[Federal Register Volume 71, Number 8 (Thursday, January 12, 2006)]
[Notices]
[Pages 2095-2100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-316]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53077; File No. SR-PCX-2005-134]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to 
the Certificate of Incorporation and Bylaws of Archipelago Holdings, 
Inc.

January 9, 2006.
    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 December 5, 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, II, 
and III below, which Items have been prepared by the Exchange. On 
December 15, 2005, the Exchange amended its proposal.\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 PCX's 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

    PCX proposes: (i) To allow NYSE Group, Inc., a Delaware corporation 
(``NYSE Group''), and its related persons to wholly own and vote all of 
the outstanding capital stock of Archipelago Holdings, Inc., a Delaware 
corporation and the parent company of the Exchange (``Archipelago''), 
upon the consummation of the proposed business combination of 
Archipelago and New York Stock Exchange, Inc., a New York Type A not-
for-profit corporation (the ``NYSE''), subject to certain exceptions 
described herein; (ii) certain new rules of PCX and PCX Equities, Inc. 
(``PCXE'') prohibiting certain relationships between NYSE Group on the 
one hand and OTP Holders, OTP Firms, and ETP Holders (in each case as 
defined below) on the other hand; and (iii) to amend the rules of PCX 
and PCXE to impose certain restrictions on certain rights of OTP 
Holders and ETP Holders with respect to the nomination and election of 
the directors of PCX and PCXE.

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.\4\ PCX has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.
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    \4\ Exhibit 5.A (Resolutions Adopted at the October 20, 2005 
Regular Meeting of the Board of Directors of Archipelago Holdings, 
Inc.), Exhibit 5.B (Proposed PCX Rules), and Exhibit 5.C (Proposed 
PCXE Rules) of the proposed rule change are also available on the 
Commission's Web site (http://www.sec.gov/rules/sro.shtml).
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    a. The Archipelago NYSE Mergers. The Exchange is submitting the 
proposed rule change in connection with the proposed mergers 
(``Mergers'') of the NYSE and Archipelago. Following the Mergers, the 
businesses of the NYSE and Archipelago will be held under a single, 
publicly traded holding company named NYSE Group. The Mergers will 
occur pursuant to the terms of the Agreement and Plan of Merger, dated 
as of April 20, 2005, as amended and restated as of July 20, 2005, as 
further amended as of October 20, 2005, and as of November 2, 2005 (as 
so amended and restated, the ``Merger Agreement''), by and among the 
NYSE, Archipelago, NYSE Group, NYSE Merger Corporation Sub, Inc., a 
Delaware corporation and a wholly owned subsidiary of the NYSE, NYSE 
Merger Sub LLC, a New York limited liability company and a wholly owned 
subsidiary of NYSE Group, and Archipelago Merger Sub, Inc., a Delaware 
corporation and a wholly owned subsidiary of NYSE Group.\5\ In the 
Mergers, NYSE members will receive cash and/or shares of NYSE Group 
common stock, and Archipelago stockholders will receive solely shares 
of NYSE Group common stock.\6\ Archipelago acquired PCX Holdings, Inc. 
(``PCXH'') on September 26, 2005, and is currently the ultimate parent 
company of PCXH and all of its subsidiaries, including PCX and PCXE.
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    \5\ For a description of the Merger Agreement and the 
transactions contemplated thereby, see Amendment No. 3 to the 
Registration Statement on Form S-4, Registration No. 333-126780, 
filed with the Commission on November 3, 2005 (``S-4 Registration 
Statement''), at 125-147.
    \6\ Id.
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    b. Ownership Limitation in the Archipelago Certificate of 
Incorporation. The Archipelago Certificate of Incorporation was 
approved by the Commission on August 9, 2004 in connection with the 
initial public offering of Archipelago.\7\ In order to ensure that the 
ownership of Archipelago by the public will not unduly interfere with, 
or restrict the ability of, the Commission or PCX to effectively carry 
out its regulatory oversight responsibilities under the Act and 
generally to enable the Archipelago Exchange, L.L.C. (``ArcaEx'') to 
operate in a manner that complies with the federal securities laws, 
including furthering the objectives of section 6(b)(5) of the Act,\8\ 
the Archipelago Certificate of Incorporation imposes certain ownership 
and voting limitations with respect to the stock of Archipelago.
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    \7\ See Securities Exchange Act Release No. 50170, 69 FR 50419 
(August 16, 2004).
