[Federal Register Volume 71, Number 26 (Wednesday, February 8, 2006)]
[Notices]
[Pages 6530-6535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-1730]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53202; File No. SR-PCX-2006-04]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Certificate of Incorporation of PCX Holdings, Inc.

January 31, 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 January 27, 2006, 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. PCX filed the proposed 
rule change pursuant to 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

    PCX proposes to submit to the Commission a proposed rule change to 
further extend certain temporary exceptions from the voting and 
ownership limitations in the certificate of incorporation of PCX 
Holdings, Inc. (``PCXH''), a Delaware corporation and a parent company 
of PCX, originally approved by the Commission in an order issued on 
September 22, 2005 (the ``SEC Order'') \5\ and extended pursuant to a 
proposed rule change filed with the Commission on December 19, 2005 
(the ``Original Extension Rule Filing'') \6\ and amended on December 
23, 2005,\7\ so as to allow: (a) Archipelago Holdings, Inc. 
(``Archipelago''), a Delaware corporation and the ultimate parent 
company of PCXH and PCX, to continue to (i) own Wave Securities, L.L.C. 
(``Wave'') and (ii) own and operate the ATS Inbound Router Function (as 
defined below) of

[[Page 6531]]

Archipelago Trading Services, Inc. (``ATS'') and the Inbound Router 
Clearing Function (as defined below) of Archipelago Securities, L.L.C. 
(``Archipelago Securities''); and (b) Gerald D. Putnam, Chairman and 
Chief Executive Officer of Archipelago (``Mr. Putnam''), to own in 
excess of 5% of Terra Nova Trading, L.L.C. (``TNT'') and continue to 
serve as a director of TAL Financial Services (``TAL''), in each case 
until the earlier of (x) the closing date of the merger of Archipelago 
and the New York Stock Exchange, Inc. (the ``Archipelago NYSE Merger'') 
and (y) March 31, 2006.
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    \5\ See Securities Exchange Act Release No. 52497 (September 22, 
2005), 70 FR 56949 (September 29, 2005) (SR-PCX-2005-90) (the ``SEC 
Order'').
    \6\ See Pacific Exchange, Inc., Proposed Rule Change Relating to 
the Certificate of Incorporation of PCX Holdings, Inc., File No. SR-
PCX-2005-139 (December 19, 2005).
    \7\ See Amendment No. 1 to the Original Extension Rule Filing 
(December 23, 2005).
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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. 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, the Proposed Rule Change

