[Federal Register Volume 70, Number 18 (Friday, January 28, 2005)]
[Notices]
[Pages 4173-4174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-325]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51051; File No. SR-PCX-2004-58]


Self-Regulatory Organizations; the Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change and Amendment No. 2 Thereto by the 
Pacific Exchange, Inc., Relating to the Exchange's Rules Under Its 
Minor Rule Plan and Recommended Fine Schedule

January 18, 2005.
    On December 2, 2004, the Pacific Exchange, Inc., (``PCX'' or 
``Exchange'') 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 to amend PCX Rule 10.12 to add new provisions 
(h)(45) and (k)(i)45. These provisions amend the PCX Minor Rule Plan 
(``MRP'') and Recommended Fine Schedule (``RFS'') to add the failure to 
maintain adequate procedures and controls to monitor and supervise the 
entry of electronic orders by Users \3\ to prevent the prohibited 
practices set forth in PCX Rules 6.87(d) and 6.90(e).\4\ The proposed 
rule change was published for comment in the Federal Register on 
December 17, 2004.\5\ On January 3, 2005, PCX filed Amendment No. 1 to 
the proposal. On January 4, 2005, PCX withdrew Amendment No. 1 and 
filed Amendment No. 2 to the proposal.\6\ The Commission received no 
comments on the proposal. This order approves 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\ Pursuant to PCX Rule 6.87(a)(2), ``User'' means any person 
or firm that obtains electronic access to Auto-Ex (defined in PCX 
Rule 6.87(a)(1)) through an Order Entry Firm (defined in PCX Rule 
6.87(a)(3)). Pursuant to PCX Rule 6.90(c)(1), ``User'' means any 
person or broker-dealer that obtains electronic access to PCX Plus 
(defined in PCX Rule 6.90(a)) through an Order Entry Firm (defined 
in PCX Rule 6.90(c)(2)).
    \4\ PCX Rules 6.87(c)(4) and 6.90(d)(3) require Order Entry 
Firms to maintain such controls and procedures.
    \5\ See Securities Exchange Act Release No. 50830 (December 9, 
2004), 69 FR 75581 (December 17, 2004) (``Notice'').
    \6\ In Amendment No. 2, PCX proposes to correct a typographical 
error in the proposed rule text by changing footnote 1 to tie to PCX 
Rule 10.12(k)(i) instead of to PCX Rule 10.12(k). Amendment No. 2 is 
a technical amendment, and, therefore, not subject to notice and 
comment.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange,\7\ and, in 
particular, the requirements of section 6(b)(5) of the Act,\8\ in that 
it is designed to promote just and equitable principles of trade, 
facilitate transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission also finds that the proposal is consistent with section 
6(b)(6) of the Act,\9\ which requires that members and persons 
associated with members be appropriately disciplined for violations of 
Exchange rules, and section 6(b)(7) of the Act,\10\ which requires that 
members and persons associated with members are provided a fair 
procedures for disciplinary procedure.
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    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(6).
    \10\ 15 U.S.C. 78f(b)(7).
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    In approving this proposal, the Commission in no way minimizes the 
importance of compliance with these rules, and all other rules subject 
to the imposition of fines under the MRP. The Commission believes that 
the violation of any self-regulatory organization's rules, as well as 
Commission rules, is a serious matter. However, in an effort to provide 
the Exchange with greater flexibility in addressing certain violations, 
the MRP provides a reasonable means to address rule violations that do 
not rise to the level of requiring formal disciplinary

[[Page 4174]]

proceedings. The Commission notes, however, that after the first 
failure by an Order Entry Firm to maintain adequate controls and 
procedures to monitor and supervise the entry of electronic orders 
pursuant to PCX Rules 6.87(c)(4) and 6.90(d)(3), the Exchange will 
treat subsequent violations as a formal disciplinary matter.\11\ The 
Commission expects that the Exchange will continue to conduct 
surveillance with due diligence, and make a determination based on its 
findings as to whether fines of more or less than the recommended 
amount are appropriate for violations of rules under the MRP on a case-
by-case basis, or if a violation requires formal disciplinary action.
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    \11\ See proposed PCX Rule 10.12(k)(i)45. See also Notice, supra 
note 5.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act\12\, that the proposed rule change, including Amendment No.2 
thereto (File No. SR-PCX-2004-58) be, and it hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-325 Filed 1-27-05; 8:45 am]
BILLING CODE 8010-01-P