    \8\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Archipelago Certificate of Incorporation provides 
that no person,\9\ either alone or together with its related 
persons,\10\ may own

[[Page 2096]]

beneficially shares of Archipelago stock representing in the aggregate 
more than 40% of the then outstanding votes entitled to be cast on any 
matter (the ``Ownership Limitation'').\11\ The Ownership Limitation 
will apply unless and until (1) a person, either alone or with its 
related persons, delivers to the board of directors of Archipelago a 
notice in writing regarding its intention to acquire shares of 
Archipelago stock that would cause such person, either alone or with 
its related persons, to own beneficially shares of stock of Archipelago 
in excess of the Ownership Limitation, at least 45 days (or such 
shorter period as the board of directors of Archipelago expressly 
consents to) prior to the intended acquisition, and (2) such person, 
either alone or with its related persons, receives prior approval by 
the board of directors of Archipelago and the Commission to exceed the 
Ownership Limitation.\12\ Specifically, (1) the board of directors of 
Archipelago must adopt a resolution approving such person and its 
related persons to exceed the Ownership Limitation, (2) the resolution 
must be filed with the Commission under section 19(b) of the Act,\13\ 
and (3) such proposed rule change must be approved by the Commission 
and become effective thereunder.\14\
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    \9\ The Archipelago Certificate of Incorporation defines 
``Person'' to mean a natural person, company, government, or 
political subdivision, agency, or instrumentality of a government. 
Archipelago Certificate of Incorporation, Article Fourth H(2).
    \10\ The Archipelago Certificate of Incorporation defines 
``Related Persons'' to mean with respect to any person (a) any other 
person(s) whose beneficial ownership of shares of stock of 
Archipelago with the power to vote on any matter would be aggregated 
with such first person's beneficial ownership of such stock or 
deemed to be beneficially owned by such first person pursuant to 
Rules 13d-3 and 13d-5 under the Act; (b) in the case of a person 
that is a natural person, for so long as ArcaEx remains a facility 
(as defined in section 3(a)(2) of the Act) of PCX and PCXE and the 
Amended and Restated Facility Services Agreement among Archipelago, 
PCX, and PCXE, dated as of March 22, 2002 (``Facility Services 
Agreement''), is in full force and effect, any broker or dealer that 
is an ETP Holder (as defined in the PCXE rules of PCX, as such rules 
may be in effect from time to time) with which such natural person 
is associated; (c) in the case of a person that is an ETP Holder, 
for so long as ArcaEx remains a facility of PCX and PCXE and the 
Facility Services Agreement is in full force and effect, any broker 
or dealer with which such ETP Holder is associated; (d) any other 
person(s) with which such person has any agreement, arrangement, or 
understanding (whether or not in writing) to act together for the 
purpose of acquiring, voting, holding, or disposing of shares of the 
stock of Archipelago; and (e) in the case of a person that is a 
natural person, any relative or spouse of such person, or any 
relative of such spouse, who has the same home as such person or who 
is a director or officer of Archipelago or any of its parents or 
subsidiaries. Archipelago Certificate of Incorporation, Article 
Fourth H(3). As defined in the PCXE rules, the term ``ETP Holder'' 
refers to any sole proprietorship, partnership, corporation, limited 
liability company, or other organization in good standing that has 
been issued an Equity Trading Permit, a permit issued by the PCXE 
for effecting approved securities transactions on the trading 
facilities of PCXE. PCXE Rule 1.1 (m) and (n). See 17 CFR 240.13d-3 
and 240.13d-5. See also 15 U.S.C. 78c(a)(2).
    \11\ In considering whether a person owns shares of stock of 
Archipelago in violation of the applicable ownership limitations, 
Archipelago must consider any filings made with the Commission under 
section 13(d) and section 13(g) of the Act by such person and its 
related persons and must aggregate all shares owned or voted by such 
person and its related persons to determine such person's beneficial 
ownership. See 15 U.S.C. 78m(d) and (g).
    \12\ Archipelago Certificate of Incorporation, Article Fourth 
D(1)(a).
    \13\ 15 U.S.C. 78s(b).
    \14\ Archipelago Certificate of Incorporation, Article Fourth 
D(1)(a).
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    Subject to its fiduciary obligations under the Delaware General 
Corporation Law, as amended (``DGCL''), before adopting any such 
resolution, the board of directors of Archipelago must first determine 
that: (1) such acquisition of beneficial ownership by such person, 
either alone or with its related persons, would not impair any of 
Archipelago's, PCX's, or PCXE's ability to discharge its 
responsibilities under the Act and the rules and regulations thereunder 
and is otherwise in the best interests of Archipelago and its 
stockholders; (2) such acquisition of beneficial ownership by such 
person, either alone or with its related persons, would not impair the 
Commission's ability to enforce the Act; and (3) such person and its 
related persons are not subject to any statutory disqualification \15\ 
(as defined in section 3(a)(39) of the Act).\16\ In making such 
determinations, the board of directors of Archipelago may impose any 
conditions and restrictions on such person and its related persons 
owning any shares of stock of Archipelago entitled to vote on any 
matter as the board of directors of Archipelago in its sole discretion 
deems necessary, appropriate, or desirable in furtherance of the 
objectives of the Act and the governance of Archipelago.\17\
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    \15\ Archipelago Certificate of Incorporation, Article Fourth 
D(1)(b).