1. Purpose
    a. PCXH Acquisition and the Amendment of the PCXH Certificate of 
Incorporation. Archipelago operates the Archipelago Exchange 
(``ArcaEx''), an open, all-electronic stock market for the trading of 
equity securities. On September 26, 2005, Archipelago completed its 
acquisition of PCXH and all of its wholly-owned subsidiaries, including 
PCX and PCXE (the ``PCXH Acquisition''). The PCXH Acquisition was 
accomplished by way of a merger of PCXH with a wholly-owned subsidiary 
of Archipelago, with PCXH being the surviving corporation in the merger 
and becoming a wholly-owned subsidiary of Archipelago.
    The certificate of incorporation of PCXH (as amended to date, the 
``PCXH Certificate of Incorporation'') contains various ownership and 
voting restrictions on PCXH's capital stock, which are designed to 
safeguard the independence of the self-regulatory functions of PCX and 
to protect the Commission's oversight responsibilities. In order to 
allow Archipelago to own 100% of the capital stock of PCXH, prior to 
the completion of the PCXH Acquisition, PCX filed with the Commission a 
proposed rule change which sought to, among other things, amend the 
PCXH Certificate of Incorporation to create an exception from the 
voting and ownership restrictions for Archipelago and certain of its 
related persons (the ``Original Rule Filing'').\8\ The Original Rule 
Filing, as amended by Amendment No. 1 and Amendment No. 2 thereto, was 
approved by the Commission on September 22, 2005 \9\ and the amended 
PCXH Certificate of Incorporation became effective on September 26, 
2005, upon the closing of the PCXH Acquisition.
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    \8\ See Pacific Exchange, Inc., Proposed Rule Change Relating to 
the Certificate of Incorporation of PCX Holdings, Inc., PCX Rules, 
and Bylaws of Archipelago Holdings, Inc., File No. SR-PCX-2005-90 
(August 1, 2005).
    \9\ See SEC Order.
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    Article Nine of the PCXH Certificate of Incorporation provides that 
no Person,\10\ either alone or together with its Related Persons,\11\ 
may own, directly or indirectly, shares constituting more than 40% of 
the outstanding shares of any class of PCXH capital stock,\12\ and that 
no Person, either alone or together with its Related Persons who is a 
trading permit holder of PCX or an equities trading permit holder of 
PCXE, may own, directly or indirectly, shares constituting more than 
20% of any class of PCXH capital stock.\13\ Furthermore, the PCXH 
Certificate of Incorporation provides that, for so long as PCXH 
controls, directly or indirectly, PCX, no Person, either alone or with 
its Related Persons, may directly or indirectly vote or cause the 
voting of shares of PCXH capital stock or give any proxy or consent 
with respect to shares representing more than 20% of the voting power 
of the issued and outstanding PCXH capital stock.\14\ The PCXH 
Certificate of Incorporation also places limitations on the right of 
any Person, either alone or with its Related Persons, to enter into any 
agreement with respect to the withholding of any vote or proxy.\15\
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    \10\ ``Person'' is defined to mean an individual, partnership 
(general or limited), joint stock company, corporation, limited 
liability company, trust or unincorporated organization, or any 
governmental entity or agency or political subdivision thereof. PCXH 
Certificate of Incorporation, Article Nine, Section 1(b)(iv).
    \11\ The term ``Related Person,'' as defined in the PCXH 
Certificate of Incorporation, means (i) with respect to any person, 
all ``affiliates'' and ``associates'' of such person (as such terms 
are defined in Rule 12b-2 under the Act); (ii) with respect to any 
person constituting a trading permit holder of PCX or an equities 
trading permit holder of PCXE, any broker dealer with which such 
holder is associated; and (iii) any two or more persons that have 
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 capital stock of PCXH. PCXH 
Certificate of Incorporation, Article Nine, Section 1(b)(iv).
    \12\ PCXH Certificate of Incorporation, Article Nine, Section 
1(b)(i). However, such restriction may be waived by the Board of 
Directors of PCXH pursuant to an amendment to the Bylaws of PCXH 
adopted by the Board of Directors, if, in connection with the 
adoption of such amendment, the Board of Directors adopts a 
resolution stating that it is the determination of such Board that 
such amendment will not impair the ability of PCX to carry out its 
functions and responsibilities as an ``exchange'' under the Act and 
is otherwise in the best interests of PCXH and its stockholders and 
PCX, and will not impair the ability of the Commission to enforce 
said Act, and such amendment shall not be effective until approved 
by said Commission; provided that the Board of Directors of PCXH 
shall have determined that such Person and its Related Persons are 
not subject to any applicable ``statutory disqualification'' (within 
the meaning of Section 3(a)(39) of the Act). PCXH Certificate of 
Incorporation, Article Nine, Sections 1(b)(i)(B) and 1(b)(i)(C).
    \13\ Id., Article Nine, Section 1(b)(ii).
    \14\ Id., Article Nine, Section 1(c).
    \15\ Id.
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    PCX proposed and the Commission approved an exception from the 
ownership and voting limitations described above to add a new paragraph 
at the end of Article Nine of the PCXH Certificate of Incorporation, 
which provides that for so long as Archipelago directly owns all of the 
outstanding capital stock of PCXH, these ownership and voting 
limitations shall not be applicable to the ownership and voting of 
shares of PCXH by (i) Archipelago, (ii) any Person which is a Related 
Person of Archipelago, either alone or together with its Related 
Persons, and (iii) any other Person to which Archipelago is a Related 
Person, either alone or together with its Related Persons.\16\ These 
exceptions to the ownership and voting limitations, however, shall not 
apply to any ``Prohibited Persons,'' \17\ which is defined to mean any 
Person that is, or that has a Related Person that is (i) an OTP Holder 
or an OTP Firm (as defined in the rules of PCX) \18\ or (ii) an ETP 
Holder (as defined in the rules of PCXE),\19\ unless such Person is 
also a

[[Page 6532]]

