[Federal Register Volume 69, Number 157 (Monday, August 16, 2004)]
[Notices]
[Pages 50419-50427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18637]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50170; File No. SR-PCX-2004-56]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment No. 1 to the Proposed Rule Change by 
the Pacific Exchange, Inc. Relating to the Certificate of Incorporation 
and Bylaws of Archipelago Holdings, Inc.

August 9, 2004.

I. Introduction

    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''), 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 relating to the Certificate of Incorporation and 
Bylaws of Archipelago Holdings, Inc. (``New Arca Holdings''). The 
proposed rule change was published for comment in the Federal Register 
on July 7, 2004.\3\ The Commission received no comments on the 
proposal. On August 3, 2004, the Exchange filed Amendment No. 1 to the 
proposed rule change.\4\ This order approves the proposed rule change, 
grants accelerated approval to Amendment No. 1 to the proposed rule 
change, and solicits comments from interested persons on Amendment No. 
1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 49946 (June 30, 
2004), 69 FR 41009 (``Notice'').
    \4\ See letter from Mai S. Shiver, Director/Senior Counsel, 
Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
August 2, 2004 (``Amendment No. 1''). In Amendment No. 1, the 
Exchange clarified the intent of the drafters regarding the 
interpretation of ``beneficial ownership'' and any variation 
thereof, made other technical corrections to the text of the 
proposed rule change, and requested accelerated approval of 
Amendment No. 1.

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[[Page 50420]]

II. Description of the Proposal

A. Corporate Organization of New Arca Holdings

    Currently, the equities trading facility of PCX and PCXE, the 
Archipelago Exchange (``ArcaEx''), is owned and operated by Archipelago 
Exchange, L.L.C., which, in turn, is owned by Archipelago Holdings, 
L.L.C. (``Current Arca Holdings''). Current Arca Holdings is proposing 
to convert into New Arca Holdings, a Delaware corporation, and effect 
an initial public offering of the common stock of New Arca Holdings.\5\ 
Current Arca Holdings is currently the sole owner of ArcaEx. As a 
result of the conversion of Current Arca Holdings into New Arca 
Holdings, New Arca Holdings will become the sole owner of ArcaEx.
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    \5\ See Securities Act Registration Statement on Form S-1 filed 
by New Arca Holdings (File No. 333-113226) (``Registration Statement 
on Form S-1''). In connection with the conversion to a Delaware 
corporation, each current member of Current Arca Holdings will 
receive 0.222222 shares of common stock of New Arca Holdings for 
each share of Current Arca Holdings held by the member, and one of 
Current Arca Holdings' members, GAP Archa Holdings, Inc., will be 
merged with and into New Arca Holdings. 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 
Archa Holding, Inc. prior to the merger would be cancelled.
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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 in Section II.B., 
holders of New Arca Holdings' common stock will be entitled to vote on 
all matters submitted to the stockholders for a vote. New Arca Holdings 
will be permitted to issue preferred stock in the future, the terms of 
which would be determined by its board of directors (``Board'').
    New Arca Holdings will be governed under the direction of the 
Board. The number of directors will be fixed by resolution of the 
Board, and is expected to be nine initially. Pursuant to Certificate of 
Incorporation of 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 (``Amended and Restated Facilities Agreement'') is in effect, 
one member of New Arca Holdings' Board will be required to be a member 
of board of directors of PCX or an officer or employee of PCX nominated 
by the board of directors of PCX. New Arca Holdings will have the 
following committees of the Board: an audit committee; a corporate 
governance and nominating committee; and a compensation committee.
    According to the Exchange, certain provisions of the proposed 
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 interfere with or restrict the ability of 
PCX or PCXE to carry out their self-regulatory obligations and the 
Commission to carry out its 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.\6\
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    \6\ 15 U.S.C. 78f(5).
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B. Voting Limitation

