Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Requiring Archipelago Securities, L.L.C. To Enter Two-Sided Quotes, 11277-11280 [E6-3094]

Download as PDF Federal Register / Vol. 71, No. 43 / Monday, March 6, 2006 / Notices inappropriate influences of a group of related OTP Holders or ETP Holders. D. SIP Registration Section 11A(b)(1) of the Act 63 provides for the registration with the Commission of a securities information processor (‘‘SIP’’) 64 that is acting as an exclusive processor.65 Because ArcaEx engages on an exclusive basis on behalf of the Exchange in collecting, processing, or preparing for distribution or publication information with respect to transactions or quotations on or effected or made by means of a facility of the Exchange, it is an exclusive processor that is required to register pursuant to Section 11A(b) of the Act.66 Section 11A(b)(1) of the Act 67 provides that the Commission may, by rule or order, upon its own motion or upon application by a SIP, conditionally or unconditionally exempt any SIP from any provision of Section 11A of the Act or the rules or regulation thereunder, if the Commission finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of Section 11A of the Act, including the maintenance of fair and orderly markets in securities and the removal of impediments to and perfection of the mechanism of a national market system.68 The Commission has determined to grant ArcaEx a temporary exemption from registration under Section 11A(b)(1) of the Act and Rule 609 thereunder for a period of thirty (30) days from the date of closing of the Merger, while an application for registration or an application for an exemption pursuant to Section 11A(b)(1) of the Act and Rule 609 thereunder is prepared.69 The U.S.C. 78k–1(b)(1). Section 3(a)(22)(A) of the Act, 15 U.S.C. 78c(a)(22)(A), for the definition of a SIP. A SRO is explicitly excluded from the definition of a SIP. 65 Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), defines an exclusive processor. Rule 609 under the Act, 17 CFR 242.609, requires that the registration of a SIP be on Form SIP, 17 CFR 249.1001. 66 15 U.S.C. 78k–1(b)(1). A SRO that is an exclusive processor is exempt from registration under Section 11A(b)(1) of the Act because it is excluded from designation as a SIP. 67 15 U.S.C. 78k–1(b)(1). 68 15 U.S.C. 78k–1(b)(1). See also Rule 609(c), 17 CFR 242.609(c). 69 See Securities Exchange Act Release No. 12079 (February 6, 1976) (order granting temporary exemption from SIP registration for Nasdaq for (1) a period of 30 days following the consummation of the sale of the Nasdaq system to the NASD and the assignment of the NASD’s rights in such purchase to Nasdaq, a subsidiary of the NASD and (2) an additional period of ninety (90) days following the day of publication of notice of filing of an application for registration or exemption from registration, if such application is received within Commission also has determined to grant a conditional continuation of the 30-day temporary exemption from registration of ArcaEx, conditioned upon its filing of an application for registration or application for an exemption from registration within the 30-day time period. Such continuation shall continue for a period of 90 days following the end of the 30-day period and will afford interested persons an opportunity to submit written comments concerning the application filed with the Commission.70 ArcaEx currently operates the equities trading facility of PCX and is regulated as a facility of PCX.71 The Commission therefore finds that such temporary exemptions are consistent with the public interest, the protection of investors, and the purposes of Section 11A of the Act. The exemptions are for a limited period of time during which the Commission will have regulatory authority over ArcaEx. III. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,72 that the proposed rule change (SR–PCX–2005– 134), as amended, is approved and Amendment No. 2 is approved on an accelerated basis. It is therefore further ordered, pursuant to Section 11A(b)(1) of the Act,73 that ArcaEx shall be exempt from registration as a securities information processor for a period of thirty (30) days following the date of closing of the Merger. It is therefore further ordered, pursuant to Section 11A(b)(1) of the Act,74 that upon the filing by ArcaEx of an application for registration or an exemption from registration as a securities information processor within 63 15 hsrobinson on PROD1PC70 with NOTICES 64 See VerDate Aug<31>2005 14:30 Mar 03, 2006 Jkt 208001 the original 30 days). See also Securities Exchange Act Release Nos. 13278 (February 17, 1977) (granting Bradford National Clearing Corporation, which was to perform SIP functions for the Pacific Exchange, a 90-day temporary exemption from registration as a SIP pending Commission determination of Bradford’s application for a permanent exemption, such 90-day period to begin from the consummation of the agreement calling for Bradford’s assumption of the SIP services) and 27957 (April 27, 1990), 55 FR 19140 (May 8, 1990) (granting the NASD a 90-day temporary exemption from registration of its subsidiary, Market Services, Inc., which was to operate the NASD’s PORTAL market, as a SIP pending Commission review of its application for registration filed with the Commission). 