``Permitted Person'' under the PCXH Certificate of Incorporation.\20\ 
The PCXH Certificate of Incorporation further provides that any 
Prohibited Person not covered by the definition of a Permitted Person 
who is subject to and exceeds the voting and ownership limitations 
imposed by Article Nine as of the date of the closing of the PCXH 
Acquisition shall be permitted to exceed the voting and ownership 
limitations imposed by Article Nine only to the extent and for the time 
period approved by the Commission.\21\
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    \16\ Id., Article Nine, Section 4.
    \17\ Id.
    \18\ 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).
    \19\ PCXE rules define an ``ETP Holder'' to mean 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(n).
    \20\ ``Permitted Person'' is defined to mean (A) any broker or 
dealer approved by the Commission after June 20, 2005 to be a 
facility (as defined in Section 3(a)(2) of the Act) of PCX; (B) any 
Person that has been approved by the Commission prior to it becoming 
subject to the provisions of Article Nine of the PCXH Certificate of 
Incorporation with respect to the voting and ownership of shares of 
PCXH capital stock by such Person; and (C) any Person that is a 
Related Person of Archipelago solely by reason of beneficially 
owning, either alone or together with its Related Persons, less than 
20% of the outstanding shares of Archipelago capital stock. PCXH 
Certificate of Incorporation, Article Nine, Section 4.
    \21\ Id.
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    b. Wave. Wave is an introducing broker for Archipelago's 
institutional customers and provides such customers with access to 
ArcaEx and other market centers. Because Wave, a broker-dealer and an 
ETP Holder of PCXE, is a wholly-owned subsidiary and, consequently, a 
Related Person, of Archipelago, it falls within the definition of 
``Prohibited Persons'' under the PCXH Certificate of Incorporation. 
Consequently, absent an exception, Archipelago's ownership of PCXH 
would cause Wave, as an ETP Holder, to exceed the voting and ownership 
limitations imposed by Article Nine of the PCXH Certificate of 
Incorporation. Therefore, in connection with the PCXH Acquisition, PCX 
requested a temporary exception from the ownership and voting 
limitations in the PCX Certificate of Incorporation for Archipelago's 
ownership of Wave until December 31, 2005, subject to the condition 
that during that interim period Archipelago would continue to maintain 
and comply with its current information barriers between Wave, on the 
one hand, and PCX, PCXE and other subsidiaries of Archipelago that are 
facilities of PCX or PCXE, on the other hand.\22\
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    \22\ See Original Rule Filing at 36-37 and Amendment No. 2 to 
the Original Rule Filing (September 16, 2005) (``Amendment No. 2''), 
at 4.
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    The Commission approved PCX's rule proposal regarding Wave (the 
``Original Wave Exception'').\23\ In the SEC Order, the Commission 
stated that the affiliation of an exchange with one of its members that 
provides inbound access to the exchange--in direct competition with 
other members of the exchange--raises potential conflicts of interest 
between the exchange's regulatory responsibilities and its commercial 
interests, and the potential for unfair competitive advantage that the 
affiliated member could have by virtue of informational or operational 
advantages, or the ability to receive preferential treatment.\24\ 
However, noting that the conditions to be imposed during the interim 
period were designed to mitigate potential conflicts of interest and 
the potential for unfair competitive advantage, the Commission 
concluded that it would be appropriate and consistent with the Act to 
allow a limited, temporary exception for Archipelago to continue its 
ownership of Wave.\25\ In granting the approval for the Original Wave 
Exception, the Commission also noted that in addition to being a member 
of PCX, Wave is a member of the National Association of Securities 
Dealers, Inc. (``NASD''), a self-regulatory organization (``SRO'') not 
affiliated with Archipelago, and the NASD has been designated by the 
Commission as the ``Designated Examining Authority'' for Wave pursuant 