    Pursuant to the Certificate of Incorporation, no person,\7\ 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'').
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    \7\ Section H(2) of Article Fourth of the Certificate of 
Incorporation defines ``person'' to mean a natural person, company, 
government, or political subdivision, agency, or instrumentality of 
a government.
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    The Voting Limitation and the Nonvoting Agreement Prohibition would 
apply unless and until (1) a person, either alone or with its related 
persons, delivers to the Board a notice in writing, at least 45 days 
(or such shorter period to which the Board expressly consents) 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 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 would be 
required to adopt a resolution approving such person and its 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.\8\
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    \8\ Section C of Article Fourth of the Certificate of 
Incorporation. The Voting Limitation and the Nonvoting Agreement 
Prohibition would 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. Id.
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    In approving any such resolution, the Board would be required to 
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.\9\ In making such determinations, 
the Board 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 in its sole discretion 
deems necessary, appropriate or desirable in furtherance of the 
objectives of the Act and the governance of New Arca Holdings.\10\
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    \9\ PCXE Rule 1(n) currently defines an ``ETP Holder'' as a sole 
proprietorship, partnership, corporation, limited liability company 
or other organization in good standing that has been issued an 
Equity Trading Permit by PCXE for effecting approved securities 
transactions on the PCXE's trading facilities. An ETP Holder must be 
a registered broker or dealer pursuant to Section 15 of the Act.
    \10\ Section C of Article Fourth of the Certificate of 
Incorporation.
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    If votes are cast in excess of the Voting Limitation, New Arca 
Holdings

[[Page 50421]]

will be required to disregard such votes cast in excess of the Voting 
Limitation.\11\
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    \11\ Id.
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    The Certificate of Incorporation would define ``related persons'' 
to mean with respect to any person: (1) 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;\12\ (2) 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 with which such 
natural person is associated; (3) 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; (4) 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 (5) 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.\13\
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    \12\ See 17 CFR 240.13d-3 and 240.13d-5.
    \13\ Section H(3) of Article Fourth of the Certificate of 
Incorporation. 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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C. Ownership Limitations

1. Concentration Limitation
    Pursuant to the Certificate of Incorporation, no person, either 
alone or with its related persons, could 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.\14\ 
The 40% ownership limitation would apply unless and until (1) a person, 
either alone or with its related persons, delivers to the Board a 
notice in writing, at least 45 days (or such shorter period to which 
the Board expressly consents) 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 from the Board and the 
Commission to exceed the 40% ownership limitation. Specifically, (1) 
the Board 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.\15\
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    \14\ Section D(1) of Article Fourth of the Certificate of 
Incorporation. 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.
    \15\ Id.
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    In approving any such resolution, the Board would be required to 
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 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.\16\
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    \16\ Id.
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    If a person, either alone or with its related persons, owns 
beneficially shares of stock of New Arca Holdings in excess of the 40% 
limitation without obtaining the prior approval of the Board and the 
Commission, 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.\17\
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    \17\ Id. New Arca Holdings would be required to 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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2. Limitation on Ownership by ETP Holders
    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, could 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.\18\ 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.\19\
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    \18\ Section D(2) of Article Fourth of the Certificate of 
Incorporation.
    \19\ Id. New Arca Holdings would be required to 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, would 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.\20\ 
Members of Current Arca

[[Page 50422]]

Holdings qualifying for this exemption would not be allowed to increase 
their beneficial ownership of New Arca Holdings above their beneficial 
ownership at the time of the initial public offering.\21\
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    \20\ According to Current Arca Holdings, only one of its members 
that is an ETP Holder owns more than 20% of the shares of Current 
Arca Holdings.
    \21\ Section D(2) of Article Fourth of the Certificate of 
Incorporation.
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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 20% ownership limitation 
applicable to ETP Holders.\22\ In practical terms, this limitation 
would apply only in situations where a stockholder is the record owner 
of shares.\23\
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    \22\ Section D(3) of Article Fourth of the Certificate of 
Incorporation.
    \23\ For the purposes of the 40% ownership limitation and the 
20% ownership limitation applicable to ETP Holders, no person would 
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). Section D(4) 
of Article Fourth of the Certificate of Incorporation.
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D. New Arca Holdings' Right To Require Information From Stockholders

    Pursuant to the Certificate of Incorporation, the Board would have 
the right to require any person and its related persons reasonably 
believed (1) to be subject to the Voting Limitation or the Nonvoting 
Agreement Prohibitions, (2) to own beneficially shares of stock of New 
Arca Holdings entitled to vote on any matter in excess of the 40% 
ownership limitation, (3) to own beneficially 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 the ownership and voting 
limitations described above as may reasonably be requested of such 
person and its related persons.\24\
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    \24\ Section G of Article Fourth of the Certificate of 
Incorporation.
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E. Responsibilities of the Directors