70 Publication of notice of the filing of an application for registration is required by Section 11A(b)(3) of the Act, 15 U.S.C. 78k–1(b)(3). 71 See Securities Exchange Act Release No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001). 72 15 U.S.C. 78s(b)(2). 73 15 U.S.C. 78k–1(b)(1). 74 Id. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 11277 the 30-day period prescribed above, ArcaEx shall be exempt from registration as a securities information processor for an additional period of ninety (90) days following the end of the original 30-day period. By the Commission (Chairman Cox and Commissioners Glassman, Atkins, Campos, and Nazareth). Nancy M. Morris, Secretary. [FR Doc. E6–3093 Filed 3–3–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53370; File No. SR–PCX– 2006–11] Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Requiring Archipelago Securities, L.L.C. To Enter Two-Sided Quotes February 24, 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 February 9, 2006, the Pacific Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’), through its wholly-owned subsidiary PCX Equities, Inc. (‘‘PCXE’’), filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is approving the proposal on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange, through PCXE, proposes to amend its rules governing the Archipelago Exchange (‘‘ArcaEx’’), the equities trading facility of PCXE. The Exchange proposes to amend PCXE Rule 7.58 to specify that its brokerdealer facility, Archipelago Securities, L.L.C. (‘‘Arca Securities’’), would be responsible for entering two-sided orders in all stocks eligible for trading on ArcaEx for purposes of fulfilling the two-sided quote requirement found in section 6(a)(i)(B) of the Intermarket Trading System Plan (‘‘ITS Plan’’). Further, the Exchange proposes to expand certain exceptions recently 1 15 2 17 U.S.C 78s(b)(1). CFR 240.19b–4. E:\FR\FM\06MRN1.SGM 06MRN1 11278 Federal Register / Vol. 71, No. 43 / Monday, March 6, 2006 / Notices granted by the Commission to the ownership and voting restrictions in the PCX Holdings, Inc. (‘‘PCXH’’) Certificate of Incorporation to encompass the proposed new functionality. The text of the proposed rule change appears below. Additions are in italics. Deleted items are in [brackets]. * * * * * PCX Equities, Inc. Rule 7 Rule 7.58 [Reserved.] Compliance with Two-Sided Quote Requirement in ITS Plan. Archipelago Securities, L.L.C. will enter two-sided orders in all stocks eligible for trading on the Archipelago Exchange for purposes of fulfilling the two-sided quote requirement found in section 6(a)(i)(B) of the ITS Plan. The quote parameters for these purposes will be buy orders priced at $0.01 and sell orders priced at two times the previous day’s close for the particular security, or, if required due to technology considerations, orders would be priced as near as possible to the parameters above. * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change. The text of these statements may be examined at the places specified in Item III below, and is set forth in sections A, B, and C below. hsrobinson on PROD1PC70 with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to add new language to PCXE Rule 7.58 to specify that the broker-dealer facility of ArcaEx, Arca Securities, would be responsible for entering two-sided orders in all stocks eligible for trading on ArcaEx for purposes of fulfilling the quoting requirements found in section 6(a)(i)(B) of the ITS Plan. Section 6(a) of the ITS Plan states that ‘‘a member in any Exchange Market may trade any System security provided that continuous twosided quotations in such security are required to be, and are, furnished under section 6(a)(i)(B) by or on behalf of such Exchange Participant to other Participants.’’ In the past, another broker-dealer affiliate of ArcaEx, Wave Securities, L.L.C. (‘‘Wave’’), performed this VerDate Aug<31>2005 14:30 Mar 03, 2006 Jkt 208001 function.3 The Exchange has determined that transferring this responsibility to the broker-dealer Arca Securities, a facility of the Exchange, is appropriate at this time, given that Wave will no longer be owned by Archipelago Holdings, Inc. (‘‘Archipelago’’). To accommodate the two-sided quote requirement, Arca Securities would enter buy and sell orders in every listed symbol eligible for trading at the start of core trading on ArcaEx.4 All buy orders would be priced at $0.01, and all sell orders would be priced at two times the previous day’s close for the particular security, or, if required due to technology considerations, orders would be priced as near as possible to