities as a member of the board of directors of New Arca 
Holdings, each director shall take into consideration the effect that 
New Arca Holdings' actions would have on the ability of PCX and PCXE to 
carry out their responsibilities under the Act and on the ability of 
PCX, PCXE and New Arca Holdings to engage in conduct that fosters and 
does not interfere with PCX's, PCXE's and New Arca Holdings's ability 
to prevent fraudulent and manipulative acts and practices, 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, in discharging 
his or her responsibilities as a member of the board of directors of

[[Page 41013]]

New Arca Holdings, each director shall comply with the federal 
securities laws and rules and regulations thereunder and cooperate with 
the Commission, and, for so long as ArcaEx is a facility of PCX and 
PCXE the Amended and Restated Facility Services Agreement is in effect, 
with PCX and PCXE pursuant to their regulatory authority.\19\
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    \19\ New Arca Holdings Certificate of Incorporation, Article 
Tenth.
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    PCX and PCXE believe that these provisions would help ensure that 
directors of New Arca Holdings are cognizant of and take into account, 
when carrying out their duties and responsibilities as directors of New 
Arca Holdings, the fact that New Arca Holdings would operate a trading 
facility of an exchange that is subject to regulatory oversight by such 
exchange and the Commission and that the facility is required to be 
operated in compliance with federal securities laws. PCX and PCXE 
believe that these provisions also would help ensure that PCX, PCXE and 
the Commission are able to effectively fulfill their regulatory 
obligations with respect to ArcaEx.

(v) Qualifications of Directors, Officers and Significant Stockholders

    Pursuant to the Certificate of Incorporation, no person subject to 
any statutory disqualification (as defined in Section 3(a)(39) of the 
Act) may be a director or officer of New Arca Holdings or may own 
shares of stock of New Arca Holdings representing in the aggregate more 
than 20% of the then outstanding votes entitled to be cast on any 
matter.\20\ If a person, either alone or with its related persons, owns 
beneficially shares of stock of New Arca Holdings in violation of this 
20% limitation, New Arca Holdings shall call from such person and its 
related persons that number of shares of stock entitled to vote that 
exceeds the 20% limitation at a price equal to the par value of the 
shares of stock.\21\
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    \20\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.E and Article Ninth.
    \21\ New Arca Holdings Certificate of Incorporation, Article 
Fourth.E. New Arca Holdings will call the number of shares of stock 
of New Arca Holdings from such person and its related persons 
necessary to decrease the beneficial ownership of such person and 
its related persons to 20% of the outstanding shares of stock 
entitled to vote on any matter after giving effect to the redemption 
of the shares.
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    PCX and PCXE believe that these provisions would help to ensure 
that no person that is subject to any statutory disqualification (as 
defined in Section 3(a)(39) of the Act) would be able to unduly 
influence the operation of ArcaEx and interfere with the ability of 
PCX, PCXE and the Commission to carry out their regulatory 
responsibilities under the Act.