    \16\ 15 U.S.C. 78c(a)(39).
    \17\ Archipelago Certificate of Incorporation, Article Fourth 
D(1)(b).
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    In addition, the Archipelago Certificate of Incorporation provides 
that for so long as ArcaEx remains a facility (as defined in section 
3(a)(2) of the Act) \18\ of PCX and PCXE and the Facility Services 
Agreement, which currently governs the regulatory relationship of PCX 
and PCXE to ArcaEx, remains in full force and effect, no ETP Holder, 
either alone or with its related persons, shall be permitted at any 
time to own beneficially shares of Archipelago stock representing in 
the aggregate more than 20% of the then outstanding votes entitled to 
be cast on any matter.\19\ Furthermore, unlike the Ownership Limitation 
described earlier, the Archipelago Certificate of Incorporation does 
not give the board of directors of Archipelago the authority to waive 
the 20% ownership limitation with respect to ETP Holders and their 
related persons.
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    \18\ 15 U.S.C. 78c(a)(2).
    \19\ Archipelago Certificate of Incorporation, Article Fourth 
D(2).
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    c. Voting Limitation in the Archipelago Certificate of 
Incorporation. The Archipelago Certificate of Incorporation also 
provides that no person, either alone or with its related persons, 
shall be entitled to (1) vote or cause the voting of shares of 
Archipelago stock to the extent such shares represent in the aggregate 
more than 20% of the then outstanding votes entitled to be cast on any 
matter (the ``Voting Limitation'') or (2) enter into any agreement, 
plan, or arrangement not to vote shares, the effect of which agreement, 
plan, or arrangement would be to enable any person, either alone or 
with its related persons, to vote, possess the right to vote, or cause 
the voting of shares that would represent in the aggregate more than 
20% of the then outstanding votes entitled to be cast on any matter 
(``Nonvoting Agreement Prohibition'').\20\ The Voting Limitation and 
the Nonvoting Agreement Prohibition shall apply unless and until (1) a 
person, either alone or with its related persons, delivers to the board 
of directors of Archipelago a notice in writing regarding such person's 
intention to vote, possess the right to vote, or cause the voting of 
shares of Archipelago stock that would cause such person, either alone 
or with its related persons, to violate the Voting Limitation or the 
Nonvoting Agreement Prohibition, at least 45 days (or such shorter 
period as the board of directors of Archipelago expressly consents to) 
prior to the intended vote and (2) such person, either alone or with 
its related persons, receives prior approval from the board of 
directors of Archipelago and the Commission to exceed the Voting 
Limitation or enter into an agreement, plan, or arrangement not 
otherwise allowed pursuant to the Nonvoting Agreement Prohibition.\21\ 
Specifically, (1) the board of directors of Archipelago must adopt a 
resolution approving such person and its related persons to exceed the 
Voting Limitation or to enter into an agreement, plan, or arrangement 
not otherwise allowed pursuant to the Nonvoting Agreement Prohibition, 
(2) the resolution must be filed with the Commission under section 
19(b) of the Act,\22\ and (3) such proposed rule change must be 
approved by the Commission and become effective thereunder.\23\
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    \20\ Archipelago Certificate of Incorporation, Article Fourth 
C(1).
    \21\ Archipelago Certificate of Incorporation, Article Fourth 
C(2).
    \22\ 15 U.S.C. 78s(b).
    \23\ Archipelago Certificate of Incorporation, Article Fourth 
C(2).