    Pursuant to the Certificate of Incorporation, in discharging his or 
her responsibilities as a member of the Board, each director will be 
required to 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' 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.\25\ In addition, in 
discharging his or her responsibilities as a member of the Board, 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.\26\
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    \25\ Article Tenth of the Certificate of Incorporation.
    \26\ Id.
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F. 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.\27\ If such 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.\28\
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    \27\ Section E of Article Fourth and Article Ninth of the 
Certificate of Incorporation.
    \28\ Section E of Article Fourth of the Certificate of 
Incorporation. New Arca Holdings would be required to 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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G. PCX Director

    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, one member of New Arca Holdings' Board 
shall be a member of PCX's board of directors or an officer or employee 
of PCX nominated by the PCX board of directors. 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 New Arca Holdings, the Board of New Arca Holdings shall 
appoint a director nominated by the PCX board of directors.\29\
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    \29\ Article Eighth of the Certificate of Incorporation.
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H. 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 to their regulatory authority.\30\
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    \30\ Article Tenth of the Certificate of Incorporation.
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I. 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)

[[Page 50423]]

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, including this provision of confidential information, 
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.\31\
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    \31\ Article Fourteenth of the Certificate of Incorporation.
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    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.\32\ In addition, New Arca Holdings' books and records relating to 
ArcaEx shall be maintained within the United States.\33\
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    \32\ Article Fifteenth of the Certificate of Incorporation.
    \33\ Article Fourteenth of the Certificate of Incorporation.
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J. 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.\34\
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    \34\ Article Thirteenth of the Certificate of Incorporation.
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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.\35\
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    \35\ Article Fifteenth of the Certificate of Incorporation.
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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.\36\ Thus, pursuant to this provision, New Arca Holdings will 
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 will 
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.
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    \36\ Article Eighteenth of the Certificate of Incorporation.
    Article Tenth of the Certificate of Incorporation 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.
    Article Thirteenth of the Certificate of Incorporation 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.
    Article Fifteenth of the Certificate of Incorporation 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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K. 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.\37\ 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.\38\
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    \37\ Article Sixteenth of the Certificate of Incorporation.
    \38\ Article Seventeenth of the Certificate of Incorporation.
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L. Amendments to the Certificate of Incorporation and Bylaws

    Pursuant to the Certificate of Incorporation and the Bylaws of New 
Arca Holdings, for so long as ArcaEx is a facility of PCX and PCXE and 
the Amended and Restated Facility Services Agreement is in effect, any 
amendment to the Certificate of Incorporation or Bylaws of New Arca 
Holdings must be submitted by the Board to the board of directors of 
PCX and, if the board of directors of PCX determines that an amendment 
to the Certificate of Incorporation or the Bylaws of New Arca Holdings 
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

[[Page 50424]]

effective pursuant to this rule filing process.\39\
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    \39\ Article Nineteenth of the Certificate of Incorporation and 
Section 6.8(b) of the Bylaws of New Arca Holdings.
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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 Amendment No. 1 of 
File Number SR-PCX-2004-56 and should be submitted on or before 
September 7, 2004.

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\40\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(1) of the Act,\41\ which 
requires a national securities exchange to be so organized and have the 
capacity to be able to carry out the purposes of the Act and to enforce 
compliance by its members and persons associated with its members with 
the provisions of the Act, the rules or regulations thereunder, and the 
rules of the Exchange. The Commission also finds that the proposal is 
consistent with Section 6(b)(5) of the Act,\42\ which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade; to facilitate 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.\43\
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    \40\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \41\ 15 U.S.C. 78f(b)(1).
    \42\ 15 U.S.C. 78f(b)(5).
    \43\ The Commission has not formally established standards for 
control persons of shareholder-owned national securities exchanges 
or facilities thereof. It expects, however, to consider providing 
guidance on this issue in the future.
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A. Self-Regulatory Function of the Exchange

