[Federal Register Volume 69, Number 149 (Wednesday, August 4, 2004)]
[Notices]
[Pages 47195-47197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17776]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50108; File No. SR-PCX-2004-66]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the Pacific Exchange, Inc. To Implement Price Collars on its 
Archipelago Exchange Facility During the Closing Auction

July 28, 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 July 13, 2004, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
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 PCX. On July 27, 2004, the PCX 
filed Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, has been filed by PCX under Rule 19b-4(f)(6) under 
the Act.\4\ 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\ Letter from Mai Shiver, Director and Senior Counsel, 
Regulatory Policy, PCX to Alton Harvey, Assistant Director, Division 
of Market Regulation, Commission, dated July 22, 2004. (``Amendment 
No. 1''). In Amendment No. 1, the PCX explained that in certain 
instances where the Closing Auction is priced at the midpoint of the 
NBBO, and where the price collars would otherwise be invoked, the 
Closing Auction would be priced at the midpoint of the NBBO.
    \4\ 17 CFR 240.19b-4(f)(6). For purposes of determining the 
effective date and calculating the sixty-day period within which the 
Commission may summarily abrogate the proposed rule change under 
section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on July 27, 2004, the date PCX filed Amendment No. 1. 
See 15 U.S.C. 78s(b)(3)(C).

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[[Page 47196]]

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 Closing Auction rules to implement 
price collars in order to improve the Closing Auction pricing mechanism 
on the Archipelago Exchange facility (``ArcaEx''). Under the proposed 
rule change, in certain instances, the Closing Auction price would be 
limited by pre-established thresholds.
    Proposed new language is italicized; deleted language is in 
[brackets].
* * * * *
PCX Equities, Inc.
Rule 7
Auctions
    Rule 7.35 (a)-(e)(3)(B)--(No change).
    (C) If the Closing Auction Price established by subsections 
7.35(e)(3)(A)-(B) is outside the benchmarks established by the 
Corporation by a threshold amount, the Closing Auction Price will occur 
at a price within the threshold amounts that best satisfies the 
conditions of subsections 7.35(e)(3)(A)-(B). The Corporation shall set 
and modify such benchmarks and thresholds from time to time upon prior 
notice to ETP Holders.
* * * * *

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 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
    As part of its continuing efforts to enhance participation on 
ArcaEx, the PCX is proposing to improve the process associated with 
pricing the Closing Auction. The proposal is based on a similar 
standard currently in place at the Nasdaq Stock Market, Inc. 
(``Nasdaq'') for the Nasdaq Closing Cross which was previously approved 
by the Commission.\5\
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    \5\ See Securities and Exchange Act Release No. 49406 (March 11, 
2004), 69 FR 12879 (March 18, 2004) (SR-NASD-2003-173).
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    Currently, PCXE Rule 7.35 describes the ArcaEx Closing Auction 
rules. The Closing Auction price is generally determined based on the 
Indicative Match Price \6\ that is the price at which the maximum 
volume of shares is executable. To improve the pricing mechanism, 
ArcaEx proposes to implement price collars that would limit the price 
at which the Indicative Match Price could be set. These price collars 
would be established by PCX and would be communicated to ETP Holders 
via the ArcaEx website. Initially, these price collar thresholds would 
be consistent with the PCXE Demonstrable Erroneous Execution Policy.\7\ 
That is, the Indicative Match Price would not be permitted to be 
greater than $1.00 or 10% away from the consolidated last sale price. 
Other than utilizing the pre-established price collars to limit the 
Closing Auction Indicative Match Price and changing the threshold 
parameters with prior written notice to ETP Holders, the Corporation 
would not have any discretion to modify the auction process and the 
calculation of the Indicative Match Price.
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    \6\ See PCXE Rule 1.1(r).
    \7\ See Archipelago Exchange Web site www.arcaex.com, Orders and 
Trade Processing, Erroneous Execution Policy. Any changes to the 
thresholds of the price collars will be communicated to ETP Holders 
with reasonable notice prior to the closing auction.
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    Following is an example of how the Closing Auction price collars 
would function:

Consolidated last sale price: 12.00.
ArcaEx Orders:
    Buy 50,000 MOC.
    Sell 30,000 LOC @ 12.50.
    Sell 20,000 LOC @ 13.01.


    ]Closing Auction results: Indicative Match Price = 12.50; Matched 
Volume = 30,000; Total Imbalance = 20,000. The 20,000 limit sell order 
at 13.01 is outside of the price collar and would not be used to 
determine the Indicative Match Price.
    PCX believes that implementing these price collars would help 
ensure that the ArcaEx Closing Auction will execute at prices within 
range of where the stock is currently trading. Further, it would 
provide ETP Holders and investors with greater price certainty when 
entering orders into the ArcaEx Closing Auction.
    In Amendment No. 1, the Exchange sought to clarify a particular 
scenario with respect to the collars. Specifically, in certain 
instances, it may not be appropriate for PCX to institute a price 
collar. For example, pursuant to PCXE Rule 7.35(e)(3)(B), there may be 
cases in which the Closing Auction is priced at the midpoint of the 
NBBO. The NBBO is a fair representation of then-available prices and 
accordingly provides for an appropriate auction pricing mechanism. In 
such instances, when the price collars proposed in the instant filing 
would otherwise be invoked (i.e. the Closing Auction price established 
by the midpoint of the NBBO is greater than $1.00 or 10% away from the 
consolidated last sale price), it would not be appropriate for PCX to 
utilize such collars and as such, the Closing Auction would be priced 
at the midpoint of the NBBO.\8\
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    \8\ See Amendment No. 1, supra note 3.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with section 
6(b) of the Act,\9\ in general, and section 6(b)(5) of the Act,\10\ in 
particular, in that it will promote just and equitable principles of 
trade, facilitate transactions in securities, remove impediments to and 
perfect the mechanisms of a free and open market and national market 
system, and protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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, as 
amended, 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 on the proposed rule change were neither solicited 
nor received.

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

    The foregoing rule change, as amended, has been filed by the 
Exchange pursuant to section 19(b)(3)(A) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\ PCX has designated 
the proposed rule change as one that: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and

[[Page 47197]]

(iii) does not become operative for 30 days from the date on which it 
was filed, or such shorter time as the Commission may designate. 
Therefore, the foregoing rule change, as amended, has become effective 
pursuant to section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ See supra note 11.
    \14\ See supra note 12.
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\15\ the proposal 
may not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, and the self-
regulatory organization must file notice of its intent to file the 
proposed rule change at least five business days beforehand. PCX, 
through its facility, ArcaEx, provided the Commission with notice of 
its intent to file the proposed rule change at least five days before 
filing the proposal with the Commission.\16\ The Exchange has requested 
that the Commission waive the 30-day operative delay so that the 
proposed rule change will become immediately effective upon filing.
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See e-mail from Janet Angstadt, Deputy General Counsel, 
Archipelago Holdings L.L.C. to Alton Harvey, Assistant Director, 
Commission, dated June 30, 2004.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission believes that accelerating the operative date does not 
raise any new regulatory issues, significantly affect the protection of 
investors or the public interest, or impose any significant burden on 
competition. The Commission notes that it recently approved a similar 
proposal by Nasdaq on which the Exchange's proposal is based.\17\ For 
these reasons, the Commission designates the proposed rule change as 
effective and operative immediately.
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    \17\ See supra note 5.
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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, 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-2004-66 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-2004-66. 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-2004-66 and 
should be submitted on or before August 25, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-17776 Filed 8-3-04; 8:45 am]
BILLING CODE 8010-01-P