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[[Page 2097]]

    Subject to its fiduciary obligations under DGCL, before adopting 
any such resolution, the board of directors of Archipelago must first 
determine that: (1) The exercise of such voting rights or the entering 
into of such agreement, plan, or arrangement, as applicable, by such 
person, either alone or with its related persons, would not impair 
Archipelago's, PCX's or PCXE's ability to discharge its 
responsibilities under the Act and the rules and regulations thereunder 
and is otherwise in the best interests of Archipelago and its 
stockholders; (2) the exercise of such voting rights or the entering 
into of such agreement, plan, or arrangement would not impair the 
Commission's ability to enforce the Act; (3) such person and its 
related persons are not subject to any statutory disqualification (as 
defined in section 3(a)(39) of the Act); \24\ and (4) in the case of a 
resolution to approve the exercise of voting rights in excess of the 
Voting Limitation, for so long as ArcaEx remains a facility (as defined 
in section 3(a)(2) of the Act) \25\ of PCX and PCXE and the Facility 
Services Agreement is in full force and effect, neither such person nor 
its related persons are ETP Holders.\26\ In making such determinations, 
the board of directors of Archipelago may impose any conditions and 
restrictions on such person and its related persons owning any shares 
of Archipelago stock entitled to vote on any matter as the board of 
directors of Archipelago in its sole discretion deems necessary, 
appropriate, or desirable in furtherance of the objectives of the Act 
and the governance of Archipelago.\27\
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    \24\ 15 U.S.C. 78c(a)(39).
    \25\ 15 U.S.C. 78c(a)(2).
    \26\ Archipelago Certificate of Incorporation, Article Fourth 
C(3).
    \27\ Id.
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    d. Additional Matters Relating to OTP Holders and OTP Firms of PCX. 
In connection with the closing of the acquisition by Archipelago of 
PCXH on September 26, 2005,\28\ Archipelago amended and restated its 
bylaws (as amended and restated, the ``Archipelago Bylaws'') to provide 
that the board of directors of Archipelago will not adopt any 
resolution waiving the Voting Limitation, the Nonvoting Agreement 
Prohibition, and the Ownership Limitation with respect to any OTP 
Holder or OTP Firm of PCX (as defined in PCX rules, as such rules may 
be in effect from time to time) \29\ or its related persons.\30\ These 
new provisions of the Archipelago Bylaws may not be amended, modified, 
or repealed unless such amendment, modification, or repeal is filed 
with and approved by the Commission or approved by Archipelago 
stockholders voting not less than 80% of the then outstanding votes 
entitled to be cast in favor of any such amendment, modification, or 
repeal.\31\
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    \28\ See Securities Exchange Act Release No. 52497 (September 
22, 2005), 70 FR 56949 (September 29, 2005).
    \29\ PCX rules define an ``OTP Holder'' to mean any natural 
person, in good standing, who has been issued an Options Trading 
Permit (``OTP'') by the Exchange for effecting approved securities 
transactions on the Exchange's trading facilities or has been named 
as a Nominee. PCX Rule 1.1(q). The term ``Nominee'' means an 
individual who is authorized by an ``OTP Firm'' (a sole 
proprietorship, partnership, corporation, limited liability company, 
or other organization in good standing who holds an OTP or upon whom 
an individual OTP Holder has conferred trading privileges on the 
Exchange's trading facilities) to conduct business on the Exchange's 
trading facilities and to represent such OTP Firm in all matters 
relating to the Exchange. PCX Rule 1.1(n). In connection with 
Archipelago's acquisition of PCXH, PCX also implemented certain new 
rules which provide, in part, that for as long as Archipelago 
controls, directly or indirectly, PCX, no OTP Holder or OTP Firm, 
either alone or together with its ``related persons'' (as such term 
is defined in PCX rules), shall: (i) own beneficially shares of 
Archipelago stock representing in the aggregate more than 20% of the 
then outstanding votes entitled to be cast on any matter; (ii) have 
the right to vote, vote, or cause the voting of shares of 
Archipelago stock to the extent such shares represent in the 
aggregate more than 20% of the then outstanding votes entitled to be 
cast on any matter; or (iii) enter into any agreement, plan, or 
arrangement not to vote shares of Archipelago stock, the effect of 
which would enable any person, either alone or together with its 
related persons, to vote, possess the right to vote, or cause the 
voting of shares what would represent in the aggregate more than 20% 
of the then outstanding votes entitled to be cast on any matter. PCX 
Rules 3.4(a) and (b).
    \30\ Archipelago Bylaws, section 6.8(d). For purposes of section 
6.8(d), the term ``Related Person'' has the meaning set forth in the 
Archipelago Certificate of Incorporation and also includes (1) in 
the case of a person that is a natural person, any broker or dealer 
that is an OTP Holder or an OTP Firm with which such natural person 
is associated and (2) in the case of a person that is an OTP Holder 
or an OTP Firm, any broker or dealer with which such OTP Holder or 
OTP Firm is associated.
    \31\ Archipelago Bylaws, section 6.8(g).