to Rule 17d-1 of the Act.\26\ Furthermore, during the interim period, 
Wave would continue to be covered by the scope of an agreement between 
NASD and PCX, which was entered into pursuant to Rule 17d-2 under the 
Act \27\ (the ``17d-2 Agreement'') and provides for a plan concerning 
the regulatory responsibilities of NASD with respect to certain members 
of PCX, including Wave.\28\
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    \23\ See SEC Order at 56960.
    \24\ Id. at 56959.
    \25\ Id.
    \26\ Id. Pursuant to Rule 17d-1 under the Act, where a member of 
the Securities Investor Protection Corporation is a member of more 
than one SRO, the Commission shall designate to one of such 
organizations the responsibility of examining such member for 
compliance with the applicable financial responsibility rules. In 
making such designation, the Commission shall take into 
consideration the regulatory capabilities and procedures of the 
SROs, availability of staff, convenience of location, unnecessary 
regulatory duplication, and such other factors as the Commission may 
consider germane to the protection of investors, the cooperation and 
coordination among SROs, and the development of a national market 
system for the clearance and settlement of securities transactions. 
17 CFR 240.17d-1.
    \27\ Rule 17d-2 under the Act provides that any two or more SROs 
may file with the Commission a plan for allocating among such SROs 
the responsibilities to receive regulatory reports from persons who 
are members or participants of more than one of such SROs to examine 
such persons for compliance, or to enforce compliance by such 
persons, with specified provisions of the Act, the rules and 
regulations thereunder, and the rules of such SROs, or to carry out 
other specified regulatory functions with respect to such persons. 
17 CFR 240.17d-2.
    \28\ See SEC Order at 56959.
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    In accordance with the terms of the Original Wave Exception, 
Archipelago has been working to sell its ownership interests in Wave. 
On December 19, 2005, the Exchange submitted the Original Extension 
Rule Filing requesting an extension of the Original Wave Exception to 
January 31, 2006, subject to the same conditions as applied to the 
Original Wave Exception described above.\29\ The extension took effect 
immediately upon the filing of the Original Extension Rule Filing (the 
``Original Wave Extension''). On January 19, 2006, Archipelago entered 
into a definitive agreement for the sale of Wave. The definitive 
agreement conditions the sale on the satisfaction of a number of 
closing conditions, including the receipt of certain regulatory 
approvals, and Archipelago intends to complete the sale as soon as 
possible following the satisfaction of these conditions.
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    \29\ The Original Extension Rule Filing at 13-14.
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    c. ATS Inbound Router Function and the Inbound Router Clearing 
Function. Archipelago currently owns ATS, a wholly owned subsidiary 
that is a broker-dealer and an ETP Holder of PCXE. The business of ATS 
consists of, among other things, acting as an introducing broker for 
non-ETP Holder broker or dealer clients for securities traded on ArcaEx 
(the ``ATS Inbound Router Function''). Archipelago Securities, a 
wholly-owned subsidiary of Archipelago, is a registered broker-dealer, 
a member of the NASD and an ETP Holder. In addition to its other 
functions, Archipelago Securities provides clearing functions for 
trades executed by the ATS Inbound Router Function (the ``Inbound 
Router Clearing Function'').
    Because ATS, a broker-dealer and an ETP Holder of PCXE, is a 
wholly-owned subsidiary and, consequently, a Related Person, of 
Archipelago, it falls within the definition of ``Prohibited Persons'' 
under the PCXH Certificate of Incorporation. Consequently, absent an 
exception, Archipelago's ownership of PCXH would cause ATS to exceed 
the voting and ownership limitations imposed by Article Nine of the 
PCXH Certificate of Incorporation. Likewise, because Archipelago 
Securities, a broker-dealer and an ETP Holder of PCXE, is a wholly 
owned subsidiary and, consequently, a Related Person, of Archipelago, 
and the approvals of