the parameters above. The orders would be entered with a time in force during the core trading session on ArcaEx and, by their terms, would expire at the close of the core trading session. Should an execution result from these two-sided orders, Arca Securities, an ETP Holder on ArcaEx, would honor trades at the price of the orders entered.5 Arca Securities is a wholly-owned subsidiary of Archipelago, which recently acquired PCXH.6 In the rule filings relating to this acquisition, the Exchange requested that the Commission provide certain exceptions to the ownership and voting limitations contained in the Certificate of Incorporation of PCXH to allow any ‘‘Related Person’’ of Archipelago who is a prohibited person not covered by the definition of permitted person (as such terms are defined by the PCXH Certificate of Incorporation) to exceed certain voting and ownership restrictions in PCXH’s Certificate of Incorporation for certain time periods, as approved by the Commission. The Commission granted Arca Securities one such exception to the PCXH ownership and voting restrictions with respect to its Outbound Router 7 functionality, on 3 See letter from David E. Rosedahl, Pacific Exchange, Inc., to John Polise, Division of Market Regulation (‘‘Division’’), Commission, regarding ArcaEx’s compliance with the two-sided quote requirements of the ITS Plan, dated July 31, 2002. 4 See PCXE Rule 7.34. 5 Any trade occurring on the Exchange with an obvious error in terms, including price, is subject to the Clearly Erroneous Policy set forth in PCXE Rule 7.10. The Exchange represents that it would apply the procedures set forth in Rule 7.10 in an even-handed and fair manner in the event a transaction involving Arca Securities comes before it under the procedures set forth in the rule. 6 See Securities Exchange Act Release No. 52497 (September 22, 2005), 70 FR 56949 (September 29, 2005) (SR–PCX–2005–90) (order granting approval of proposed rule changes in relation to the acquisition of PCXH by Archipelago) (‘‘Arca-PCX Approval Order’’). 7 In the Arca-PCX Approval Order, the Commission defined the Outbound Router function PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 the condition that it would not undertake any activities other than those set forth in the Arca-PCX Approval order, unless such activity was first approved by the Commission.8 Because this filing requests approval for new Arca Securities functionality, i.e., permission to enter two-sided orders in all stocks eligible for trading on ArcaEx for purposes of section 6(a)(i)(B) of the ITS Plan, the Exchange has requested that the Commission also approve an expansion of the exception to the PCXH ownership and voting restrictions to incorporate the proposed functionality and extend the exception from the PCXH ownership and voting restrictions to this new function of Arca Securities. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act 9 in general and furthers the objectives of section 6(b)(5),10 in particular, in that it is 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 transaction in securities, and to remove impediments to and perfect the mechanisms of a free and open market and a national market system. 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. Further, the Exchange believes the proposed functionality will not create a condition of unfair competition with respect to its affiliate, Arca Securities, and other equity trading permit holders because the proposed quoting parameters are designed to avoid order interaction. The orders entered by Arca Securities under the proposed functionality will not be intended to result in transactions but rather will be entered for the sole purpose of satisfying ITS Plan requirements to provide continuous two-sided quotations. The Exchange of Arca Securities as follows: ‘‘an optional routing service for ArcaEx to route orders to other securities exchanges, facilities of securities exchanges, automated trading systems, electronic communications networks or other brokers or dealers from ArcaEx in compliance with PCXE Rules.’’ See Arca-PCX Approval Order at 56952. 8 The Commission initially granted the exception with respect to Arca Securities’ Outbound Router functionality. See Arca-PCX Approval Order, at 56952–56953 and 56958–56959. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 71, No. 43 / Monday, March 6, 2006 / Notices anticipates that the non-competitively priced orders placed by Arca Securities for these purposes would be filled only in exceptional circumstances and therefore the Exchange believes there would be a very remote potential for a conflict of interest between the Exchange’s self-regulatory obligations and its commercial interests. For these reasons, the Exchange believes it is appropriate and consistent with the Act to permit Arca Securities to undertake the proposed new functionality. 