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    e. Resolutions of the Board of Directors of Archipelago. In order 
to allow NYSE Group to wholly own and vote all of Archipelago stock 
upon consummation of the Mergers, on October 19, 2005, NYSE Group 
delivered a written notice to the board of directors of Archipelago, 
pursuant to the procedures set forth in the Archipelago Certificate of 
Incorporation, requesting approval of its ownership and voting of 
Archipelago stock in excess of the Ownership Limitation and the Voting 
Limitation. Among other things, in the notice, NYSE Group represented 
to the board of directors of Archipelago that neither it, nor any of 
its related persons, are (1) ETP Holders, OTP Holders, or OTP Firms or 
(2) subject to any statutory disqualification (as defined in section 
3(a)(39) of the Act).\32\
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    \32\ 15 U.S.C. 78c(a)(39).
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    At a meeting duly convened on October 20, 2005, the board of 
directors of Archipelago adopted a resolution approving NYSE Group's 
request that it be permitted, either alone or with its related persons, 
to exceed the Ownership Limitation and the Voting Limitation. In 
adopting such resolution, the board of directors of Archipelago 
determined that: (1) The acquisition of beneficial ownership of 100% of 
the outstanding shares of Archipelago common stock and the exercise of 
voting rights with respect to 100% of the outstanding shares of 
Archipelago common stock by NYSE Group, either alone or with its 
related persons, would not impair any of Archipelago's, PCX's, or 
PCXE's ability to discharge its responsibilities under the Act and the 
rules and regulations thereunder and are otherwise in the best 
interests of Archipelago and its stockholders; (2) such acquisition of 
beneficial ownership and exercise of voting rights of Archipelago 
common stock by NYSE Group, either alone or with its related persons, 
would not impair the Commission's ability to enforce the Act; (3) 
neither NYSE Group nor any of its related persons is subject to any 
statutory disqualification (as defined in section 3(a)(39) of the Act); 
\33\ and (4) neither NYSE Group nor any of its related persons is an 
ETP Holder, OTP Holder, or OTP Firm. The board of directors of 
Archipelago also approved the submission of this proposed rule change 
to the Commission.
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    \33\ 15 U.S.C. 78c(a)(39).
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    f. Request for Approval. The Exchange hereby requests the 
Commission to allow NYSE Group to wholly own and vote all of the 
outstanding common stock of Archipelago, either alone or with its 
related persons, except for any related person of NYSE Group that is an 
ETP Holder, OTP Holder, or OTP Firm, upon the consummation of the 
Mergers.
    g. Certain Relationships Between NYSE Group and OTP Holders, OTP 
Firms, and ETP Holders. Upon consummation of the Mergers, NYSE Group 
will become the parent company of the successors to the NYSE and 
Archipelago.\34\ In order to protect the integrity and independence of 
the regulatory responsibilities of PCX and PCXE after the consummation 
of the Mergers, PCX and PCXE have proposed certain new rules designed 
to minimize any potential conflicts of interest that

[[Page 2098]]

may result from ownership relationships or affiliations between OTP 
Holders, OTP Firms, and ETP Holders on the one hand and NYSE Group and 
its subsidiaries, including PCX and PCXE on the other hand.
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    \34\ For a description of the structure of NYSE Group after the 
consummation of the Mergers, see S-4 Registration Statement, at 252.
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    Specifically, the proposed PCX Rule 3.10 and proposed PCXE Rule 
3.10 provide that, unless approved by the Commission, (a) no OTP 
Holder, OTP Firm, or ETP Holder shall be affiliated (as such term is 
defined in Rule 12b-2 under the Act) \35\ with NYSE Group or any of its 
affiliated entities,\36\ and (b) neither NYSE Group nor any of its 
affiliates (as such term is defined in Rule 12b-2 under the Act) \37\ 
shall hold, directly or indirectly, an ownership interest in any OTP 
Firm or ETP Holder.\38\ The proposed PCX and PCXE rules further provide 
that any person who fails to meet the requirements described in the 
preceding sentence shall not be eligible to become an OTP Holder, OTP 
Firm, or ETP Holder, as the case may be.\39\ In addition, in the event 
of any failure by any OTP Holder, OTP Firm, or ETP Holder to comply 
with the applicable provisions of the proposed PCX Rule 3.10 and 
proposed PCXE Rule 3.10, PCX or PCXE shall suspend all trading rights 
and privileges of such OTP Holder, OTP Firm, or ETP Holder, as the case 
may be, in accordance with the proposed PCX and PCXE rules, subject to 
the procedures provided therein.\40\
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    \35\ Pursuant to Rule 12b-2 under the Act, an ``affiliate'' of a 
specified person is a person that directly, or indirectly through 
one or more intermediaries, controls, is controlled by, or is under 
common control with, the person specified. 17 CFR 240.12b-2.
