[Federal Register Volume 69, Number 233 (Monday, December 6, 2004)]
[Notices]
[Pages 70489-70492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3471]



SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50756; File No. SR-PCX-2004-83]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, by the Pacific Exchange, Inc., 
Relating to Changing the Opening Time and the Commencement of the 
Opening Auction

November 30, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 22, 2004, the Pacific Exchange, Inc., (``PCX'' or 
``Exchange'') submitted to 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 
22, 2004, the PCX submitted 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superceded the original filing 
in its entirety.
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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''), is proposing to change the opening time and the 
commencement of the Opening Auction from 5 a.m. (Pacific time) to 1 
a.m. (Pacific time) and modify PCXE Rules 7.34 and 7.35, respectively.
    The text of the proposed rule change, as amended, is below. 
Proposed additions are in italics. Proposed deletions are in 
[brackets].

Rule 7--Equities Trading; Trading Sessions

    Rule 7.34(a) Sessions. The Archipelago Exchange shall have three 
trading sessions each day the Corporation is open for business unless 
otherwise determined by the Corporation:
    (1) Opening Session. The Opening Session shall begin at 1:00:00 
[5:00:00] a.m. (Pacific time) and conclude at the commencement of the 
Core Trading Session. The Opening Auction and the Market Order Auction 
shall occur during the Opening Session.
    (2) Core Trading Session. The Core Trading Session shall begin for 
each

[[Page 70490]]

security at 6:30:00 a.m. (Pacific time) or at the conclusion of the 
Market Order Auction, whichever comes later, and conclude at 1:00:00 
p.m. (Pacific time).
    (3) Late Trading Session. The Late Trading Session shall begin 
following the conclusion of the Core Trading Session and conclude at 
5:00:00 p.m. (Pacific time).
    Rule 7.34(b)-(c)--No change.
    (d) Orders Permitted in Each Session.
    (1) During the Opening Session:
    (A) Orders eligible for the Display Order Process and for the 
Working Order Process that have been designated as available for the 
Opening Session are eligible for entry into and execution on the 
Archipelago Exchange.
    (B) Stop Orders are not eligible for execution during the Opening 
Session.
    (C) Users may enter market and Auction-Only Limit Orders for 
inclusion in the Market Order Auction. Market orders and Auction-Only 
Limit Orders are not eligible for execution during the Opening Session, 
except during the Market Order Auction.
    (D) Neither the Directed Order Process nor the Tracking Order 
Process is available during the Opening Session. For the purposes of 
the Opening Session, market Directed Orders are included in the Market 
Order Auction.
    (E) NOW Orders are eligible for execution during the Opening 
Session, provided, however, NOW Orders are not eligible for the Opening 
Auction or the Market Order Auction.
    (F) PNP Orders are eligible for execution during the Opening 
Session.
    (G) Limited Price Orders are eligible for execution during the 
Opening Session; provided, however, a Timed Order designated for the 
Opening Session and designated as good from 1:00 [5:00] a.m. (Pacific 
time) is not eligible for execution during the Opening Auction. 
Similarly, a Timed Order designated for the Opening Session and 
designated as good from 6:30 a.m. (Pacific time) is not eligible for 
execution during the Market Order Auction.
    (H) Notwithstanding that the Market Order Auction occurs during the 
Opening Session, as set forth in Rule 7.34(a)(1), the following orders 
not designated for the Opening Session shall participate in the Market 
Order Auction:
    (i) Market orders designated for the Core Trading Session and 
entered prior to the conclusion of the Market Order Auction; and
    (ii) Limited Price Orders designated for the Core Trading Session 
and entered prior to 6:28 a.m. (Pacific time).
    (2)-(3)--No change.
    Rule 7.34(e)-(f)--No change.
* * * * *
    Rule 7.35(a) Order Entry and Cancellation Before Opening Auction
    (1) Users may submit any orders to the Archipelago Exchange 
beginning [at 4:30 a.m. (Pacific time)] 30 minutes prior to the Opening 
Session. Any such Limited Price Orders designated for the Opening 
Session will be queued until 1:00 [5:00] a.m. (Pacific time) at which 
time they will be eligible to be executed pursuant to paragraph (b) of 
this Rule. Any such market orders will be queued until the Market Order 
Auction at which time they will be executed pursuant to paragraph (c) 
of this Rule.
    (2) Only Limited Priced Orders designated for the Opening Session 
will be eligible for the Opening Auction. However, a Limited Price 
Order designated for the Opening Session and entered as a Timed Order 
good from 1:00 [5:00] a.m. (Pacific time), is not eligible for 
execution during the Opening Auction. Market orders entered before the 
Opening Auction or during the Opening Session will participate in the 
Market Order Auction. However, a Limited Price Order designated for the 
Opening Session and entered as a Timed Order good from 6:30 a.m. 
(Pacific time), is not eligible for execution during the Market Order 
Auction. Limited Price Orders, including Timed Orders, designated for 
the Core Trading Session and not designated for the Opening Session 
will become eligible for execution at the commencement of the Market 
Order Auction pursuant to Rule 7.35(c).
    (3) Beginning 30 minutes prior to the Opening Session [at 4:30 a.m. 
(Pacific time)], and various times thereafter as determined from time 
to time by the Corporation, the Indicative Match Price of the Opening 
Auction, and any Imbalance associated therewith, shall be published via 
electronic means as determined from time to time by the Corporation.
    (4) Orders that are eligible for the Opening Auction may not be 
cancelled 2 minutes prior to the Opening Session [between 4:58 a.m. 
(Pacific time) and] until the conclusion of the Opening Auction.
    (b) Opening Auction.
    (1) At 1:00 [5:00] a.m. (Pacific time), Limited Price Orders 
designated for the Opening Session are matched and executed in the 
Opening Auction; provided, however, a Limited Price Order designated 
for the Opening Session and entered as a Timed Order good from 1:00 
[5:00] a.m. (Pacific time), is not eligible for execution during the 
Opening Auction.
    (2)-(4)--No change.
    Rule 7.35(c)-(f)--No change.
* * * * *