(vi) Amendments to the Certificate of Incorporation and Bylaws

    Pursuant to the Certificate of Incorporation, for so long as ArcaEx 
is a facility of PCX and PCXE and the Amended and Restated Facility 
Services Agreement is in effect, (1) any amendment to the Certificate 
of Incorporation must be submitted by the board of directors of New 
Arca Holdings to the Board of Directors of PCX and, if the Board of 
Directors of PCX determines that such amendment is required, under 
Section 19 of the Act and the rules promulgated thereunder, to be filed 
with, or filed with and approved by, the Commission before such 
amendment may be effective under Section 19 of the Act and the rules 
promulgated thereunder, then such amendment shall not be filed with the 
Secretary of State of the State of Delaware until filed with, or filed 
and approved by, the Commission, as the case may be, and (2) any 
resolution of the board of directors of New Arca Holdings authorizing a 
proposed amendment to the Certificate of Incorporation shall provide 
that such amendment shall be abandoned and not filed with the Secretary 
of State of the State of Delaware, notwithstanding stockholder approval 
of such amendment, unless the conditions of clause (x) of Article 
Nineteenth of the Certificate of Incorporation, as described in clause 
(1) of this paragraph, have been fulfilled.\22\ In short, if the Board 
of Directors of PCX determines that an amendment to the Certificate of 
Incorporation must be filed with, or filed with and approved by, the 
Commission as a rule change pursuant to Section 19 of the Act and Rule 
19b-4 thereunder, such amendment will not become effective until it 
becomes effective pursuant to this rule filing process.
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    \22\ New Arca Holdings Certificate of Incorporation, Article 
Nineteenth.
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    Pursuant to the Bylaws, for so long as ArcaEx is a facility of PCX 
and PCXE and the Amended and Restated Facility Services Agreement is in 
effect, before any amendment to the Bylaws may be effective, such 
amendment shall be submitted to the Board of Directors of PCX and, if 
the Board of Directors of PCX determines that the amendment is 
required, under Section 19 of the Act and the rules promulgated 
thereunder, to be filed with, or filed with and approved by, the 
Commission before such amendment may be effective under Section 19 of 
the Act and the rules promulgated thereunder, then such amendment shall 
not be effective until it becomes effective pursuant to this rule 
filing process.\23\
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    \23\ New Arca Holdings Bylaws, Section 6.8(b).
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    PCX and PCXE believe that these provisions would help to preserve 
the ability of PCX and PCXE to carry out their regulatory 
responsibilities under the Act and would help to provide the Commission 
with the ability to review and subject to public notice and comment any 
changes in the Certificate of Incorporation and Bylaws that could have 
the potential to affect PCX's, PCXE's and the Commission's regulatory 
responsibilities regarding ArcaEx.

(vii) PCX Director

    Pursuant to the Certificate of Incorporation, one member of New 
Arca Holdings' board of directors shall be a member of PCX's Board of 
Directors or an officer or employee of PCX nominated by the PCX Board 
of Directors for so long as ArcaEx is a facility of PCX and PCXE and 
the Amended and Restated Facility Services Agreement is in effect. If 
at any time there is not a director who is a member of PCX's Board of 
Directors or an officer or employee of PCX nominated by the PCX Board 
of Directors on the board of directors of New Arca Holdings, the board 
of directors of New Arca Holdings shall appoint a director nominated by 
the PCX Board of Directors.\24\
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    \24\ New Arca Holdings Certificate of Incorporation, Article 
Eighth.
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    PCX and PCXE believe that these provisions would help to ensure 
that PCX and PCXE have the ability to participate in decisions relating 
to, and express views about, matters related to PCX's and PCXE's 
regulatory responsibilities discussed by the board of directors of New 
Arca Holdings, and would facilitate PCX's, PCXE's and the Commission's 
ability to effectively perform their regulatory oversight 
responsibilities with regard to ArcaEx.

(viii) Compliance With Laws and Regulations by Officers and Employees

    Pursuant to the Certificate of Incorporation, in discharging his or 
her responsibilities as an officer or employee of New Arca Holdings, 
each officer or employee shall comply with the federal securities laws 
and rules and regulations thereunder and shall cooperate with the 
Commission, and, for so long as ArcaEx is a facility of PCX and PCXE 
and the Amended and Restated Facility Services Agreement is in effect, 
with PCX and PCXE pursuant

[[Page 41014]]

to their regulatory authority.\25\ PCX and PCXE believe that these 
provisions are designed to help ensure that PCX, PCXE and the 
Commission are able to effectively fulfill their regulatory obligations 
with respect to ArcaEx.
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    \25\ New Arca Holdings Certificate of Incorporation, Article 
Tenth.
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(ix) Confidential Information and Books and Records