    \36\ Proposed PCX Rule 3.10(a) and proposed PCXE Rule 3.10(a).
    \37\ Pursuant to Rule 12b-2 under the Act, a person 
``affiliated'' with a specified person is a person that directly, or 
indirectly through one or more intermediaries, controls, is 
controlled by, or is under common control with, the person 
specified. 17 CFR 240.12b-2.
    \38\ Proposed PCX Rule 3.10(b) and proposed PCXE Rule 3.10(b).
    \39\ Proposed PCX Rule 3.10(c) and proposed PCXE Rule 3.10(c).
    \40\ The proposed PCX and PCXE rules provide that in the event 
of any such failure to comply with the proposed PCX Rule 3.10 and 
proposed PCXE Rule 3.10, respectively, PCX or PCXE shall: (1) 
Provide notice to the applicable OTP Holder, OTP Firm, or ETP 
Holder, as the case may be, within five business days of learning of 
the failure to comply; (2) allow the applicable OTP Holder, OTP 
Firm, or ETP Holder fifteen calendar days to cure any such failure 
to comply; (3) in the event that the applicable OTP Holder, OTP 
Firm, or ETP Holder does not cure such failure to comply within such 
fifteen calendar day cure period, schedule a hearing to occur within 
thirty calendar days following the expiration of such fifteen 
calendar day cure period; and (4) render its decision as to the 
suspension of all trading rights and privileges of the applicable 
OTP Holder, OTP Firm, or ETP Holder no later than ten calendar days 
following the date of such hearing. Proposed PCX Rule 13.2(a)(2)(F) 
and proposed PCXE Rule 11.2(a)(2)(v).
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    PCX and PCXE believe that by prohibiting these relationships, the 
proposed new rules will ensure that PCX and PCXE can fairly and 
objectively exercise their regulatory oversight responsibilities with 
respect to OTP Holders, OTP Firms, and ETP Holders.
    h. Rights of OTP Holders and ETP Holders With Respect to the 
Nomination and Election of Their Representatives to the PCX Board and 
PCXE Board. The Bylaws of PCX and PCXE contain certain composition 
requirements with respect to the respective boards of directors of PCX 
and PCXE. Specifically, the Bylaws of PCX provide that at least 20% of 
the directors of PCX shall consist of individuals nominated by trading 
permit holders, with at least one director nominated by the ETP Holders 
and at least one director nominated by the OTP Holders.\41\ The Bylaws 
of PCXE provide that at least 20% of the directors (but no fewer than 
two directors) of PCXE shall be nominees of the ETP/Equity ASAP 
Nominating Committee, as provided under PCXE Rule 3.\42\ The procedures 
for the nomination, appointment, and election of the directors of PCX 
and PCXE are governed by PCX and PCXE rules.\43\ In order to ensure 
that the director nomination and election processes of each of PCX and 
PCXE would not be subject to any undue influence from the concentration 
of rights in any one OTP Holder \44\ or ETP Holder, either alone or 
together with certain affiliates, each of PCX and PCXE has proposed 
amendments to its rules that will impose certain restrictions on the 
ability of OTP Holders and ETP Holders to participate in the director 
nomination and election processes of PCX and PCXE, respectively.
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    \41\ PCX Bylaws, section 3.02(a).
    \42\ PCXE Bylaws, section 3.02(a).
    \43\ PCX Rule 3.2(b)(2) and PCXE Rule 3.2(b)(2).
    \44\ Even though OTP Firms also hold options trading permits, 
they do not have any voting rights with respect to the nomination 
and election of the OTP Holder representative on the PCX Board.
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    Specifically, with respect to the nomination and election of the 
OTP Holder members of the nominating committee of PCX (``PCX Nominating 
Committee''), the PCX rules currently provide that: (i) The PCX 
Nominating Committee shall have seven members consisting of six OTP 
Holders and one person from the public; (ii) in addition to candidates 
nominated by the PCX Nominating Committee to fill positions on the PCX 
Nominating Committee for the next annual term, the PCX Nominating 
Committee must nominate any candidate for the OTP Holders' positions on 
the PCX Nominating Committee endorsed by the written petition of the 
lesser of 35 OTP Holders or 10% of OTP Holders in good standing on or 
before the 45th day preceding the expiration of the existing term; 
(iii) in the event that there are more than six nominees to fill the 
OTP Holders' positions on the PCX Nominating Committee as a result of 
petition by OTP Holders, the PCX Nominating Committee must submit the 
nominees to OTP Holders for election.\45\
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    \45\ PCX Rules 3.2(b)(2)(A) and (B).