[[Page 6533]]

Archipelago Securities set forth elsewhere in the SEC Order were 
limited in scope and did not include its Inbound Router Clearing 
Function, it falls within the definition of ``Prohibited Persons'' 
under the PCXH Certificate of Incorporation. Consequently, absent an 
exception, Archipelago's ownership of PCXH would cause Archipelago 
Securities to exceed the voting and ownership limitations imposed by 
Article Nine of the PCXH Certificate of Incorporation.
    Therefore, in connection with the PCXH Acquisition, PCX requested a 
temporary exception from the ownership and voting limitations in the 
PCX Certificate of Incorporation for Archipelago's ownership and 
operation of the ATS Inbound Router Function and the Inbound Router 
Clearing Function until the earlier of (i) the closing date of the 
Archipelago NYSE Merger and (ii) March 31, 2006, subject to the 
following conditions: (1) The revenues derived by Archipelago from the 
ATS Inbound Router Function will not exceed 7% of the consolidated 
revenues of Archipelago (determined on a quarterly basis); (2) the ATS 
Inbound Router Function will not accept any new clients following the 
closing of Archipelago's acquisition of PCXH; and (3) Archipelago will 
continue to maintain and comply with its current information barrier 
between the ATS Inbound Router Function on the one hand and PCX, PCXE 
and the other subsidiaries of Archipelago that are facilities of PCX or 
PCXE on the other hand.\30\ The Commission approved PCX's rule proposal 
regarding the ATS Inbound Router Function and the Inbound Router 
Clearing Function (the ``Original Inbound Router Exception'').\31\ In 
the SEC Order, the Commission stated that the affiliation of an 
exchange with one of its members that provides inbound access to the 
exchange--in direct competition with other members of the exchange--
raises potential conflicts of interest between the exchange's 
regulatory responsibilities and its commercial interests, and the 
potential for unfair competitive advantage that the affiliated member 
could have by virtue of informational or operational advantages, or the 
ability to receive preferential treatment.\32\ However, noting that the 
conditions to be imposed during the interim period were designed to 
mitigate potential conflicts of interest and the potential for unfair 
competitive advantage, the Commission concluded that it would be 
appropriate and consistent with the Act to allow a limited, temporary 
exception for Archipelago to continue its ownership of the ATS Inbound 
Router Function and the Inbound Router Clearing Function.\33\ In 
granting the approval for the Original Inbound Router Exception, the 
Commission also noted that in addition to being a member of PCX, ATS is 
a member of the NASD and the NASD has been designated by the Commission 
as the ``Designated Examining Authority'' for ATS pursuant to Rule 17d-
1 of the Act.\34\ Furthermore, during the interim period, ATS would 
continue to be covered by the scope of the 17d-2 Agreement,\35\ which 
provides for a plan concerning the regulatory responsibilities of NASD 
with respect to certain members of PCX, including ATS.\36\
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    \30\ See Amendment No. 2 at 5-6.
    \31\ See SEC Order at 56960.
    \32\ Id. at 56959.
    \33\ Id.
    \34\ Id. See supra note 26 for a description of Rule 17d-1 under 
the Act.
    \35\ See supra note 27.
    \36\ See SEC Order at 56959.
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    In accordance with the terms of the Original Inbound Router 
Exception, Archipelago has been working to sell its ownership interest 
in the ATS Inbound Router Function. Given the uncertainty of the 
closing date of the Archipelago NYSE Merger, in the Original Extension 
Rule Filing, as amended by Amendment No. 1 thereto, the Exchange 
requested an extension of the Original Inbound Router Exception to 
January 31, 2006, subject to the same conditions as applied to the 
Original Inbound Router Exception described above.\37\ The extension 
took effect immediately upon the filing of Amendment No. 1 to the 
Original Extension Rule Filing (the ``Original Inbound Router 
Extension''). On December 23, 2005, Archipelago entered into a 
definitive agreement for the sale of the ATS Inbound Router Function to 
Order Execution Services Holdings, Inc. (``OES'').\38\ The definitive 
agreement conditions the sale on the satisfaction of a number of 
closing conditions, including the receipt of NASD and other regulatory 
approvals, and Archipelago intends to complete the sale as soon as 
possible following the satisfaction of these conditions.
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    \37\ Original Extension Rule Filing at 13-14, and Amendment No. 
1 to the Original Extension Rule Filing at 6.
    \38\ OES is neither a Related Person of Archipelago nor a 
``Prohibited Person'' under the PCXH Certificate of Incorporation.
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    d. TNT. TNT is a wholly owned subsidiary of TAL. Mr. Putnam 
indirectly owns in excess of 5% of TNT and serves as a director of 
TAL.\39\ Because TNT, a broker-dealer and an ETP Holder of PCXE, is a 
Related Person of Archipelago by virtue of Mr. Putnam's ownership of in 
excess of 5% of TNT and service as a director of TAL, it falls within 
the definition of ``Prohibited Persons'' under the PCXH Certificate of 
Incorporation. Consequently, absent an exception, Archipelago's 
ownership of PCXH would cause TNT to exceed the voting and ownership 
limitations imposed by Article Nine of the PCXH Certificate of 
Incorporation. Therefore, in connection with the PCXH Acquisition, the 
Commission approved the Exchange's request for a temporary exception 
for Mr. Putnam to continue to own in excess of 5% of TNT and continue 
to serve as a director of TAL until December 31, 2005 (the ``Original 
TNT Exception'').\40\ In the SEC Order, the Commission stated that it 
believes that such a temporary exception is appropriate and consistent 
with the Act because it will eliminate the affiliation between TNT and 
Archipelago but allow Mr. Putnam a reasonable amount of time to 
effectuate such actions necessary to eliminate the affiliation.\41\
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    \39\ PCX clarified that Mr. Putnam's ownership in TNT is 
indirect. Telephone conversation between Kevin J.P. O'Hara, General 
Counsel, PCX and Jennifer Dodd, Special Counsel, Division of Market 
Regulation, Commission, on January 30, 2006 (``Telephone 
Conversation'').
    \40\ See SEC Order at 56960.
    \41\ Id.
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    Mr. Putnam has been working to eliminate the affiliation with TNT. 
In light of the fact that the sale of Mr. Putnam's interest in TNT was 
unlikely to be consummated by December 31, 2005, in the Original 
Extension Rule Filing, as amended by Amendment No. 1 thereto, the 
Exchange also requested an extension of the Original TNT Exception to 
January 31, 2006.\42\ The extension took effect immediately upon the 
filing of Amendment No. 1 to the Original Extension Rule Filing (the 
``Original TNT Extension'').
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    \42\ Original Extension Rule Filing at 14, and Amendment No.1 to 
the Original Extension Rule Filing at 6.
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    e. Further Extensions of the Temporary Exceptions.
    i. Wave. On January 19, 2006, Archipelago entered into a definitive 
agreement for the sale of Wave.\43\ The definitive agreement conditions 
the sale on the satisfaction of a number of closing conditions, 
including the receipt of certain regulatory approvals, and Archipelago 
intends to complete the sale as soon as possible following the 
satisfaction of these conditions. The Original Wave Extension expires 
on January 31, 2006. In light of the fact that