    Pursuant to the Certificate of Incorporation, all confidential 
information pertaining to the self-regulatory function of PCX and PCXE 
(including but not limited to disciplinary matters, trading data, 
trading practices and audit information) contained in books and records 
of PCX or PCXE that shall come into the possession of New Arca Holdings 
shall: (1) Not be made available to any persons (other than as provided 
in the next two sentences) other than to those officers, directors, 
employees and agents of New Arca Holdings that have a reasonable need 
to know the contents thereof; (2) be retained in confidence by New Arca 
Holdings and the officers, directors, employees and agents of New Arca 
Holdings; and (3) not be used for any commercial purposes. Nothing in 
the Certificate of Incorporation shall be interpreted to limit or 
impede the rights of the Commission, and, for so long as ArcaEx is a 
facility of PCX and PCXE and the Amended and Restated Facility Services 
Agreement is in effect, PCX and PCXE to access and examine such 
confidential information pursuant to the federal securities laws and 
rules and regulations thereunder, or to limit or impede the ability of 
any officers, directors, employees or agents of New Arca Holdings to 
disclose such confidential information to the Commission, and, for so 
long as ArcaEx is a facility of PCX and PCXE and the Amended and 
Restated Facility Services Agreement is in effect, to PCX and PCXE. New 
Arca Holdings' books and records shall be subject at all times to 
inspection and copying by the Commission, and, for so long as ArcaEx is 
a facility of PCX and PCXE and the Amended and Restated Facility 
Services Agreement is in effect, by PCX and PCXE, provided that, in the 
case of PCX and PCXE, such books and records are related to the 
operation or administration of ArcaEx as a facility of PCX and PCXE. 
New Arca Holdings' books and records relating to ArcaEx shall be 
maintained within the United States.\26\
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    \26\ New Arca Holdings Certificate of Incorporation, Article 
Fourteenth.
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    For so long as ArcaEx is a facility of PCX and PCXE and the Amended 
and Restated Facility Services Agreement is in effect, the books, 
records, premises, officers, directors and employees of New Arca 
Holdings shall be deemed to be the books, records, premises, officers, 
directors and employees of PCX and PCXE for purposes of and subject to 
oversight pursuant to the Act.\27\
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    \27\ New Arca Holdings Certificate of Incorporation, Article 
Fifteenth. PCXE Rule 14.3(b) currently provides that all officers 
and directors of Current Arca Holdings shall be deemed to be 
officers and directors of PCX and PCXE for purposes of and subject 
to oversight pursuant to the Act.
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    PCX and PCXE believe that these provisions would help to ensure 
access to New Arca Holdings' books and records by the Commission, and, 
to the extent New Arca Holdings' books and records relate to the 
operation or administration of ArcaEx as a facility of PCX and PCXE, by 
PCX and PCXE, which would help enable PCX, PCXE and the Commission to 
carry out their regulatory responsibilities regarding ArcaEx.

(x) Commission and PCX Jurisdiction

    New Arca Holdings, its directors and officers, and those of its 
employees whose principal place of business and residence is outside of 
the United States shall be deemed to irrevocably submit to the 
exclusive jurisdiction of the United States federal courts, the 
Commission, and, for so long as ArcaEx is a facility of PCX and PCXE 
and the Amended and Restated Facility Services Agreement is in effect, 
PCX, for the purposes of any suit, action or proceeding pursuant to the 
United States federal securities laws, and the rules and regulations 
thereunder, arising out of, or relating to, the activities of ArcaEx, 
and New Arca Holdings and each such director, officer or employee, in 
the case of any such director, officer or employee by virtue of his 
acceptance of any such position, shall be deemed to waive, and agree 
not to assert by way of motion, as a defense or otherwise in any such 
suit, action or proceeding, any claims that it or they are not 
personally subject to the jurisdiction of the Commission, that the 
suit, action or proceeding is an inconvenient forum or that the venue 
of the suit, action or proceeding is improper, or that the subject 
matter thereof may not be enforced in or by such courts or agency.\28\
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    \28\ New Arca Holdings Certificate of Incorporation, Article 
Thirteenth.
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    From and after the consummation of the initial public offering of 
shares of common stock of New Arca Holdings, New Arca Holdings shall 
take reasonable steps necessary to cause its officers, directors and 
employees prior to accepting a position as an officer, director or 
employee, as applicable, to consent in writing to the applicability to 
them of Article Tenth, Article Thirteenth and Article Fifteenth of the 
Certificate of Incorporation, as applicable, with respect to their 
activities related to ArcaEx, it being understood that prior to the 
consummation of the initial public offering, New Arca Holdings shall 
have taken reasonable steps necessary to cause persons holding such 
positions prior to the consummation of the initial public offering to 
consent in writing to the applicability to them of such provisions, as 
applicable, prior to the consummation of the initial public 
offering.\29\
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    \29\ New Arca Holdings Certificate of Incorporation, Article 
Eighteenth.
    New Arca Holdings Certificate of Incorporation, Article Tenth 
requires that, subject to certain conditions, each director of New 
Arca Holdings take into consideration the effect that New Arca 
Holdings' actions would have on the ability of PCX and PCXE to carry 
out their regulatory responsibilities and requires directors, 
officers and employees of New Arca Holdings to comply with federal 
securities laws and to cooperate with the Commission, PCX and PCXE.
    New Arca Holdings Certificate of Incorporation, Article 
Thirteenth requires that, subject to certain conditions, New Arca 
Holdings, its directors and officers, and those of its employees 
whose principal place of business and residence is outside of the 
United States submit to the jurisdiction of the Commission and PCX 
and to waive all claims that it or they are not personally subject 
to such jurisdiction.
    New Arca Holdings Certificate of Incorporation, Article 
Fifteenth states that, subject to certain conditions, the books, 
records, premises, officers, directors and employees of New Arca 
Holdings shall be deemed to be the books, records, premises, 
officers, directors and employees of PCX and PCXE.
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    Pursuant to this provision, New Arca Holdings would require its 
directors and officers, and those of its employees whose principal 
place of business and residence is outside of the United States to 
consent explicitly to the jurisdiction of the United States courts, the 
Commission and PCX. In addition, New Arca Holdings would require its 
officers, directors and employees to agree to cooperate with the 
Commission, PCX and PCXE and agree to be deemed to be officers, 
directors and employees of PCX and PCXE. PCX and PCXE believe that it 
is imperative that regulatory cooperation is assured from such people. 
Accordingly, PCX and PCXE believe that these provisions are designed to 
ensure that, should an occasion arise that requires regulatory 
cooperation or submission to jurisdiction from such persons, it would 
be forthcoming and uncontested.

