[Federal Register Volume 70, Number 83 (Monday, May 2, 2005)]
[Notices]
[Pages 22738-22739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2080]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51608; File No. SR-PCX-2005-48]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Revise 
PCX Rule 6.88 To Eliminate the Prohibition on Computer Generated Orders

April 26, 2005.
    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 April 13, 2005, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
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 PCX. The Exchange has designated the proposed 
rule change as ``non-controversial'' under section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend PCX Rule 6.88 in order to eliminate 
the prohibition on orders that are created and communicated 
electronically without manual input (``Computer Generated Orders''). 
Below is the text of the proposed rule change. Proposed new language is 
italicized; proposed deletions are in [brackets].
* * * * *

Rules of the Pacific Exchange, Inc.

Rule 6
    Rule 6.88(a)--No Change.
    Rule 6.88(b) Reserved. [Except as provided in subsection (b)(1), 
OTP Holders and OTP Firms may not enter orders via the MFI or permit 
the entry of orders via the MFI if those orders are created and 
communicated electronically without manual input (``computer generated 
orders''). Except as provided in subsection (b)(1), order entry by 
public customers or associated persons of OTP Holders and OTP Firms 
must involve manual input such as entering the terms of an order into 
an order-entry screen or manually selecting a displayed order so that 
the order will be sent. Nothing in this Rule prohibits OTP Holders or 
OTP Firms from electronically sending to the Exchange orders manually 
entered by customers into front-end communications systems (e.g., 
Internet gateways, online networks, etc).
    (1) Computer generated orders may be sent to the Exchange via the 
MFI only if they are properly designated in a form and manner as 
prescribed by the Exchange. Orders so designated will be re-routed for 
representation by a Floor Broker. Computer generated orders are not 
eligible for automatic execution via the Auto-Ex System.]
    (c)--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, PCX 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
    The Exchange is proposing to amend PCX Rule 6.88 to eliminate the 
prohibition on Computer Generated Orders. PCX Rule 6.88 was originally 
adopted because it was necessary to protect market makers.\5\ At the 
time, allowing electronic entry directly into the Exchange's Pacific 
Options Exchange Trading System (``POETS'') could give customers with 
order-generating systems a significant advantage over PCX market 
makers. With the development of the Exchange's new electronic trading 
system, PCX Plus, market makers have the ability to manage their 
exposure more quickly and efficiently, thereby obviating the need for 
this rule.\6\ The Exchange no longer uses POETS. The Exchange believes 
that the elimination of the prohibition on Computer Generated Orders 
will enhance access to the Exchange, and therefore, provide more 
liquidity to PCX.
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    \5\ See Securities Exchange Act Release No. 43328 (September 22, 
2000), 65 FR 58834 (October 2, 2000).
    \6\ The Philadelphia Stock Exchange, Inc. (``Phlx'') eliminated 
its Electronic Generation rule in 2003. See Securities Exchange Act 
Release No. 48648 (October 16, 2003), 68 FR 60762 (October 23, 
2003). The Chicago Board Options Exchange, Incorporated (``CBOE'') 
eliminated its Electronically Generated and Communicated Orders rule 
in 2005. See Securities Exchange Act Release No. 51030 (January 12, 
2005), 70 FR 3404 (January 24, 2005).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\8\ in particular, in that it 
is designed to facilitate transactions in securities, to promote just 
and equitable principles of trade, to enhance

[[Page 22739]]

competition and to protect investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 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

    The Exchange asserts that the foregoing proposed rule change has 
become effective upon filing pursuant to Section 19(b)(3)(A) of the Act 
\9\ and Rule 19b-4(f)(6) thereunder \10\ because it does not:
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
provided that the Exchange has given the Commission written notice of 
its intent to file the proposed rule change at least five business days 
prior to the filing date of the proposal.\11\
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    \11\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with notice of its intent to file the 
proposed rule change at least five business days prior to the date 
of filing of the proposal.
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    PCX has requested that the Commission waive the 30-day pre-
operative period, which would make the rule change operative 
immediately, because the proposed rule change is based on rule changes 
filed by the Phlx and CBOE. The Commission believes that it is 
consistent with the protection of investors and the public interest to 
waive the 30-day pre-operative period in this case.\12\ Allowing the 
proposed rule change to become operative immediately should enhance 
access to the Exchange. Moreover, the proposed rule change does not 
raise any new issues of regulatory concern, as the proposal is based on 
a rule change previously filed by the Phlx and approved by the 
Commission pursuant to Section 19(b)(2) of the Act,\13\ as well as a 
rule change previously filed by CBOE with the Commission pursuant to 
Section 19(b)(3)(A) of the Act.\14\ The Commission notes that the 
International Securities Exchange, Inc. also filed a similar rule 
change with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\15\
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    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ See Securities Exchange Act Release No. 51424 (March 13, 
2005), 70 FR 16321 (March 30, 2005).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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 Number SR-PCX-2005-48 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-2005-48. 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of 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-2005-48 and should be submitted on or before May 23, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2080 Filed 4-29-05; 8:45 am]
BILLING CODE 8010-01-P