[[Page 6534]]

the sale is unlikely to be consummated by January 31, 2006, the 
Exchange hereby proposes to further extend the Original Wave Exception 
to the earlier of (x) the closing date of the Archipelago NYSE Merger 
and (y) March 31, 2006, subject to the same conditions as applied to 
the Original Wave Exception described above. In requesting such 
extension, Archipelago and the Exchange note that the NASD is the 
``Designated Examining Authority'' for Wave pursuant to Rule 17d-1 of 
the Act. Furthermore, during the interim period, Wave would continue to 
be covered by the scope of the 17d-2 Agreement, which provides for a 
plan concerning the regulatory responsibilities of NASD with respect to 
certain members of PCX, including Wave. Archipelago and the Exchange 
believe that this extension would be in keeping with the policy 
justifications for the Original Wave Exception and the Original Wave 
Extension outlined above, while allowing Archipelago to complete the 
sale of Wave.
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    \43\ The purchaser of Wave is neither a Related Person of 
Archipelago nor a ``Prohibited Person'' under the PCXH Certificate 
of Incorporation.
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    ii. ATS Inbound Router Function and the Inbound Router Clearing 
Function. On December 23, 2005, Archipelago entered into a definitive 
agreement for the sale of the ATS Inbound Router Function to OES.\44\ 
The definitive agreement conditions the sale on the satisfaction of a 
number of closing conditions, including the receipt of NASD and other 
regulatory approvals, and Archipelago intends to complete the sale as 
soon as possible following the satisfaction of these conditions. The 
Original Inbound Router Extension expires on January 31, 2006. Because 
of the uncertainties associated with the timing of the regulatory 
approvals, it is unclear whether Archipelago would be able to complete 
the sale by January 31, 2006. Therefore, the Exchange hereby proposes 
to further extend the Original Inbound Router Exception to the earlier 
of (x) the closing date of the Archipelago NYSE Merger and (y) March 
31, 2006, subject to the same conditions as applied to the Original 
Wave Exception described above. In requesting such extension, 
Archipelago and the Exchange note that the NASD is the ``Designated 
Examining Authority'' for ATS pursuant to Rule 17d-1 of the Act. 
Furthermore, during the interim period, ATS would continue to be 
covered by the scope of the 17d-2 Agreement, which provides for a plan 
concerning the regulatory responsibilities of NASD with respect to 
certain members of PCX, including ATS. Archipelago and the Exchange 
believe that this extension would be in keeping with the policy 
justifications for the Original Inbound Router Exception and the 
Original Inbound Router Extension outlined above, while allowing 
Archipelago to complete the sale of the ATS Inbound Router Function.
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    \44\ PCX clarified that the Inbound Router Clearing Function 
will be discontinued after the sale of the ATS Inbound Router 
Function subject only to the provision of transition services by 
Archipelago Securities to OES, and that PCX intends to file a 
proposed rule change requesting approval of such services. Telephone 
Conversation.
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    iii. TNT. Mr. Putnam has been working to eliminate the affiliation 
with TNT. Once he has reduced his interest in TNT, Mr. Putnam would 
also cease serving as a director of TAL.\45\ The Original TNT Extension 
expires on January 31, 2006. In light of the fact that the sale of Mr. 
Putnam's interest in TNT is unlikely to be consummated by January 31, 
2006, the Exchange hereby proposes to extend the Original TNT Exception 
to the earlier of (x) the closing date of the Archipelago NYSE Merger 
and (y) March 31, 2006. In requesting such extension, Archipelago and 
the Exchange note that the NASD is the ``Designated Examining 
Authority'' for TNT pursuant to Rule 17d-1 of the Act. Furthermore, 
during the interim period, TNT would continue to be covered by the 
scope of the 17d-2 Agreement, which provides for a plan concerning the 
regulatory responsibilities of NASD with respect to certain members of 
PCX, including TNT. Archipelago and the Exchange believe that this 
extension would be in keeping with the policy justifications for the 
Original TNT Exception and the Original TNT Extension outlined above, 
while allowing Mr. Putnam a reasonable amount of time to effectuate the 
actions necessary to eliminate the affiliation between TNT and 
Archipelago.
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    \45\ PCX clarified that Mr. Putnam would cease serving as a 
director of TAL once he has reduced his interest in TNT. Telephone 
Conversation.
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2. Statutory Basis
    The Exchange believes that the proposed rule change in this filing 
is consistent with Section 6(b) \46\ of the Act, in general, and 
furthers the objectives of Section 6(b)(1),\47\ in particular, 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 Section 
17(d) or 19(g)(2) of the Act) 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. The Exchange also believes that this filing 
furthers the objectives of Section 6(b)(5),\48\ 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 
principles 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.
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    \46\ 15 U.S.C. 78f(b).
    \47\ 15 U.S.C. 78f(b)(1).
    \48\ 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 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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
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, it has become 
effective pursuant to Section 19(b)(3)(A) \49\ of the Act and Rule 19b-
4(f)(6) thereunder.\50\ 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.
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    \49\ 15 U.S.C. 78s(b)(3)(A).
    \50\ 17 CFR 240.19b-4(f)(6). The Exchange provided the 
Commission with written notice of its intent to file this proposed 
rule change on January 23, 2006.