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 PCX included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The PCX has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As part of its continuing efforts to enhance participation on the 
Archipelago Exchange (``ArcaEx'') facility, the PCX is proposing to 
change the opening time from 5 a.m. Pacific time to 1 a.m. Pacific 
time. This proposal applies to both exchange-listed and over-the-
counter (``OTC'') securities. In addition, the Exchange is seeking to 
change the commencement of the Opening Auction \4\ from 5 a.m. Pacific 
time to 1 a.m. Pacific time. The Exchange believes that opening earlier 
will increase opportunities for attracting liquidity on the system. 
Specifically, Users \5\ of ArcaEx trading in American Depositary 
Receipts (``ADRs'') and other foreign issues have expressed interest in 
using the ArcaEx system at times coinciding with the hours of overseas 
trading markets.\6\
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    \4\ See PCXE Rule 7.35(b).
    \5\ See PCXE Rule 1.1 (yy).
    \6\ For example the Deutsche Borse opens at 9 a.m. Central 
European time. ArcaEx has proposed opening at 1 a.m. Pacific time 
which is the equivalent to 10 a.m. Central European time. ArcaEx is 
unable to open consistent with the Deutsche Borse opening time due 
to limitations on when the OTC SIP is available for quote and trade 
dissemination.
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    Currently, PCXE Rule 7.34 states that the Opening Session begins at 
5:00:00 a.m. (Pacific time). The Exchange proposes to modify this to 1 
a.m. (Pacific time). Furthermore, pursuant to PCXE Rule 7.35, the 
Opening Auction commences at 5 a.m. (Pacific time). The Exchange also 
proposes to modify the commencement of the Opening Auction \7\ to be 
consistent with the

[[Page 70491]]