    After the conversion of Current Arca Holdings into New Arca 
Holdings, New Arca Holdings will continue to operate ArcaEx as the 
equities trading facility of PCX and PCXE, and PCX and PCXE will 
continue to have regulatory and oversight obligations with respect to 
ArcaEx.\44\ Although ArcaEx and New Arca Holdings do not themselves 
carry out regulatory functions, as the Commission noted at the time it 
approved ArcaEx as an equities trading facility of PCX, the operation 
of ArcaEx would be consistent with the regulatory oversight functions 
of PCX and PCXE and would not interfere with PCX's self-regulatory 
responsibilities.\45\ Thus, New Arca Holdings' activities with respect 
to its operation of ArcaEx should be consistent with, and not interfere 
with, such obligations.
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    \44\ In addition, all persons trading through facilities of 
ArcaEx will continue to be subject to the PCXE rules.
    \45\ See Securities Exchange Act Release No. 44983 (October 25, 
2001); 66 FR 55225 (November 1, 2001), at Section II.A.
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    Certain provisions in the Certificate of Incorporation are designed 
to facilitate the ability of PCX, PCXE and the Commission to fulfill 
their regulatory obligations with respect to ArcaEx. Specifically, 
under the Certificate of Incorporation, each director on the Board will 
be required to 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' 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.\46\ Similarly, each member 
of the Board, and each officer or employee of New Arca Holdings, and 
New Arca Holdings itself, 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.\47\
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    \46\ Article Tenth of the Certificate of Incorporation.
    \47\ Articles Tenth and Sixteenth of the Certificate of 
Incorporation.
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    Moreover, all confidential information pertaining to the self-
regulatory function of PCX and PCXE 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, subject to 
the Commission's right to access and examine such confidential 
information pursuant to the federal securities laws and rules and 
regulations thereunder.\48\
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    \48\ Article Fourteenth of the Certificate of Incorporation.

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[[Page 50425]]

    The Commission believes that these provisions, which are designed 
to help maintain the independence of PCX's self-regulatory function and 
protect from improper use confidential information pertaining to the 
self-regulatory function of PCX, are appropriate.
    In addition, the Certificate of Incorporation requires that, for so 
long as ArcaEx is a facility of PCX and PCXE and the Amended and 
Restated Facility Services Agreement is in effect, one member of the 
Board of New Arca Holdings be a member of PCX's board of directors or 
an officer or employee of PCX nominated by the PCX board of directors. 
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 New Arca Holdings, the Board shall 
appoint a director nominated by the PCX board of directors.\49\ By 
providing an opportunity for a representative of PCX to participate in 
Board meetings of the operator of PCX's trading facility, New Arca 
Holdings, these provisions are designed to facilitate PCX's, PCXE's and 
the Commission's ability to effectively perform their regulatory 
oversight responsibilities with regard to ArcaEx.
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    \49\ Article Eighth of the Certificate of Incorporation.
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B. Changes in Control of New Arca Holdings

