[Federal Register Volume 71, Number 15 (Tuesday, January 24, 2006)]
[Notices]
[Pages 3910-3911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53117; File No. SR-PCX-2005-87]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change, and Amendment No. 1 Thereto, Relating 
to the Tracking Order Process

January 13, 2006.

I. Introduction

    On July 26, 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''), 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 replace the existing PCXE rules describing its 
current tracking order process (``Tracking Order Process'') \3\ with 
new provisions for the Tracking Order Process. The PCX filed Amendment 
No. 1 to the proposed rule

[[Page 3911]]

change on November 22, 2005.\4\ The proposed rule change, as amended, 
was published for comment in the Federal Register on December 13, 
2005.\5\ The Commission received no comments on 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\ See PCXE Rule 7.37(c).
    \4\ Amendment No. 1, which replaced the original filing in its 
entirety, made technical and clarifying changes to the proposed rule 
change.
    \5\ See Exchange Act Release No. 52898 (Dec. 6, 2005), 70 FR 
73811 (Dec. 13, 2005) (``Notice'').
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II. Description

    The PCX proposes to amend its rules governing the Archipelago 
Exchange (``ArcaEx''), the equities trading facility of PCXE. 
Specifically, the Exchange proposes to restructure its Tracking Order 
Process by modifying the current rule text governing the Tracking Order 
Process \6\ to implement a process based on the submission of orders, 
rather than instructions, to be executed in price/time priority.\7\
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    \6\ See PCXE Rule 7.37(c).
    \7\ See proposed PCXE Rule 7.31(f).
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    PCX represents that the purpose of the Tracking Order Process is to 
provide a final opportunity for execution against any remaining 
liquidity on the ArcaEx system before routing to an away market 
center.\8\ Under the proposed rule change, as is currently the case, if 
an order submitted to the ArcaEx has not been executed in its entirety 
after progressing through ArcaEx's directed order, display order and 
working order processes,\9\ the order (or the remaining portion of the 
order) would enter the Tracking Order Process. An incoming order would 
be matched to Tracking Orders held in the Tracking Order Process based 
on the price and time the Tracking Order was received. Under the 
proposal, a ``Tracking Order'' is an undisplayed, priced round lot 
order that is eligible for execution in the Tracking Order Process 
against an order equal to or less than the aggregate size of Tracking 
Order interest available at that price.\10\ Tracking Orders would 
execute only if the price of the Tracking Order is equal to or better 
than the national best bid or offer (``NBBO'').\11\ Pursuant to the 
proposed rule change, odd lot orders would continue to be matched to 
odd lot tracking orders held in the Tracking Order Process in 
accordance with a user's \12\ set parameters, such as maximum aggregate 
size, maximum tradeable size, and the price (which is set at the 
NBBO).\13\
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    \8\ See Notice.
    \9\ See PCXE Rule 7.37 for a description of the ArcaEx execution 
processes that precede the Tracking Order Process, including the 
directed process, display process, and working order process. See 
also proposed PCX Rule 7.37(c).
    \10\ See Proposed PCXE Rule 7.31(f).
    \11\ See PCXE Rule 7.37.
    \12\ ``User'' is defined in PCXE Rule 1.1(yy).
    \13\ See current and proposed PCXE Rule 7.31(g) for a definition 
of the odd lot tracking order and proposed PCXE Rule 7.37(c) for a 
description of the odd lot tracking order process.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\14\ In particular, the Commission finds that the 
proposal, as amended, is consistent with Section 6(b)(5) of the 
Act,\15\ which requires, among other things, that a national securities 
exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices, 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 a national 
market system, and, in general, to protect investors and the public 
interest.
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    \14\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that under the proposal, incoming orders 
executed in the Tracking Order Process should be executed in a manner 
equivalent to that under PCX's existing rules, but that the proposed 
rule change should simplify the process for entering Tracking Orders. 
Thus, the Commission believes that the proposed changes to the Tracking 
Order Process do not raise any new issues or regulatory concerns. The 
Commission notes that an order may not be executed pursuant to the new 
Tracking Order Process at a price that is inferior to the NBBO.\16\ 
Furthermore, the Commission notes that any order that is not executed 
in its entirety pursuant to one of ArcaEx's other order execution 
processes is eligible for matching and execution pursuant to the 
Tracking Order Process, and that any User of the ArcaEx system may 
submit a Tracking Order.\17\
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    \16\ See PCXE Rule 7.37.
    \17\ As is currently the case, only an ``Odd Lot Dealer,'' as 
defined in PCXE Rule 1.1(gg), may submit an odd lot tracking order. 
See current and proposed PCXE Rule 7.31(g).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-PCX-2005-87), as amended by 
Amendment No.1, be, and hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-772 Filed 1-23-06; 8:45 am]
BILLING CODE 8010-01-P