Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to the Certificate of Incorporation of PCX Holdings, Inc., 12413-12419 [E6-3437]
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Federal Register / Vol. 71, No. 47 / Friday, March 10, 2006 / Notices
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/delist.shtml).
Comments are also available for public
inspection and copying in the
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The Commission, based on the
information submitted to it, will issue
an order granting the application after
the date mentioned above, unless the
Commission determines to order a
hearing on the matter.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.5
Nancy M. Morris,
Secretary.
[FR Doc. E6–3441 Filed 3–9–06; 8:45 am]
[File No. 500–1]
In the Matter of GMC Holding
Corporation; Order of Suspension of
Trading
dsatterwhite on PROD1PC65 with PROPOSAL
March 8, 2006.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of GMC
Holding Corporation (‘‘GMC’’), a nonreporting issuer, quoted on the Pink
Sheets under the ticker symbol GMCC,
because it is delinquent in its periodic
filing obligations under Section 13(a) of
the Securities Exchange Act of 1934,
and Rules 13a–1 and 13a–13
thereunder, and because of questions
regarding the accuracy of GMC’s
assertions to investors in company press
releases and on the Internet concerning,
among other things, the proposed sale of
the company’s alternative technology
referred to as REMAT.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company is
suspended for the period from 9:30 a.m.
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BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53411; File No. SR–PCX–
2006–21]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change Relating to
the Certificate of Incorporation of PCX
Holdings, Inc.
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 March 3,
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. 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.
SECURITIES AND EXCHANGE
COMMISSION
CFR 200.30–3(a)(1).
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. 06–2364 Filed 3–8–06; 12:27 pm]
March 3, 2006.
BILLING CODE 8010–01–P
5 17
e.s.t., March 8, 2006 through 11:59 p.m.
e.s.t., on March 21, 2006.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
PCX hereby submits to the
Commission a proposed rule change to
(x) 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’’) 3 and extended pursuant
to certain subsequent rule filings,4 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
11
15 U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 52497
(September 22, 2005), 70 FR 56949 (September 29,
2005) (the ‘‘SEC Order’’).
4 See Securities Exchange Act Release No. 53034
(December 28, 2005), 71 FR 636 (January 5, 2006)
(the ‘‘First Extension Notice’’) and Securities
Exchange Act Release No. 53202 (January 31, 2006),
71 FR 6530 (February 8, 2006) (the ‘‘Second
Extension Notice’’).
2 17
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12413
(ii) own and operate the ATS Inbound
Router Function (as defined below) of
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’’), in
each case until March 31, 2006, and (y)
to allow Archipelago Securities to
provide certain transition services to
Order Execution Services Holdings, Inc.
(‘‘OES’’) and, in each case of (x) and (y),
subject to the conditions set forth in this
proposed rule filing.
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 III 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, allelectronic stock market for the trading of
equity securities that operates as a
facility of PCX. 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 whollyowned subsidiary of Archipelago, with
PCXH being the surviving corporation
in the merger and becoming a whollyowned 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
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dsatterwhite on PROD1PC65 with PROPOSAL
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’’).5 The Original Rule Filing, as
amended by Amendment Nos. 1 and 2
thereto, was approved by the
Commission on September 22, 2005 6
and the amended PCXH Certificate of
Incorporation became effective on
September 26, 2005, upon the closing of
the PCXH Acquisition.
Article Nine of the PCXH Certificate
of Incorporation provides that no
Person,7 either alone or together with its
Related Persons,8 may own, directly or
indirectly, shares constituting more than
40% of the outstanding shares of any
class of PCXH capital stock,9 and that
no Person, either alone or together with
its Related Persons who is a trading
5 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).
6 See SEC Order, supra note 3.
7 ‘‘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).
8 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).
9 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).
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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.10 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.11 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.12
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.13 These exceptions to the
ownership and voting limitations,
however, shall not apply to any
‘‘Prohibited Persons,’’ 14 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) 15 or (ii) an ETP
Holder (as defined in the rules of
10 Id.,
11 Id.,
Article Nine, section 1(b)(ii).
Article Nine, section 1(c).
12 Id.
13 Id.,
Article Nine, section 4.
14 Id.
15 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).
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PCXE),16 unless such Person is also a
‘‘Permitted Person’’ under the PCXH
Certificate of Incorporation.17 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.18
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
16 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).
17 ‘‘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.
18 Id.
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Federal Register / Vol. 71, No. 47 / Friday, March 10, 2006 / Notices
facilities of PCX or PCXE, on the other
hand.19
The Commission approved PCX’s rule
proposal regarding Wave (the ‘‘Original
Wave Exception’’).20 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.21 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.22 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.23
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 24
dsatterwhite on PROD1PC65 with PROPOSAL
19 See
Original Rule Filing, supra note 5, at 36–
37, and Amendment No. 2 to the Original Rule
Filing (September 16, 2005) (‘‘Amendment No. 2’’),
at 4.
20 See SEC Order, supra note 3, at 56960.
21 Id. at 56959.
22 Id.
23 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.