    The Certificate of Incorporation includes certain provisions, which 
would impose limitations on direct and indirect changes in control of 
New Arca Holdings through voting and ownership limitations placed on 
New Arca Holdings' stock (as outlined below), that are designed to help 
prevent any stockholder, or any stockholders acting together, from 
exercising undue control over the operation of New Arca Holdings and, 
therefore, ArcaEx. The Commission believes that these restrictions, 
which are designed to help ensure that PCX, PCXE and the Commission are 
able to carry out their regulatory obligations with respect to ArcaEx, 
are consistent with the Act.
    Specifically, no person, either alone or with its related persons, 
will be permitted to 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 without prior 
approval from the Board of New Arca Holdings and the Commission to 
exceed the 40% limitation.\50\ In addition, no person, either alone or 
with its related persons, 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 (referred to as 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 (referred to as the Nonvoting Agreement 
Prohibition), without prior approval from the Board of New Arca 
Holdings and the Commission to exceed the 20% limitation.\51\ The 
Certificate of Incorporation also would allow the Board of 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, would exceed these voting and ownership 
limitations.\52\
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    \50\ Section D(1) of Article Fourth of the Certificate of 
Incorporation. The terms ``person'' and ``related persons'' are 
defined in Section H of Article Fourth of the Certificate of 
Incorporation, and are described in Section II.B supra.
    \51\ Section C of Article Fourth of the Certificate of 
Incorporation.
    \52\ Section G of Article Fourth of the Certificate of 
Incorporation. In addition, the information required to be filed by 
shareholders pursuant to Regulations 13D and 13G will be available 
to New Arca Holdings for purposes of determining whether any person, 
along or together with its related persons, has exceeded the voting 
and ownership limitations.
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    The Board will only be able to waive these voting and ownership 
limitations if it adopts a resolution after making certain findings 
that doing so would not impair the ability of PCX, PCXE and the 
Commission to carry out their respective regulatory obligations and is 
otherwise in the best interests of New Arca Holdings. The Board, 
however, will not be permitted to approve an ETP Holder or person 
subject to a statutory disqualification to exceed the limits.\53\ The 
resolution would then be filed with the Commission as a proposed rule 
change under Rule 19b-4 of the Act, and the resolution would not become 
effective until the proposed rule change becomes effective 
thereunder.\54\ Among other things, these provisions are designed to 
provide the Commission with the opportunity to determine what, if any, 
additional measures might be necessary to provide appropriate oversight 
of the proposed controlling person.
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    \53\ Specifically, in approving any such resolution, the Board 
would be required to determine that: (1) The exercise of such voting 
rights, the entering into of such agreement, plan or arrangement, or 
the acquisition of such shares, 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, the entering 
into of such agreement, plan or arrangement, or the acquisition of 
such shares 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 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. Sections C and D(1) of Article Fourth of the 
Certificate of Incorporation.
    \54\ Sections C and D(1) of Article Fourth of the Certificate of 
Incorporation.
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    The Certificate of Incorporation also contains provisions designed 
to provide a disincentive for persons to exceed these limitations 
without the requisite prior approval.\55\ Specifically, if a person, 
either alone or with its related persons, exceeds the applicable 
ownership limitations, New Arca Holdings would be required to call from 
such person and its related persons that number of shares of stock 
entitled to vote that exceeds the applicable limitation at a price 
equal to the par value of the shares of stock.\56\ In addition, if 
votes were cast in excess of this 20% voting limitation, New Arca 
Holdings would be required to disregard such votes cast in excess of 
the 20% voting limitation.\57\
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    \55\ See Sections C, (D)(1) and (D)(2) of Article Fourth of the 
Certificate of Incorporation.
    \56\ Sections D(1) and D(2) of Article Fourth of the Certificate 
of Incorporation. New Arca Holdings would be required to 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%, or to 20% in the case 
of an ETP Holder, of the outstanding shares of stock entitled to 
vote on any matter after giving effect to the redemption of the 
shares.
    In addition, Section D(3) of Article Fourth of the Certificate 
of Incorporation provides that the purported transfer of any shares 
of stock of New Arca Holdings that would result in a violation of 
the 40% ownership limitation would not be registered. The Commission 
understands that, in practical terms, this limitation would apply 
only in situations where a stockholder is the record owner of 
shares.
    \57\ Section C of Article Fourth of the Certificate of 
Incorporation provides that the 20% voting limitation provisions 
would 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. This provision is 
designed to ensure that the voting limitations will not restrict the 
exercise of proxy rights under Regulation 14A of the Act.

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[[Page 50426]]