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–2006–11 and should be submitted on or before March 27, 2006. IV. Commission’s Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities III. Solicitation of Comments exchange.11 In particular, the Interested persons are invited to Commission finds that the proposed submit written data, views and rule change is consistent with section arguments concerning the foregoing, 6(b)(5) of the Act,12 which requires that including whether the proposed rule an exchange have rules designed, among change is consistent with the Act. other things, to promote just and equitable principles of trade, to remove Comments may be submitted by any of impediments to and perfect the the following methods: mechanism of a free and open market Electronic Comments and a national market system, and, in • Use the Commission’s Internet general, to protect investors and the comment form (https://www.sec.gov/ public interest. rules/sro.shtml); or Under the proposal, Arca Securities, • Send an e-mail to rulean affiliated broker-dealer of the comments@sec.gov. Please include File Exchange, would maintain two-sided Number SR–PCX–2006–11 on the quotes in all stocks eligible for trading subject line. on ArcaEx for purposes of fulfilling the two-sided quote requirement found in Paper Comments section 6(a)(i)(B) of the ITS Plan. The • Send paper comments in triplicate performance of this functionality by to Nancy M. Morris, Secretary, Arca Securities, without Commission Securities and Exchange Commission, approval, would, however, cause Arca Station Place, 100 F Street, NE., Securities to violate ownership and Washington, DC 20549–1090. voting restrictions set forth in the PCXH All submissions should refer to File Certificate of Incorporation.13 Number SR–PCX–2006–11. This file Arca Securities, as a wholly-owned number should be included on the subsidiary of Archipelago, is a ‘‘Related subject line if e-mail is used. To help the Person’’ 14 of Archipelago and an ETP Holder. Consequently, Archipelago’s Commission process and review your comments more efficiently, please use 11 In approving this rule change, the Commission only one method. The Commission will post all comments on the Commission’s notes that it has considered the proposed rule’s impact on efficiency, competition, and capital Internet Web site (https://www.sec.gov/ formation. See 15 U.S.C. 78c(f). 12 15 U.S.C. 78f(b)(5). rules/sro.shtml). Copies of the 13 See PCXH Certificate of Incorporation, Article submission, all subsequent Nine. See also Arca-PCX Approval Order. amendments, all written statements 14 The term ‘‘Related Person,’’ as defined in the with respect to the proposed rule PCXH Certificate of Incorporation, means (i) with change that are filed with the respect to any person, all ‘‘affiliates’’ of such person Commission, and all written (as such terms are defined in Rule 12b–2 under the Act); (ii) with respect to any person constituting a communications relating to the trading permit holder of PCX or an equities trading proposed rule change between the permit holder of PCXE, any broker dealer with Commission and any person, other than which such holder is assoicated; and (iii) any two those that may be withheld from the or more persons that have any agreement, arrangement or understanding (whether or not in public in accordance with the writing ) to act together for the purpose of provisions of 5 U.S.C. 552, will be acquiring, voting, holding or disposing of shares of available for inspection and copying in the capital stock of PCXH. PCXH Certificate of Incorporation, Article Nine, Section 1(b). the Commission’s Public Reference hsrobinson on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 14:30 Mar 03, 2006 Jkt 208001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 11279 ownership of Arca Securities would cause Arca Securities to exceed the voting and ownership limitations imposed by Article Nine of the PCXH Certificate of Incorporation, absent an exception. The Commission approved such an exception in the Arca-PCX Approval Order. The exception is, however, limited in scope to allow Arca Securities to provide an optional outbound routing service for ArcaEx and does not include the functionality contained in this proposal.15 PCX has requested that the Commission approve an expansion of the exception to the PCXH ownership and voting restrictions to allow Arca Securities to enter twosided quotes on ArcaEx for the purpose of complying with section 6(a)(i)(B) of the ITS Plan. The Commission believes that extending the exception from the PCXH voting and ownership restrictions to this new function of Arca Securities is consistent with section 6(b)(5) of the Act. Accordingly, Arca Securities may provide continuous two-sided quotes on ArcaEx for the purpose of complying with the ITS Plan. This exception is subject to the same conditions described in the Arca-PCX Approval Order.16 Specifically, Arca Securities is, and will continue to be, operated and regulated as a facility of PCX and another selfregulatory organization (NASD) has, and