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    The proposed PCX Rule 3.2(b)(2)(B)(i) provides that with respect to 
the nomination process described in clause (ii) above, no OTP Holder, 
either alone or together with (x) other OTP Holders associated with (as 
such term is defined in section 3(a)(18) of the Act) \46\ the same OTP 
Firm that such OTP Holder is associated with and (y) OTP Holders 
associated with OTP Firms that are affiliated (as such term is defined 
in Rule 12b-2 under the Act) \47\ with the OTP Firm that such OTP 
Holder is associated with, may account for more than 50% of the 
signatories to the petition endorsing a particular petition nominee for 
an OTP Holders' position on the PCX Nominating Committee. In addition, 
the proposed PCX Rule 3.2(b)(2)(B)(iii) provides that with respect to 
the election process described in clause (iii) above, no OTP Holder, 
either alone or together with (x) other OTP Holders associated with the 
same OTP Firm that such OTP Holder is associated with and (y) OTP 
Holders associated with OTP Firms that are affiliated with the OTP Firm 
that such OTP Holder is associated with, may account for more than 20% 
of the votes cast for a particular nominee for an OTP Holders' position 
on the PCX Nominating Committee.
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    \46\ Pursuant to section 3(a)(18) of the Act, the term 
``associated person of a broker or dealer'' means any partner, 
officer, director, or branch manager of such broker or dealer (or 
any person occupying a similar status or performing similar 
functions), any person directly or indirectly controlling, 
controlled by, or under common control with such broker or dealer, 
or any employee of such broker or dealer, except that such term does 
not include any person associated with a broker or dealer whose 
functions are solely clerical or ministerial. 15 U.S.C. 78c(a)(18).
    \47\ 17 CFR 240.12b-2.
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    With respect to the nomination and election of the OTP Holder 
representative on the PCX Board, the PCX rules currently provide that 
(i) in addition to the candidate nominated by the PCX Nominating 
Committee for the OTP Holders' position on the PCX Board, the PCX 
Nominating Committee must nominate any eligible candidate

[[Page 2099]]

endorsed by the written petition of the lesser of 35 OTP Holders or 10% 
of OTP Holders in good standing on or before the tenth business day 
after the PCX Nominating Committee publishes its nominee for the PCX 
Board,\48\ and (ii) if there are two or more nominees for the PCX 
Holder's position on the PCX Board as a result of petition by OTP 
Holders, the PCX Nominating Committee must submit the contested 
nomination(s) to OTP Holders for election.\49\
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    \48\ PCX Rule 3.2(b)(2)(C)(ii).
    \49\ PCX Rule 3.2(b)(2)(C)(iii).
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    The proposed PCX Rule 3.2(b)(2)(C)(ii) provides that with respect 
to the nomination process described in clause (i) above, no OTP Holder, 
either alone or together with (x) other OTP Holders associated with the 
same OTP Firm that such OTP Holder is associated with and (y) OTP 
Holders associated with OTP Firms that are affiliated with the OTP Firm 
that such OTP Holder is associated with, may account for more than 50% 
of the signatories to the petition endorsing a particular petition 
nominee for the OTP Holders' position on the PCX Board. In addition, 
the proposed PCX Rule 3.2(b)(2)(C)(iii) provides that with respect to 
the election process described in clause (iii) above, no OTP Holder, 
either alone or together with (x) other OTP Holders associated with the 
same OTP Firm that such OTP Holder is associated with and (y) OTP 
Holders associated with OTP Firms that are affiliated with the OTP Firm 
that such OTP Holder is associated with, may account for more than 20% 
of the votes cast for a particular nominee for the OTP Holders' 
position on the PCX Board.
    Similarly, with respect to the nomination and election of the ETP 
Holder members of the nominating committee of PCXE (``PCXE Nominating 
Committee''), the PCXE rules currently provide that (i) the PCXE 
Nominating Committee shall have seven members consisting of six ETP 
Holders and one person from the public, (ii) in addition to candidates 
nominated by the PCXE Nominating Committee to fill positions on the 
PCXE Nominating Committee for the next annual term, the PCXE Nominating 
Committee must nominate any candidate for the ETP Holders' positions on 
the PCXE Nominating Committee endorsed by the written petition of at 
least 10% of ETP Holders in good standing on or before the 45th day 
preceding the expiration of the existing term, (iii) in the event that 
there are more than six nominees to fill the ETP Holders' positions on 
the PCXE Nominating Committee as a result of petition by ETP Holders, 
the PCXE Nominating Committee must submit the nominees to ETP Holders 
for election.\50\
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    \50\ PCXE Rules 3.2(b)(2)(A) and (B).