C. Ownership and Voting Restrictions on ETP Holders

    The Commission believes that the 20% ownership (and thus voting) 
restriction on ETP Holders is reasonable and consistent with the 
Act.\58\ It is common for members who trade on an exchange to have 
ownership interests in the exchange. However, a member's interest could 
become so large as to cast doubt on whether the exchange can fairly and 
objectively exercise its self-regulatory responsibilities with respect 
to that member. A member that is a controlling shareholder of an 
exchange might be tempted to exercise that controlling influence by 
directing the exchange to refrain from diligently surveilling the 
member's conduct or from punishing any conduct that violates the rules 
of the exchange or the federal securities laws.
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    \58\ Section D(2) of Article Fourth of the Certificate of 
Incorporation. See Sections II.B and II.C supra for a detailed 
description of this limitation.
    In addition, if an ETP Holder, either alone or with its related 
persons, owns 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, New Arca Holdings would be 
required to call from such ETP Holder and its related persons that 
number of shares of stock entitled to vote that exceeds this 20% 
limitation, and would be required not to register the purported 
transfer of any such shares in violation of this 20% limitation. 
Sections D(2) and D(3) of Article Fourth of the Certificate of 
Incorporation.
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    Members of Current Arca Holdings who were ETP Holders as of the 
date of the Certificate of Incorporation will be granted a temporary 
exemption, not to extend past July 31, 2014, from this 20% 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.\59\ The Commission believes that a 
temporary exemption for these ETP Holders is consistent with the Act. 
The exemption is designed to afford these holders some ability to 
protect their investment but also to limit the possibility that PCX and 
PCXE's ability to carry out their self-regulatory responsibilities 
would be impaired. The Commission understands that only one member of 
Current Arca Holdings that is an ETP Holder currently owns more than 
20% of the shares of Current Arca Holdings, and that the amount of such 
ETP Holder's ownership interest in New Arca Holdings will fall below 
the 20% ownership limitation.\60\ In addition, this exemption is 
substantially similar to exemptions granted to founding members of the 
Boston Options Exchange and the International Securities Exchange.\61\
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    \59\ Section D(2) of Article Fourth of the Certificate of 
Incorporation.
    \60\ See Amendment No. 7 to Registration Statement on Form S-1 
at 117-119, and telephone conversation between David Strandberg, 
Director, Corporate Client Group, Current Arca Holdings; and David 
Hsu, Attorney, Division, Commission, on August 9, 2004.
    \61\ See Securities Exchange Act Release Nos. 49067 (January 13, 
2004), 69 FR 2761 (January 20, 2004) (approval of SR-BSE-2003-19) 
(approval of the operating agreement of the Boston Options 
Exchange); 45803 (April 23, 2002), 67 FR 21306 (April 30, 2002) 
(approval of SR-ISE-2002-01) (conversion of ISE from an LLC to a 
corporation); and 42455 (February 24, 2000), 65 FR 11388 (March 2, 
2000) (File No. 10-127) (approval of registration of ISE as a 
national securities exchange).
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D. Regulatory Jurisdiction Over New Arca Holdings

    Certain of the terms of the Certificate of Incorporation are 
designed to help enable the Commission to carry out its oversight 
responsibilities under the Act. Specifically, the Certificate of 
Incorporation provides that, 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.\62\ 
Furthermore, New Arca Holdings' books and records will 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. In addition, the Certificate of Incorporation provides that New 
Arca Holdings (and its officers, directors and employees) would be 
required to 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.\63\
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    \62\ Article Fifteenth of the Certificate of Incorporation. 
Section 19(h)(4) of the Act, 15 U.S.C. 78s(h)(4), authorizes the 
Commission, by order, to remove from office or censure any officer 
or director of a national securities exchange if it finds, after 
notice and an opportunity for hearing, that such officer or 
director: (1) Has willfully violated any provision of the Act or the 
rules and regulations thereunder, or the rules of a national 
securities exchange; (2) willfully abused his or her authority; or 
(3) without reasonable justification or excuse, has failed to 
enforce compliance with any such provision by a member or person 
associated with a member of the national securities exchange. 
Section 17(b)(1) of the Act, 15 U.S.C. 78q(b)(1), subjects the books 
and records of an SRO to such reasonable periodic, special, or other 
examination by representatives of the Commission as the Commission 
deems necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes 
of the Act.
    \63\ Articles Sixteenth and Eighteenth of the Certificate of 
Incorporation.
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    The Certificate of Incorporation also provides that 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.\64\ In addition, New Arca Holdings and each 
director, officer or and employee waives, and agrees 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.\65\
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    \64\ Article Thirteenth of the Certificate of Incorporation.
    \65\ Id.
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    Moreover, the Certificate of Incorporation provides that, from and 
after the consummation of the initial public offering of shares of 
common stock of New Arca Holdings, New Arca Holdings would be required 
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 the provisions of the Certificate of Incorporation, with 
respect to their activities related to ArcaEx and the Commission's 
jurisdiction over them and the compliance with the federal securities 
laws.\66\
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    \66\ The Certificate of Incorporation also provides that New 
Arca Holdings shall take 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. Article Eighteenth of the Certificate of 
Incorporation.