will continue to have, primary regulatory responsibility for Arca Securities pursuant to Rules 17d–1 and 17d–2 under the Act. Pursuant to section 19(b)(2) of the Act,17 the Commission may not approve a proposed rule change prior to the thirtieth day after the date of publication of the notice thereof, unless the Commission finds good cause for so finding. The Commission hereby finds good cause for approving this proposed rule change prior to the thirtieth day after the publication of notice thereof in the Federal Register. The Commission notes that the Exchange has represented that Archipelago entered into a definitive agreement to sell its whollyowned subsidiary, Wave, the entity which currently performs the functionality which is the subject of this proposal on behalf of the Exchange.18 Further, the Commission notes that Archipelago may, among other things, continue to own Wave until the earlier of (i) the closing date of the merger of Archipelago and the New York Stock 15 See Arca-PCX Order at 56958–56959. See also supra notes 7 and 8 and accompanying text. 16 See Arca-PCXA Order at 56958–56959. 17 15 U.S.C. 78s(b)(2). 18 See Securities Exchange Act Release No. 53202 (January 31, 2006), 71 FR 6530 (February 8, 2006) (SR–PCX–2006–04),at 6535. E:\FR\FM\06MRN1.SGM 06MRN1 11280 Federal Register / Vol. 71, No. 43 / Monday, March 6, 2006 / Notices Exchange, Inc., or (ii) March 31, 2006.19 Because of the timing of these transactions, the Commission believes there is good cause for granting accelerated approval, in order to ensure that the Exchange is able to comply with the ITS Plan, without interruption, after Wave is sold. V. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR–PCX–2006– 11), is hereby approved on an accelerated basis.20 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.21 Nancy M. Morris, Secretary. [FR Doc. E6–3094 Filed 3–3–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53384; File No. SR–PCX– 2005–135] Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Approving Proposed Rule Change Relating to Exposure of Orders in the PCX Plus Crossing Mechanism February 27, 2006. On December 22, 2005, the Pacific Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’), filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to reduce the exposure period in the Crossing Mechanism of the PCX Plus System (‘‘PCX Plus’’ or ‘‘System’’) from 10 seconds to 3 seconds. The proposed rule change was published for comment in the Federal Register on January 23, 2006.3 The Commission received no comments on the proposal. This order approves the proposed rule change. PCX rules provide that a PCX Broker may not facilitate orders or cross two orders, using the System’s Crossing Mechanism, unless it enters into the System the terms of each order that is to be included as part of a Cross Order,4 hsrobinson on PROD1PC70 with NOTICES 19 See id., at 6365. 20 15 U.S.C. 78s(b)(2). 21 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 53133 (January 17, 2006), 71 FR 3598. 4 See PCX Rule 6.76(c)(1)(A), which defines ‘‘Cross Order’’ for the purposes of PCX Rule 6.76(c) as ‘‘two orders with instructions to match the VerDate Aug<31>2005 14:30 Mar 03, 2006 Jkt 208001 pursuant to PCX Rule 6.76(c)(2)(A). Both facilitation crosses and nonfacilitation crosses are executed in the same manner in PCX Plus. Upon entry into PCX Plus, the System will evaluate the terms of the Cross Order and, after accepting the Cross Order, will execute the cross in accordance with PCX Rule 6.76(c)(2)(B). Among other conditions, Rule 6.76(c)(2)(B) currently requires a 10-second exposure period in which OTP Holders and OTP Firms may enter orders to trade against the side of the Cross Order that has been designated as the Exposed Order.5 The Exchange proposes to shorten the duration of this exposure period, as set forth in PCX Rule 6.76(c)(2)(B)(i)(a) and PCX Rule 6.76(c)(2)(B)(ii)(b),6 from 10 seconds to 3 seconds. The Exchange represents that all market participants on the PCX utilize electronic trading systems that monitor all updates to the PCX market, including changes resulting from orders being entered into the Crossing Mechanism, and can automatically respond based upon pre-set parameters. After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of Section 6(b) of the Act 7 and the rules and regulations thereunder applicable to a national securities exchange,8 and in particular with Section 6(b)(5) of the Act.9 The Commission believes that, in the electronic environment of PCX Plus, reducing the exposure period to 3 seconds could facilitate the prompt execution of orders, while providing participants in PCX Plus with an adequate opportunity to compete for those orders. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,10 that the proposed rule change (SR–PCX–2005– 135) is approved. identified buy-side with the identified sell-side at a specified price (the ‘‘Cross Price’’).’’ 