[Federal Register Volume 69, Number 157 (Monday, August 16, 2004)]
[Notices]
[Pages 50427-50429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18639]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50171; File No. SR-PCX-2004-76]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the Pacific Exchange, Inc. To Impose Additional 
Obligations on the Exchange Should an Affiliate or Entity that Operates 
and/or Owns a Trading System or Facility of the Exchange List a 
Security on the Exchange

August 9, 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 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'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. On July 30, 2004, the Exchange 
filed Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons, and to grant accelerated approval 
to the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Steven B. Matlin, Senior Counsel, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated July 29, 2004 (``Amendment No. 
1''). In Amendment No. 1, the Exchange made technical corrections to 
the text of the proposed rule change and corresponding changes to 
the Form 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 proposing to adopt a rule that would 
place additional reporting requirements on the Exchange should any 
affiliate of the Exchange or entity that operates and/or owns a trading 
system or facility of the Exchange list any security on the Exchange. 
The text of the proposed rule

[[Page 50428]]

change, as amended, appears below. Proposed new language is in italics.
* * * * *

Rule 5

Listings

General Provisions and Definitions

    Rule 5.1(a)-(b)--No Change.

Listing of an Affiliate or Entity That Operates and/or Owns a Trading 
System or Facility of the Corporation

    Rule 5.1(c)--If a security of an affiliate of the Corporation or 
any entity that operates and/or owns a trading system or facility of 
the Corporation is listed pursuant to the Rules of the Corporation, 
then the Corporation shall file a report each month with the Securities 
and Exchange Commission describing: (1) The Corporation's monitoring of 
such issuer's compliance with the Corporation's listing standards, 
including (i) the issuer's compliance with the Corporation's bid price 
requirement and (ii) the issuer's compliance with each of the 
quantitative and qualitative maintenance requirements; and (2) the 
Corporation's monitoring of the trading of the security, which shall 
include summaries of all related surveillance alerts, complaints, 
regulatory referrals, busted or adjusted trades, investigations, 
examinations, formal and informal disciplinary actions, exceptions 
reports, and the trading data. In addition, once a year, an independent 
accounting firm shall review the listing standards for the subject 
security to ensure that the issuer is in compliance with the 
Corporation's listing requirements, and a copy of the report shall be 
forwarded promptly to the Securities and Exchange Commission.
    In the event the Corporation determines that the subject issuer is 
non-compliant with any listing standard, the Corporation shall file a 
report with the Securities and Exchange Commission at the same time the 
Corporation notifies the issuer of its non-compliance. The report shall 
identify the date of non-compliance, type of non-compliance, and any 
other material information conveyed to the issuer in the notice of non-
compliance. Within five (5) business days of receipt of a plan of 
remediation from the issuer, the Corporation shall notify the 
Securities and Exchange Commission of such receipt, whether the plan of 
remediation was accepted by the Corporation and the time period 
provided to regain compliance with the Corporation's listing standards.
* * * * *

