[Federal Register Volume 69, Number 219 (Monday, November 15, 2004)]
[Notices]
[Pages 65668-65670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3158]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50643; File No. SR-PCX-2004-98]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. To 
Extend Until 1:15 (Pacific Time) the Core Trading Session and Change 
the Closing Auction Time for Certain ETFs

November 5, 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 October 12, 2004, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in items I, II, 
and III below, which items have been prepared by the PCX. On November 
3, 2004, the PCX filed Amendment No. 1 to the proposed rule change.\3\ 
The Exchange proposed the rule change under section 19(b)(3)(A) of the 
Act \4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders it effective 
upon filing.\6\ 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\ See Letter from Mai Shiver, Director, Regulatory Policy, 
PCX, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated November 2, 2004 (``Amendment No. 
1''). Amendment No. 1 replaced and superseded the original filing in 
its entirety.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ For purpose of calculating the 60-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 November 3, 2004, the date that the PCX filed 
Amendment No. 1.
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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 Core Trading Session rule (PCXE Rule 
7.34(a)(2)) and its Closing Auction rule (PCXE 7.35) as they apply to 
certain Exchange Traded Funds (``ETFs'').
    The text of the proposed rule change, as amended, is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *
    Rule 7.34 Trading Sessions
    (a) (1) No change.
    (2) Core Trading Session. The Core Trading Session shall begin for 
each security at 6:30:00 am (Pacific Time) or at the conclusion of the 
Market Order Auction, whichever comes later, and conclude at 1:00:00 pm 
(Pacific Time).
    (A) The Core Trading Session for the Exchange Traded Funds, defined 
in PCXE Rules 5.1(b)(13), 5.2(j)(3), and 8.100, shall conclude at 
1:15:00 pm (Pacific Time) unless otherwise determined by the 
Corporation.
    (3) No change.
    (b)-(f) No change.
Rule 7.35 Auctions
    (a)-(d) No change.
    (e) (1)-(3) No change.
    (A)-(C) No change.
    (D) Notwithstanding other provisions of PCXE Rule 7.35(e):
    i. The Closing Auction for the Exchange Traded Funds defined in 
PCXE Rules 5.1(b)(13), 5.2(j)(3), and

[[Page 65669]]

8.100 and determination of the Closing Auction Price as defined in PCXE 
Rule 7.35(e)(3) will commence at 1:15 p.m. (Pacific Time) unless 
otherwise determined by the Corporation.
    ii. Between 1:13 p.m. (Pacific Time) and the conclusion of the 
Closing Auction, Market-On-Close and Limit-On-Close Orders for the 
Exchange Traded Funds defined in PCXE Rules 5.1(b)(13), 5.2(j)(3), and 
8.100 may not be cancelled.
    iii. Between 1:13 pm (Pacific Time) and the conclusion of the 
Closing Auction, Market-on-Close Orders and Limit-on-Close Orders for 
the Exchange Traded Funds defined in PCXE Rules 5.1(b)(13), 5.2(j)(3), 
and 8.100 may not be entered on the same side as the Imbalance. Market-
on-Close Orders and Limit-on-Close Orders for these Exchange Traded 
Funds that create equilibrium and thereafter convert the Imbalance from 
a buy to a sell (or convert the Imbalance from a sell to a buy) 
Imbalance will be rejected.
* * * * *