5 See PCX Rule 6.76(c)(1)(D), which defines ‘‘Exposed Order’’ as follows: ‘‘the buy or sell side of a Cross Order that has been designated by a PCX Broker as the side to be exposed to the market and that is eligible for execution against all trading interest. Public Customer orders will always be deemed to be the Exposed Order in a Cross Order. In the case of a Cross Order involving a noncustomer on both the buy side and sell side, the PCX Broker must designate one side of the Cross Order as the Exposed Order.’’ 6 PCX Rules 6.76(c)(2)(B)(i) and 6.76(c)(2)(B)(ii) govern the execution of Cross Orders when the Cross Price is between the Best Bid and Offer (‘‘BBO’’) and when it is at the BBO, respectively. 7 15 U.S.C. 78f(b). 8 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78s(b)(2). PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11 Nancy M. Morris, Secretary. [FR Doc. E6–3113 Filed 3–3–06; 8:45 am] BILLING CODE 8010–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10368 and #10369] California Disaster Number CA–00029 U.S. Small Business Administration. ACTION: Amendment 1. AGENCY: SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of California (FEMA–1628–DR) , dated 02/03/2006. Incident: Severe storms, flooding, mudslides, and landslides. Incident Period: 12/17/2005 through 01/03/2006. Effective Date: 02/23/2006. Physical Loan Application Deadline Date: 04/04/2006. EIDL Loan Application Deadline Date: 11/03/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416 SUPPLEMENTARY INFORMATION: The notice of the Presidential disaster declaration for the State of California, dated 02/03/ 2006, is hereby amended to include the following areas as adversely affected by the disaster: Primary Counties: El Dorado, Nevada, and Shasta. Contiguous Counties: California: Apline, Lassen, Plumas, Sierra, and Yuga. Nevada: Douglas and Washore. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Cheri L. Cannon, Acting Associate Administrator for Disaster Assistance. [FR Doc. E6–3107 Filed 3–3–06; 8:45 am] BILLING CODE 8025–01–P 11 17 E:\FR\FM\06MRN1.SGM CFR 200.30–3(a)(12). 06MRN1

Agencies

[Federal Register Volume 71, Number 43 (Monday, March 6, 2006)]
[Notices]
[Pages 11277-11280]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-3094]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53370; File No. SR-PCX-2006-11]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
Requiring Archipelago Securities, L.L.C. To Enter Two-Sided Quotes

February 24, 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 February 9, 2006, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly-owned subsidiary PCX Equities, Inc. 
(``PCXE''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposal on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, through PCXE, proposes to amend its rules governing 
the Archipelago Exchange (``ArcaEx''), the equities trading facility of 
PCXE. The Exchange proposes to amend PCXE Rule 7.58 to specify that its 
broker-dealer facility, Archipelago Securities, L.L.C. (``Arca 
Securities''), would be responsible for entering two-sided orders in 
all stocks eligible for trading on ArcaEx for purposes of fulfilling 
the two-sided quote requirement found in section 6(a)(i)(B) of the 
Intermarket Trading System Plan (``ITS Plan''). Further, the Exchange 
proposes to expand certain exceptions recently

[[Page 11278]]

granted by the Commission to the ownership and voting restrictions in 
the PCX Holdings, Inc. (``PCXH'') Certificate of Incorporation to 
encompass the proposed new functionality.
    The text of the proposed rule change appears below. Additions are 
in italics. Deleted items are in [brackets].
* * * * *

PCX Equities, Inc.

Rule 7
    Rule 7.58 [Reserved.] Compliance with Two-Sided Quote Requirement 
in ITS Plan. Archipelago Securities, L.L.C. will enter two-sided orders 
in all stocks eligible for trading on the Archipelago Exchange for 
purposes of fulfilling the two-sided quote requirement found in section 
6(a)(i)(B) of the ITS Plan. The quote parameters for these purposes 
will be buy orders priced at $0.01 and sell orders priced at two times 
the previous day's close for the particular security, or, if required 
due to technology considerations, orders would be priced as near as 
possible to the parameters above.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below, and is set forth in sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add new language to PCXE Rule 7.58 to 
specify that the broker-dealer facility of ArcaEx, Arca Securities, 
would be responsible for entering two-sided orders in all stocks 
eligible for trading on ArcaEx for purposes of fulfilling the quoting 
requirements found in section 6(a)(i)(B) of the ITS Plan. Section 6(a) 
of the ITS Plan states that ``a member in any Exchange Market may trade 
any System security provided that continuous two-sided quotations in 
such security are required to be, and are, furnished under section 
6(a)(i)(B) by or on behalf of such Exchange Participant to other 
Participants.''