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[[Page 6535]]

    PCX has asked the Commission to waive the 30-day operative delay. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Because the Original Wave Extension, the Original Inbound Router 
Extension and the Original TNT Extension each expire on January 31, 
2006, such waiver will allow each of Wave, ATS (with respect to the ATS 
Inbound Router Function), Archipelago Securities (with respect to the 
Inbound Router Clearing Function), and TNT to remain in compliance with 
the voting and ownership limitations in the PCXH Certificate of 
Incorporation. The Commission notes that the Exchange has represented 
that Archipelago entered into definitive agreements for the sale of 
Wave on January 19, 2006 and for the sale of the ATS Inbound Router 
Function on December 23, 2005. The time period for each of the 
extensions is short and will terminate on the earlier of (1) the 
closing date of the Archipelago NYSE Merger and (2) March 31, 2006. In 
addition, the Commission notes that the following protections are and 
will continue to be in place during the interim period: (i) Wave, ATS, 
and TNT are members of the NASD as well as PCX, (ii) the NASD is the 
Designated Examining Authority for Wave, ATS, and TNT pursuant to Rule 
17d-1 of the Act, and (iii) Wave, ATS, and TNT are, and will continue 
to be during the extension, covered by the scope of the 17d-2 
Agreement. Further, Archipelago's ownership and operation of Wave, the 
ATS Inbound Router Function of ATS, and the Inbound Router Clearing 
Function of Archipelago Securities will continue to be subject to the 
same conditions as the Original Wave Exception and the Original Inbound 
Router Exception, as described above and as approved by the Commission 
in the SEC Order.
    For these reasons, the Commission designates the proposal to be 
effective and operative upon filing with the Commission.\51\
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    \51\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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-2006-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-PCX-2006-04. 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 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-2006-04 
and should be submitted on or before March 1, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\52\
Nancy M. Morris,
Secretary.
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    \52\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-1730 Filed 2-7-06; 8:45 am]
BILLING CODE 8010-01-P