[[Page 41015]]

(xi) Responsibilities of New Arca Holdings

    Pursuant to the Certificate of Incorporation, New Arca Holdings 
shall comply with the federal securities laws and rules and regulations 
thereunder and shall cooperate with the Commission, and, for so long as 
ArcaEx is a facility of PCX and PCXE and the Amended and Restated 
Facility Services Agreement is in effect, with PCX and PCXE pursuant to 
their regulatory authority.\30\
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    \30\ New Arca Holdings Certificate of Incorporation, Article 
Sixteenth.
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    In addition, New Arca Holdings shall take reasonable steps 
necessary to cause its agents to cooperate with the Commission, and, 
for so long as ArcaEx is a facility of PCX and PCXE and the Amended and 
Restated Facility Services Agreement is in effect, with PCX and PCXE 
pursuant to their regulatory authority with respect to such agents' 
activities related to ArcaEx.\31\ PCX and PCXE believe that these 
provisions would help to ensure that New Arca Holdings does not 
interfere with the Commission's, PCX's and PCXE's regulatory 
responsibilities by ensuring that New Arca Holdings complies with 
federal securities laws, cooperates with the Commission, and, for so 
long as ArcaEx is a facility of PCX and PCXE and the Amended and 
Restated Facility Services Agreement is in effect, with PCX and PCXE 
pursuant to their regulatory authority, and takes reasonable steps to 
ensure that its agents do not interfere with the Commission's, PCX's 
and PCXE's ability to carry out their regulatory responsibilities.
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    \31\ New Arca Holdings Certificate of Incorporation, Article 
Seventeenth.
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2. Statutory Basis
    The Exchange believes that this filing is consistent with section 
6(b) \32\ of the Act, in general, and furthers the objectives of 
Section 6(b)(1),\33\ in particular, in that it enables the Exchange to 
be so organized so as to have the capacity to be able to carry out the 
purposes of the Act and to comply, and (subject to any rule or order of 
the Commission pursuant to Section 17(d) or 19(g)(2) of the Act) to 
enforce compliance by its exchange members and persons associated with 
its exchange members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the Exchange. The Exchange 
also believes that this filing furthers the objectives of Section 
6(b)(5),\34\ in particular, because the rules summarized herein would 
create a governance and regulatory structure with respect to the 
operation of ArcaEx that is designed to help prevent fraudulent and 
manipulative acts and practices; to promote just and equitable 
principals of trade; to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities; and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(1).
    \34\ 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 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

    No written comments were either solicited or 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 Exchange consents, the Commission will:
    A. By order approve the 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. 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-2004-56 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-2004-56. 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-
2004-56 and should be submitted on or before July 28, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-15328 Filed 7-6-04; 8:45 am]
BILLING CODE 8010-01-P