    In the past, another broker-dealer affiliate of ArcaEx, Wave 
Securities, L.L.C. (``Wave''), performed this function.\3\ The Exchange 
has determined that transferring this responsibility to the broker-
dealer Arca Securities, a facility of the Exchange, is appropriate at 
this time, given that Wave will no longer be owned by Archipelago 
Holdings, Inc. (``Archipelago''). To accommodate the two-sided quote 
requirement, Arca Securities would enter buy and sell orders in every 
listed symbol eligible for trading at the start of core trading on 
ArcaEx.\4\ All buy orders would be priced at $0.01, and all sell orders 
would be priced at two times the previous day's close for the 
particular security, or, if required due to technology considerations, 
orders would be priced as near as possible to the parameters above. The 
orders would be entered with a time in force during the core trading 
session on ArcaEx and, by their terms, would expire at the close of the 
core trading session. Should an execution result from these two-sided 
orders, Arca Securities, an ETP Holder on ArcaEx, would honor trades at 
the price of the orders entered.\5\
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    \3\ See letter from David E. Rosedahl, Pacific Exchange, Inc., 
to John Polise, Division of Market Regulation (``Division''), 
Commission, regarding ArcaEx's compliance with the two-sided quote 
requirements of the ITS Plan, dated July 31, 2002.
    \4\ See PCXE Rule 7.34.
    \5\ Any trade occurring on the Exchange with an obvious error in 
terms, including price, is subject to the Clearly Erroneous Policy 
set forth in PCXE Rule 7.10. The Exchange represents that it would 
apply the procedures set forth in Rule 7.10 in an even-handed and 
fair manner in the event a transaction involving Arca Securities 
comes before it under the procedures set forth in the rule.
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    Arca Securities is a wholly-owned subsidiary of Archipelago, which 
recently acquired PCXH.\6\ In the rule filings relating to this 
acquisition, the Exchange requested that the Commission provide certain 
exceptions to the ownership and voting limitations contained in the 
Certificate of Incorporation of PCXH to allow any ``Related Person'' of 
Archipelago who is a prohibited person not covered by the definition of 
permitted person (as such terms are defined by the PCXH Certificate of 
Incorporation) to exceed certain voting and ownership restrictions in 
PCXH's Certificate of Incorporation for certain time periods, as 
approved by the Commission. The Commission granted Arca Securities one 
such exception to the PCXH ownership and voting restrictions with 
respect to its Outbound Router \7\ functionality, on the condition that 
it would not undertake any activities other than those set forth in the 
Arca-PCX Approval order, unless such activity was first approved by the 
Commission.\8\
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    \6\ See Securities Exchange Act Release No. 52497 (September 22, 
2005), 70 FR 56949 (September 29, 2005) (SR-PCX-2005-90) (order 
granting approval of proposed rule changes in relation to the 
acquisition of PCXH by Archipelago) (``Arca-PCX Approval Order'').
    \7\ In the Arca-PCX Approval Order, the Commission defined the 
Outbound Router function of Arca Securities as follows: ``an 
optional routing service for ArcaEx to route orders to other 
securities exchanges, facilities of securities exchanges, automated 
trading systems, electronic communications networks or other brokers 
or dealers from ArcaEx in compliance with PCXE Rules.'' See Arca-PCX 
Approval Order at 56952.
    \8\ The Commission initially granted the exception with respect 
to Arca Securities' Outbound Router functionality. See Arca-PCX 
Approval Order, at 56952-56953 and 56958-56959.
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    Because this filing requests approval for new Arca Securities 
functionality, i.e., permission to enter two-sided orders in all stocks 
eligible for trading on ArcaEx for purposes of section 6(a)(i)(B) of 
the ITS Plan, the Exchange has requested that the Commission also 
approve an expansion of the exception to the PCXH ownership and voting 
restrictions to incorporate the proposed functionality and extend the 
exception from the PCXH ownership and voting restrictions to this new 
function of Arca Securities.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \9\ in general and furthers the objectives 
of section 6(b)(5),\10\ in particular, in that it is 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 transaction in 
securities, and to remove impediments to and perfect the mechanisms of 
a free and open market and a national market system.

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. Further, the Exchange 
believes the proposed functionality will not create a condition of 
unfair competition with respect to its affiliate, Arca Securities, and 
other equity trading permit holders because the proposed quoting 
parameters are designed to avoid order interaction. The orders entered 
by Arca Securities under the proposed functionality will not be 
intended to result in transactions but rather will be entered for the 
sole purpose of satisfying ITS Plan requirements to provide continuous 
two-sided quotations. The Exchange

[[Page 11279]]

anticipates that the non-competitively priced orders placed by Arca 
Securities for these purposes would be filled only in exceptional 
circumstances and therefore the Exchange believes there would be a very 
remote potential for a conflict of interest between the Exchange's 
self-regulatory obligations and its commercial interests. For these 
reasons, the Exchange believes it is appropriate and consistent with 
the Act to permit Arca Securities to undertake the proposed new 
functionality.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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. 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 (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-PCX-2006-11 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 20549-1090.