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[[Page 50427]]

    The Commission also notes that, even in the absence of these 
provisions of the Certificate of Incorporation, Section 20(a) of the 
Act \67\ provides that any person with a controlling interest in New 
Arca Holdings would be jointly and severally liable with and to the 
same extent that New Arca Holdings is liable under any provision of the 
Act, unless the controlling person acted in good faith and did not 
directly or indirectly induce the act or acts constituting the 
violation or cause of action. In addition, Section 20(e) of the Act 
\68\ creates aiding and abetting liability for any person who knowingly 
provides substantial assistance to another person in violation of any 
provision of the Act or rule thereunder, and Section 21C of the Act 
\69\ authorizes the Commission to enter a cease-and-desist order 
against any person who has been ``a cause of'' a violation of any 
provision of the Act through an act or omission that the person knew or 
should have known would contribute to the violation.
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    \67\ 15 U.S.C. 78t(a).
    \68\ 15 U.S.C. 78t(e).
    \69\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

    The Commission believes that, taken together, these provisions are 
designed to facilitate the ability of the Commission to exercise 
appropriate oversight of the controlling persons of New Arca Holdings, 
and are consistent with the Act.

E. Amendments to the Certificate of Incorporation and Bylaws of New 
Arca Holdings

    Section 19(b) of the Act \70\ and Rule 19b-4 thereunder \71\ 
require a self-regulatory organization (``SRO'') to file proposed rule 
changes with the Commission. Although New Arca Holdings is not an SRO, 
certain provisions of its Certificate of Incorporation and Bylaws may 
be rules of an exchange \72\ if they are the stated policies, 
practices, and interpretations, as defined in Rule 19b-4 of the Act, of 
the PCX. Any proposed rule or any proposed change in, addition to, or 
deletion from the rules of an exchange must be filed pursuant to 
Section 19(b) of the Act and Rule 19b-4 thereunder.\73\ Accordingly, 
PCX has filed the Certificate of Incorporation and the Bylaws of New 
Arca Holdings with the Commission.
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    \70\ 15 U.S.C. 78s(b).
    \71\ 17 CFR 240.19b-4.
    \72\ Section 3(a)(27) of the Act, 15 U.S.C. 78c(a)(27), defines 
the rules of an exchange to be the constitution, articles of 
incorporation, bylaws, and rules, or instruments corresponding to 
the foregoing, of an exchange, and such stated policies, practices, 
or interpretations of such exchange as the Commission, by rule, may 
determine to be necessary or appropriate in the public interest or 
for the protection of investors to be deemed to be rules of such 
exchange.
    \73\ Amendments to the Certificate of Incorporation and Bylaws 
of New Arca Holdings will be required to be submitted 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 Rule 19b-4 thereunder. Article 
Nineteen of the Certificate of Incorporation and Section 6.8(b) of 
the Bylaws of New Arca Holdings.
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V. Accelerated Approval of Amendment No. 1

    Pursuant to Section 19(b)(2) of the Act,\74\ the Commission may not 
approve any proposed rule change, or amendment thereto, prior to the 
thirtieth day after the date of publication of the notice of filing 
thereof, unless the Commission finds good cause for so finding. The 
Commission hereby finds good cause for approving Amendment No. 1 to the 
proposed rule change prior to the thirtieth day after publishing notice 
of Amendment No. 1 in the Federal Register pursuant to Section 19(b)(2) 
of the Act.\75\ Amendment No. 1 merely clarifies that, whenever the 
term ``beneficial ownership'' and any variation thereof is used in 
Article Four of the Certificate of Incorporation, the term has the same 
meaning as it has in Sections G and H of Article Four, and makes other 
technical corrections to the Certificate of Incorporation. Therefore, 
the Commission finds that good cause exists to accelerate approval of 
Amendment No. 1 to the proposed rule change, pursuant to Section 
19(b)(2) of the Act.\76\
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78s(b)(2).
    \75\ Id.
    \76\ Id.
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VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and rules 
and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\77\ that the proposed rule change (SR-PCX-2004-56) is approved, 
and that Amendment No. 1 thereto is approved on an accelerated basis.
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    \77\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\78\
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    \78\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-18637 Filed 8-13-04; 8:45 am]
BILLING CODE 8010-01-P