[Federal Register Volume 70, Number 222 (Friday, November 18, 2005)]
[Notices]
[Pages 70015-70017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-6374]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52769; File No. SR-PCX-2005-119]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change and 
Amendments Nos. 1 and 2 Thereto Regarding Clearly Erroneous Executions

 November 10, 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 October 24, 2005, 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, II, 
and III below, which Items have been prepared by PCX. On October 27, 
2005, the Exchange submitted Amendment No. 1 to the proposed rule 
change.\3\ On November 9, 2005, the Exchange submitted Amendment No. 2 
to the proposed rule change.\4\ The Exchange filed the proposed rule 
change as a ``non-controversial'' rule change under Rule 19b-4(f)(6) 
under the Act,\5\ which renders the proposal effective upon filing with 
the Commission.\6\ 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\ Amendment No. 1 properly identified proposed rule text that 
had not been indicated as new text in the original filing.
    \4\ Amendment No. 2 corrected minor typographical errors and 
properly indentified changes being made to existing rule text.
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposal, the Commission 
considers the period to commence on November 9, 2005, the date on 
which the Exchange submitted Amendment No. 2. See 15 U.S.C. 
78s(b)(3)(C).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX, through PCXE, proposes to amend its rules governing the 
Archipelago Exchange, the equities trading facility of PCXE. This 
filing proposes to amend PCXE Rule 7.10 regarding clearly erroneous 
executions. Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Rules of PCX Equities, Inc.

Rule 7 Equities Trading

Rule 7.10. Clearly Erroneous Executions

    (a)-(b) No change.
    (c) Review Procedures.
    (1) No change.
    (2) If [a party] an ETP Holder affected by a determination made 
under this Rule so requests within the time permitted below, the 
Clearly Erroneous Execution Panel (``CEE Panel'') will review decisions 
made by the Officer under this Rule, including whether a clearly 
erroneous execution occurred and whether the correct adjustment was 
made; provided however that the CEE Panel will not review decisions 
made by

[[Page 70016]]

an officer under subsection (d) of this Rule if such Officer also 
determines under subsection (d) of this Rule that the number of the 
affected transactions is such that immediate finality is necessary to 
maintain a fair and orderly market and to protect investors and the 
public interest.
    (A)-(B) No change.
    (3)-(4) No change.
    (d) System Disruption and Malfunctions. In the event of any 
disruption or a malfunction in the use or operation of any electronic 
communications and trading facilities of the PCXE, or extraordinary 
market conditions or other circumstances in which the nullification or 
modification of transactions may be necessary for the maintenance of a 
fair and orderly market or the protection of investors and the public 
interest exist, the Officer, on his or her own motion, may review such 
transactions and declare such transactions arising out of the use or 
operation of such facilities during such period null and void or modify 
the terms of these transactions if the Officer determines that the 
transaction(s) is clearly erroneous, or that such actions are necessary 
for the maintenance of a fair and orderly market or for the protection 
of investors and the public interest. Absent extraordinary 
circumstances, any such action of the Officer pursuant to this 
subsection (d) shall be taken within thirty (30) minutes of detection 
of the erroneous transaction. Each ETP Holder involved in the 
transaction shall be notified as soon as practicable, and the ETP 
Holder aggrieved by the action may appeal such action in accordance 
with the provisions of subsection (c)(2)-(4).
    (e) 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 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, Proposed Rule Change

1. Purpose
    Currently, PCXE Rule 7.10 sets forth procedures for PCXE when the 
terms of a transaction executed on PCXE are clearly erroneous. PCXE 
Rule 7.10 provides for PCXE review procedures, an appeal process and 
various procedures with respect to system disruption and malfunction 
and trade nullification and price adjustments for unlisted trading 
privileges securities that are subject to an initial public offering.
    At this time, the Exchange proposes to amend PCXE Rule 7.10 with 
respect to the appeal procedures. Currently, PCXE Rule 7.10(c)(2) 
provides that if a party affected by a determination made under this 
Rule so requests within the time permitted, the Clearly Erroneous 
Execution Panel (``CEE Panel'') will review decisions made by an 
officer of PCXE under this rule, including whether a clearly erroneous 
execution occurred and whether the correct adjustment was made. The 
Exchange proposes to modify this provision to provide that the CEE 
Panel will not review decisions made by a PCXE officer under this rule 
in the event of any disruption or a malfunction in the use or operation 
of any electronic communications and trading facilities of the PCXE, or 
extraordinary market conditions or other circumstances, when the 
officer making the determination also determines on his or her own 
motion that it is necessary to nullify or modify clearly erroneous 
transactions because the number of the affected transactions is such 
that immediate finality is necessary to maintain a fair and orderly 
market and to protect investors and the public interest. PCXE also 
proposes to amend subsection (d) of PCXE Rule 7.10 to state that PCXE's 
authority may be exercised in the event of extraordinary market 
conditions or other circumstances in which the PCXE officer determines 
that the nullification or modification of transactions may be necessary 
for the maintenance of a fair and orderly market or the protection of 
investors and the public interest. PCXE believes that in such 
circumstances review(s) by the CEE Panel(s) of large numbers of trades 
would be impractical and could expose market participants to 
unacceptable levels of risk. PCXE expects that the amended rule would 
be used only on rare occasions and primarily in circumstances where the 
disruption or malfunction of a system resulted in the execution of 
large numbers of trades with obvious errors, such as prices 
substantially unrelated to the inside market.\7\ According to the 
Exchange, with this rule change, it would be able to keep the markets 
orderly during such times when finality of trade rulings is necessary. 
The Exchange notes that this rule proposal is based on the National 
Association of Securities Dealers' (``NASD'') Rule 11890(c)(l).
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    \7\ For example, PCX believes that if an erroneously priced 
order or quote causes a large number of transactions to occur at 
prices far in excess of a security's true value and if a decision is 
made to break all of the affected trades, some sellers may appeal 
the decision to break the trades. If a market participant is a party 
to trades on both sides of the market, and some remain broken while 
others are appealed and reinstated, it will suffer losses that arise 
solely from the inconsistent treatment of its trades.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \9\ 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 to 
and perfect the mechanism of a free and open market and to protect 
investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 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

    The PCX neither solicited nor received written comments on the 
proposed rule change.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) by its terms, 
does not become operative for 30 days after the date of filing, the 
proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \10\ and

[[Page 70017]]

subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ As required under 
Rule 19b-4(f)(6)(iii),\12\ the Exchange provided the Commission with 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of the filing of the proposed rule 
change.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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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 the furtherance of the purposes of the Act.\13\
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    \13\ 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, 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 Number SR-PCX-2005-119 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9309.

All submissions should refer to File Number SR-PCX-2005-119. 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. 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-2005-119 and should be submitted on or before 
December 9, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Jonathan G. Katz,
Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E5-6374 Filed 11-17-05; 8:45 am]
BILLING CODE 8010-01-P