All submissions should refer to File Number SR-PCX-2006-11. 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 (https://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-2006-11 and should be submitted on or before March 
27, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\11\ In 
particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\12\ which requires that an 
exchange have rules designed, among other things, to promote just and 
equitable principles of trade, 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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    \11\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, Arca Securities, an affiliated broker-dealer of 
the Exchange, would maintain two-sided quotes in all stocks eligible 
for trading on ArcaEx for purposes of fulfilling the two-sided quote 
requirement found in section 6(a)(i)(B) of the ITS Plan. The 
performance of this functionality by Arca Securities, without 
Commission approval, would, however, cause Arca Securities to violate 
ownership and voting restrictions set forth in the PCXH Certificate of 
Incorporation.\13\
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    \13\ See PCXH Certificate of Incorporation, Article Nine. See 
also Arca-PCX Approval Order.
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    Arca Securities, as a wholly-owned subsidiary of Archipelago, is a 
``Related Person'' \14\ of Archipelago and an ETP Holder. Consequently, 
Archipelago's ownership of Arca Securities would cause Arca Securities 
to exceed the voting and ownership limitations imposed by Article Nine 
of the PCXH Certificate of Incorporation, absent an exception. The 
Commission approved such an exception in the Arca-PCX Approval Order. 
The exception is, however, limited in scope to allow Arca Securities to 
provide an optional outbound routing service for ArcaEx and does not 
include the functionality contained in this proposal.\15\ PCX has 
requested that the Commission approve an expansion of the exception to 
the PCXH ownership and voting restrictions to allow Arca Securities to 
enter two-sided quotes on ArcaEx for the purpose of complying with 
section 6(a)(i)(B) of the ITS Plan.
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    \14\ The term ``Related Person,'' as defined in the PCXH 
Certificate of Incorporation, means (i) with respect to any person, 
all ``affiliates'' 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 assoicated; 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).
    \15\ See Arca-PCX Order at 56958-56959. See also supra notes 7 
and 8 and accompanying text.
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    The Commission believes that extending the exception from the PCXH 
voting and ownership restrictions to this new function of Arca 
Securities is consistent with section 6(b)(5) of the Act. Accordingly, 
Arca Securities may provide continuous two-sided quotes on ArcaEx for 
the purpose of complying with the ITS Plan. This exception is subject 
to the same conditions described in the Arca-PCX Approval Order.\16\ 
Specifically, Arca Securities is, and will continue to be, operated and 
regulated as a facility of PCX and another self-regulatory organization 
(NASD) has, and will continue to have, primary regulatory 
responsibility for Arca Securities pursuant to Rules 17d-1 and 17d-2 
under the Act.
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    \16\ See Arca-PCXA Order at 56958-56959.
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    Pursuant to section 19(b)(2) of the Act,\17\ the Commission may not 
approve a proposed rule change prior to the thirtieth day after the 
date of publication of the notice thereof, unless the Commission finds 
good cause for so finding. The Commission hereby finds good cause for 
approving this proposed rule change prior to the thirtieth day after 
the publication of notice thereof in the Federal Register. The 
Commission notes that the Exchange has represented that Archipelago 
entered into a definitive agreement to sell its wholly-owned 
subsidiary, Wave, the entity which currently performs the functionality 
which is the subject of this proposal on behalf of the Exchange.\18\ 
Further, the Commission notes that Archipelago may, among other things, 
continue to own Wave until the earlier of (i) the closing date of the 
merger of Archipelago and the New York Stock

[[Page 11280]]

Exchange, Inc., or (ii) March 31, 2006.\19\ Because of the timing of 
these transactions, the Commission believes there is good cause for 
granting accelerated approval, in order to ensure that the Exchange is 
able to comply with the ITS Plan, without interruption, after Wave is 
sold.
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ See Securities Exchange Act Release No. 53202 (January 31, 
2006), 71 FR 6530 (February 8, 2006) (SR-PCX-2006-04),at 6535.
    \19\ See id., at 6365.
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (SR-PCX-2006-11), is hereby approved on 
an accelerated basis.\20\
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-3094 Filed 3-3-06; 8:45 am]
BILLING CODE 8010-01-P
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