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 III 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 proposing to add PCXE Rule 5.1(c) in order to place 
additional reporting requirements on the Exchange should any affiliate 
of the Exchange or entity that operates and/or owns a trading system or 
facility of the Exchange list its security on the Exchange. 
Specifically, if an affiliate or any entity that operates and/or owns a 
trading system or facility of the Exchange lists its security on the 
Exchange, then the Exchange would be required to file a monthly report 
with the Commission describing: (1) The Exchange's monitoring of the 
issuer's compliance with the Exchange's listing standards; and (2) the 
Exchange's monitoring of the trading of the security, including 
summaries of surveillance alerts, complaints, regulatory referrals, 
busted or adjusted trades, investigations, examinations, disciplinary 
actions, exception reports and trading data. In addition, once each 
year the Exchange would be required to have an independent accounting 
firm review the listing standards for the security of the affiliate or 
entity that operates and/or owns a trading system or facility of the 
Exchange to ensure that the issuer is in compliance with the listing 
requirements. A copy of the report shall be forwarded promptly to the 
Commission.
    If the Exchange determines that the subject issuer is not in 
compliance with any of the Exchange's listing standards, then the 
Exchange would be required to notify the Commission of such non-
compliance at the same time it notifies the issuer of the non-
compliance. Furthermore, within five business days of receipt of a plan 
of remediation from the issuer, the Exchange would be required to 
notify the Commission that: (1) It has received such plan; (2) whether 
the plan has been accepted by the Exchange; and (3) the time period by 
which the issuer believes it will regain compliance with the listing 
standards.
    The Exchange believes that the addition of these requirements will 
help provide additional assurance that all securities listed on the 
Exchange are, and continue to be, in compliance with the Exchange's 
listing standards. In addition, the Exchange believes that the proposed 
rule, as amended, will help serve to minimize or eliminate any 
potential conflict of interest that may exist as a result of the 
listing on the Exchange of the security of an affiliate of the Exchange 
or entity that operates and/or owns a trading system or facility of the 
Exchange.
2. Statutory Basis
     The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \4\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\5\ in particular, because it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments and perfect the 
mechanisms of a free and open market and to protect investors and the 
public interest.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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. 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

[[Page 50429]]

Number SR-PCX-2004-76 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-2004-76. 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-
2004-76 and should be submitted on or before September 7, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\6\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act,\7\ which requires that the rules of an exchange be designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments and perfect the mechanisms of a 
free and open market and to protect investors and the public interest, 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The Commission also finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(1) of 
the Act,\8\ 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.
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    \6\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(1).
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    The listing of securities of an affiliate of the Exchange or any 
entity that operates and/or owns a trading system or facility of the 
Exchange could potentially create a conflict of interest between the 
Exchange's self regulatory responsibility to vigorously oversee the 
listing and trading of the stock on its market, and its own commercial 
or economic interests. Such ``self-listing'' may raise questions as to 
the Exchange's ability to independently and effectively enforce its 
rules against an affiliate or the operator/owner of its facility. In 
addition, such listing has the potential to exacerbate possible 
conflicts that may arise when the Exchange oversees competitors that 
may also be listed on the Exchange. The Commission believes that the 
proposed rule change, as amended, by requiring heightened reporting by 
the Exchange to the Commission with respect to the Exchange's oversight 
of the listing and trading on the Exchange of the securities of an 
affiliate or entity that operates and/or owns a trading system or 
facility of the Exchange, will help protect against any concern that 
the Exchange will not effectively enforce its rules with respect to the 
listing and trading of these securities. In addition, the requirement 
that an independent accounting firm review such issuer's compliance 
with the Exchange's listing standards adds a degree of independent 
oversight to the Exchange's regulation of the listing of these 
securities, which should help mitigate against any potential or actual 
conflicts of interest.
    In addition, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\9\ for approving the proposed rule change and 
Amendment No. 1 prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. The Exchange 
notes in its filing that Archipelago Holdings, L.L.C. (``Archipelago 
Holdings''), the operator of ArcaEx, the Exchange's equity trading 
facility, has filed a registration statement with the Commission to 
conduct a public offering of its common stock, and an application to 
list its common stock on the Exchange in the near future pursuant to 
the Exchange's current listing standards. The Exchange's current 
listing standards do not contain any provision relating specifically to 
the listing of the stock of an affiliate or the operator and/or owner 
of the facility of the Exchange. Accordingly, the Commission believes 
that granting accelerated approval of the proposed rule change and 
Amendment No. 1 to implement the additional listing requirements prior 
to the listing of the common stock of Archipelago Holdings is 
appropriate and consistent with Sections 6 and 19(b) of the Act.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 15 U.S.C. 78f and 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change and Amendment No. 1 (SR-PCX-
2004-76), are hereby approved on an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-18639 Filed 8-13-04; 8:45 am]
BILLING CODE 8010-01-P