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 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
    As part of its continuing efforts to enhance participation on its 
Archipelago Exchange (``ArcaEx'') facility, the PCX is proposing to 
include certain ETFs \7\ in its Closing Auction process \8\ and to 
delay the commencement of the Closing Auction and the conclusion of the 
Core Trading Session \9\ for these ETFs. Currently the Closing Auction 
commences at the end of regular trading hours \10\ for all securities 
on ArcaEx other than ETFs. Unlike other securities in which regular 
trading hours cease at 1 p.m. (Pacific time), ETFs generally trade on 
other exchanges until 1:15 p.m. (Pacific time). Accordingly, the 
Exchange seeks to modify its Closing Auction start time for the ETFs 
defined in PCXE Rules 5.1(b)(13), 5.2(j)(3), and 8.100 to 1:15 p.m. 
(Pacific Time) unless otherwise determined. Consistently, the Exchange 
seeks to change the conclusion of the Core Trading Session for this 
same group of ETFs to 1:15:00 pm (Pacific Time) to coincide with the 
time of the closing session.
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    \7\ The three ETFs that the Exchange seeks to include in this 
proposal are all subject to the delayed closing auction commencement 
time on the American Stock Exchange (``Amex''), and are as follows: 
Unit Investment Trusts as defined in PCXE Rule 5.1(b)(13) (Amex Rule 
1, Commentary .03); Investment Company Units as defined in PCXE Rule 
5.2(j)(3) (Amex Rule 1000A, Commentary .02(f)--known as Index Fund 
Shares); and Portfolio Depositary Receipts (``PDRs'') as defined in 
the PCXE Rule 8.100 (Amex Rule 1000, Commentary .02).
    \8\ See PCXE Rule 7.35(e).
    \9\ See PCXE Rule 7.34(a)(2).
    \10\ PCXE Rule 7.35(e) specifies that the Closing Auction occurs 
at 1 p.m. (Pacific time).
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    In conjunction with modifying the Closing Auction start time, the 
PCX seeks to modify the timing of the determination of the Closing 
Auction Price as described in PCXE Rule 7.35(e)(3) to 1:15 p.m. 
(Pacific time) for these ETFs. In addition, the Exchange seeks to 
modify the freeze period for entering Market-on-Close and Limit-on-
Close Orders for the Closing Auction as defined in PCXE Rule 
7.35(e)(2)(iii) to 1:13 p.m. (Pacific time) for these ETFs in order to 
limit the freeze period to two minutes before the Closing Auction, as 
is the case for the Closing Auctions for other securities. All other 
Closing Auction times described in PCXE Rule 7.35(e) will remain 
unchanged. For example, the dissemination of the Indicative Match Price 
\11\ and Imbalances \12\ associated with the Closing Auction for these 
ETFs as described in PCXE Rule 7.35(e)(1) will commence at 12 p.m. 
(Pacific time) and end upon the conclusion of the Closing Auction. 
Similarly, the determination of re-opening after trading halts as 
described in PCXE Rule 7.35(f) for these ETFs will be consistent with 
other securities traded on ArcaEx.
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    \11\ See PCXE Rule 1.1(r).
    \12\ See PCXE Rule 1.1(q).
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    The PCX believes that implementing these rules to affect 
commencement times for the Closing Auctions and conclusion times for 
Core Trading Sessions for certain ETFs will provide investors and ETP 
Holders \13\ with greater opportunities for executing ETF orders at the 
close and will result in the Closing Auction being priced for such 
securities within the range of prices then found at the end of the 
day's regular trading session.
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    \13\ See PCXE Rule 1.1(n).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\14\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\15\ in particular, in that it 
is designed 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 facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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

    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

    PCX has designated that the proposed rule change as a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A) of the Act 
\16\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\17\ The Exchange 
has stated that the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) by its terms does 
not become operative for 30 days after the date of this filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ Rule 19b-4(f)(6)(iii) under the Act also requires that a 
self-regulatory organization provide the Commission with written 
notice of its intent to file a proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five days prior to the date of filing the proposed rule change. The 
Exchange complied with this requirement.
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    The PCX has requested that the Commission waive the 30-day 
operative delay. The Commission believes that

[[Page 65670]]

PCX's proposal does not raise any new regulatory issues because the 
Commission previously has approved trading of the same ETFs until 4:15 
p.m. (eastern time) on the Amex.\19\ Therefore, the Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission hereby 
waives the 30-day operative delay.
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    \19\ Securities Act Release No. 30394 (February 21, 1992), 57 FR 
7409 (March 2, 1992) (SR-Amex-90-06) (approving the trading of Unit 
Investment Trusts); Securities Act Release No. 36947 (March 8, 
1996), 61 FR 10606 (March 14, 1996) (SR-Amex-95-43) (approving the 
trading of Index Fund Shares); Securities Act Release No. 31591 
(December 11, 1992), 57 FR 60253 (December 18, 1992) (SR-Amex-92-18) 
(approving the trading of PDRs).
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    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.\20\
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    \20\ See supra note 6.
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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 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 No. SR-PCX-2004-98 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 No. SR-PCX-2004-98. 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 Room, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing will also 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 No. SR-PCX-2004-98 and should be 
submitted on or before December 6, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3158 Filed 11-12-04; 8:45 am]
BILLING CODE 8010-01-P