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    The proposed PCXE Rule 3.2(b)(2)(B)(i) would provide that with 
respect to nomination process described in clause (ii) above, no ETP 
Holder, either alone or together with other ETP Holders who are deemed 
its affiliates (as such term is defined in Rule 12b-2 under the 
Act),\51\ may account for more than 50% of the signatories to the 
petition endorsing a particular petition nominee for an ETP Holders' 
position on the PCXE Nominating Committee. In addition, the proposed 
PCXE Rule 3.2(b)(2)(B)(iii) would provide that with respect to election 
process described in clause (iii) above, no ETP Holder, either alone or 
together with other ETP Holders who are deemed its affiliates, may 
account for more than 20% of the votes cast for a particular nominee 
for an ETP Holders' position on the PCXE Nominating Committee.
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    \51\ 17 CFR 240.12b-2.
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    With respect to the nomination and election of the ETP Holder 
representatives on the PCX Board and Board of Directors of PCXE (``PCXE 
Board''), the PCXE rules currently provide that (i) in addition to the 
candidates nominated by the PCXE Nominating Committee for the ETP 
Holders' positions on the PCX Board and PCXE Board, the PCXE Nominating 
Committee must nominate any eligible candidate endorsed by the written 
petition of at least 10% of ETP Holders in good standing to the PCX 
Board or PCXE Board, as the case may be, within the time period set 
forth in the PCXE rules,\52\ and (ii) if there are three or more 
nominees for the ETP Holders' positions on the PCXE Board or two or 
more nominees for the ETP Holder's position on the PCX Board, the PCXE 
Nominating Committee shall submit the contested nomination(s) to the 
ETP Holders for election.\53\
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    \52\ PCXE Rule 3.2(b)(2)(C)(i).
    \53\ PCXE Rule 3.2(b)(2)(C)(ii).
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    The proposed PCXE Rule 3.2(b)(2)(C)(i) provides that with respect 
to nomination process described in clause (i) above, no ETP Holder, 
either alone or together with other ETP Holders who are deemed its 
affiliates, may account for more than 50% of the signatories to a 
petition endorsing a particular petition nominee for an ETP Holders' 
position on the PCX Board or PCXE Board. In addition, the proposed PCXE 
Rule 3.2(b)(2)(C)(ii) provides that with respect to the election 
process described in clause (ii) above, no ETP Holder, either alone or 
together with other ETP Holders who are deemed its affiliates, may 
account for more than 20% of the votes cast for a particular nominee 
for an ETP Holders' position on the PCX Board or PCXE Board.
    PCX believes that the proposed limitations relating to the director 
nomination and election process would serve to protect the integrity of 
PCX's, PCXE's, and the Commission's regulatory oversight 
responsibilities and would allow PCX and PCXE to protect their 
respective board of directors from any undue influences of a group of 
related OTP Holders or ETP Holders. Aside from the trading rights that 
such permit holders are entitled to and these rights described in this 
section, the respective permit holders have no other voting, 
nomination, petition, or other rights under the organizational 
documents and rules of PCX and PCXE, as applicable.
2. Basis
    The Exchange believes that this filing, as amended, is consistent 
with section 6(b) \54\ of the Act, in general, and furthers the 
objectives of section 6(b)(5),\55\ in particular, because the rules 
summarized herein would create a governance and regulatory structure 
with respect to the operation of the equities and options business of 
PCX that is designed to help prevent fraudulent and manipulative acts 
and practices; to promote just and equitable principals of trade; to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities; and to 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 Exchange also believes that this filing, as amended, 
furthers the objectives of section 6(b)(1) of the Act \56\ in that it 
enables the Exchange to be so organized so as to have the capacity to 
be able to carry out the purposes of the Act and to comply, and 
(subject to any rule or order of the Commission pursuant to sections 
17(d) or 19(g)(2) of the Act) \57\ to enforce compliance by its 
exchange members and persons associated with its exchange members, with 
the provisions of the Act, the rules and regulations thereunder, and 
the rules of the Exchange.
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    \54\ 15 U.S.C. 78f(b).
    \55\ 15 U.S.C. 78f(b)(5).
    \56\ 15 U.S.C. 78f(b)(1).
    \57\ 15 U.S.C. 78q(d) and 78s(g)(2).

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[[Page 2100]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    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 self-regulatory organization consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change 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
     Send an e-mail to [email protected]. Please include 
File Number SR-PCX-2005-134 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-PCX-2005-134. 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-2005-134 and should be submitted on or before February 2, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\58\
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    \58\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. 06-316 Filed 1-11-06; 8:45 am]
BILLING CODE 8010-01-P