Opening Session commencement at 1 a.m. (Pacific time). Furthermore, 
times associated with disseminating the Opening Auction Imbalance and 
order cancellation requirements are kept consistent with the existing 
timeframes relative to the opening time and adjusted in accordance with 
the proposed 1 a.m. (Pacific time) opening time.
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    \7\ The Commission staff made a technical correction to 
Amendment No. 1 of the filing to signify that the Exchange intended 
to refer to the ``Opening Auction.'' Telephone conversation between 
Mai Shiver, Director, Regulatory Policy, PCX and Tim Fox, Attorney, 
Division of Market Regulation, Commission, on November 26, 2004.
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    ArcaEx will submit all quotes and trades that are generated in the 
early session beginning at 1 a.m. (Pacific time) to the consolidated 
quote and trade system for public dissemination.\8\ Accordingly, quotes 
and trades will be made available to the investing public consistent 
with the availability of quotes and trades during regular trading 
hours. In addition, the Exchange will work with foreign markets (i.e. 
those that are trading subject securities during the early time period) 
to coordinate trading halts. Such coordination will occur in a manner 
similar to that of trading halts during regular trading hours with 
domestic markets. Specifically, the Exchange represents that PCX Market 
Management staff will be on-site starting at 1 a.m. (Pacific time) to 
monitor trading in ArcaEx to maintain a fair and orderly market and 
make any necessary rulings. For example, during early trading when 
unusual quoting activity is noted in the security underlying an ADR, 
PCX Market Management will contact the foreign market where the 
underlying is listed to obtain additional information as needed. When a 
halt has been declared on the primary market due to material news, PCX 
will also halt trading in the subject security on ArcaEx. If a halt has 
been declared for another non-regulatory reason (e.g. system 
malfunction or unusual price movement), PCX will use its discretion to 
determine whether trading should be halted in the subject security on 
ArcaEx.\9\
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    \8\ The Securities Information Processor in exchange-listed 
securities that is responsible for consolidation and dissemination 
of all exchange-listed quotes and trades is the Securities Industry 
Automation Corporation (``SIAC'') and for dissemination of Nasdaq-
listed quotes and trades is Nasdaq. ArcaEx has agreed with SIAC and 
Nasdaq that each of the respective Securities Information Processors 
will open the tape at 1 a.m. (Pacific time). In addition, ArcaEx has 
notified the Operating Committee of the Consolidated Tape 
Association (``CTA'') and Consolidated Quote (``CQ'') Plans and the 
OTC/UTP Committee of its agreement with the Processors to open the 
tapes early. ArcaEx will not begin trading at 1 a.m. (Pacific time) 
until the Securities Information Processors are ready to accommodate 
quoting and trading at that time and have provided ArcaEx with 
notification that they are prepared to disseminate quotes and trades 
at that time.
    \9\ See PCXE Rule 7.13 regarding PCX's authority to declare a 
trading halt.
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    PCX is establishing contacts with foreign markets trading during 
the early time period. Several markets have offered to include PCX 
representatives on distribution lists in order to proactively contact 
PCX during instances of trading halts. Also, to the extent another 
domestic market commences trading during early hours, PCX will 
coordinate halts with these markets as well. Further, PCX has developed 
appropriate surveillance for the early session. PCX Market Management 
staff will be available real-time to monitor quote and trade activity 
and to make rulings where appropriate. Specifically, PCX Market 
Management will rely on communications with primary markets and third-
party data vendor systems to review and monitor news, quoting activity, 
and stock trading patterns. To the extent unusual trading activity 
occurs during the early session prior to the arrival of PCX Regulatory 
Trading Officials (``RTOs''), PCX Market Management staff will refer 
such activity to the RTOs for follow-up upon their arrival. PCX Market 
Management and RTO procedures manuals will be updated to reflect the 
early open procedures, including PCX Market Management transition of 
issues to RTOs.
    The Exchange believes opening earlier, consistent with trading 
hours in the overseas markets, will enhance transparency in these 
securities. Moreover, by providing overseas investors with the ability 
to trade in a U.S. based market, the proposal will provide additional 
trading opportunities for foreign investors interested in participating 
in U.S. markets during overseas business hours. Such opportunities 
should enable enhanced order interaction, foster price competition, 
promote a more efficient and effective market operation, and enhance 
the investment choices available to investors.
    In Amendment No. 1, the Exchange represented that PCX Market 
Management staff will be on-site starting at 1 a.m. (Pacific time) to 
monitor trading in ArcaEx to maintain a fair and orderly market and 
make any necessary rulings. To the extent unusual trading activity 
occurs during the early session prior to the arrival of PCX RTOs, PCX 
Market Management staff will refer such activity to the RTOs for 
follow-up upon their arrival. PCX Market Management and RTO procedures 
manuals will be updated to reflect the Early Open procedures, including 
PCX Market Management transition of issues to RTOs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5),\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The PCX does not believe that the proposed rule change will impose 
any burden on competition 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 solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the PCX consents, the Commission will:
    (A) By order approve such proposed rule change, as amended; or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form http://www.sec.gov/rules/sro.shtml; or

[[Page 70492]]

     Send an e-mail to [email protected]. Please include 
File Number SR-PCX-2004-83 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-2004-83. 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-2004-83 and 
should be submitted on or before December 27, 2004.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3471 Filed 12-3-04; 8:45 am]
BILLING CODE 8010-01-P