24 Rule 17d–2 under the Act provides that any
two or more SROs may file with the Commission
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(the ‘‘17d–2 Agreement’’) and provides
for a plan concerning the regulatory
responsibilities of NASD with respect to
certain members of PCX, including
Wave.25
In accordance with the terms of the
Original Wave Exception, Archipelago
has been working to sell its ownership
interests in Wave. Due to uncertainties
in the timing of the negotiations
regarding the sale, on December 19,
2005, the Exchange submitted a
proposed rule filing (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.26 The extension took effect
immediately upon the filing of the
Original Extension Rule Filing.27 On
January 19, 2006, Archipelago entered
into a definitive agreement for the sale
of Wave to Merrill Lynch.28 The
definitive agreement conditions the sale
on the satisfaction of a number of
closing conditions, including the receipt
of certain regulatory approvals. Because
of uncertainties in the timing of the
regulatory approvals, on January 27,
2006, the Exchange submitted another
proposed rule filing (the ‘‘Second
Extension Rule Filing’’) requesting a
further extension of the Original Wave
Exception to the earlier of (x) the closing
date of the merger of Archipelago and
the New York Stock Exchange, Inc. (the
‘‘Archipelago NYSE Merger’’) 29 and (y)
March 31, 2006, subject to the same
conditions as applied to the Original
Wave Exception described above. 30 The
second extension took effect
immediately upon the filing of the
Second Extension Rule Filing.31
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.
25 See SEC Order, supra note 3, at 56959.
26 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), as amended by Amendment
No. 1 thereto (December 23, 2005).
27 See First Extension Notice, supra note 4, at 640.
28 Merrill Lynch is neither a Related Person of
Archipelago nor a ‘‘Prohibited Person’’ under the
PCXH Certificate of Incorporation.
29 The closing of the Archipelago NYSE Merger is
currently expected to occur on March 7, 2006.
30 See Pacific Exchange, Inc., Proposed Rule
Change Relating to the Certificate of Incorporation
of PCX Holdings, Inc., File No. SR–PCX–2006–04
(January 27, 2006).
31 See the Second Extension Notice, supra note 4,
at 6534.
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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 brokerdealer, 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
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
PCXH 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
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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.32 The Commission approved
PCX’s rule proposal regarding the ATS
Inbound Router Function and the
Inbound Router Clearing Function (the
‘‘Original Inbound Router
Exception’’).33 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.34 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.35 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.36 Furthermore, during
the interim period, ATS would continue
to be covered by the scope of the
17d–2 Agreement,37 which provides for
a plan concerning the regulatory
responsibilities of NASD with respect to
certain members of PCX, including
ATS.38
In accordance with the terms of the
Original Inbound Router Exception,
Archipelago has been working to sell its
ownership interest in the ATS Inbound
32 See
Amendment No. 2, supra note 19, at 5–6.
SEC Order, supra note 3, at 56960.
34 Id. at 56959.
35 Id.
36 Id. See supra note 23 for a description of Rule
17d–1 under the Act.
37 See supra note 24.
38 See SEC Order, supra note 3, at 56959.
33 See
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Router Function. Due to uncertainties in
the timing of the negotiations regarding
the sale and 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.39 The
extension took effect immediately upon
the filing of Amendment No. 1 to the
Original Extension Rule Filing.40 On
December 23, 2005, Archipelago entered
into a definitive agreement for the sale
of the ATS Inbound Router Function to
OES.41 The definitive agreement
conditions the sale on the satisfaction of
a number of closing conditions,
including the receipt of NASD and other
regulatory approvals. In light of the fact
that the sale of the ATS Inbound Router
Function was unlikely to be
consummated by January 31, 2006, in
the Second Extension Rule Filing, the
Exchange requested that the Original
Inbound Router Exception be further
extended 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 Inbound Router Exception
described above.42 The extension took
effect immediately upon the filing of the
Second Extension Rule Filing.43
d. TNT
TNT is a wholly-owned subsidiary of
TAL Financial Services, LLC (‘‘TAL’’)
and Mr. Putnam indirectly owns a 40%
interest in TAL. Accordingly, Mr.
Putnam indirectly owns in excess of 5%
of TNT. The management committee of
TAL performs on behalf of TNT the
functions usually associated with a
board of directors and executive
committee of a corporation. Mr. Putnam
is one of the five members of the TAL
management committee. 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 member of the
management committee of TAL, it falls
within the definition of ‘‘Prohibited
39 See the Original Extension Rule Filing, supra
note 26, at 13–14.
40 See the First Extension Notice, supra note 4, at
640.
41 OES is neither a Related Person of Archipelago
nor a ‘‘Prohibited Person’’ under the PCXH
Certificate of Incorporation.
42 See the Second Extension Rule Filing, supra
note 30, at 11–14.
43 See the Second Extension Notice, supra note 4,
at 6534.
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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’’).44 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.45
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, 2006.46 The
extension took effect immediately upon
the filing of Amendment No. 1 to the
Original Extension Rule Filing.47 In the
Second Extension Rule Filing, the
Exchange requested that the Original
TNT Exception be further extended to
the earlier of (x) the closing date of the
Archipelago NYSE Merger and (y)
March 31, 2006.48 The extension took
effect immediately upon the filing of the
Second Extension Rule Filing.49
e. Further Extensions of the Temporary
Exceptions
i. Wave
Since the execution of the definitive
agreement with Merrill Lynch regarding
the sale of Wave, Archipelago has been
working to complete the sale as soon as
possible upon satisfaction of the closing
conditions contemplated by the
agreement. It is unlikely that the sale
will be completed before the expected
closing date of the Archipelago NYSE
Merger because of the regulatory
approvals required in order to complete
44 See
SEC Order, supra note 3, at 56960–61.
at 56960.
46 See the Original Extension Rule Filing, supra
note 26, at 15–16.
47 See the First Extension Notice, supra note 4, at
640.
48 See the Second Extension Rule Filing, supra
note 30, at 14–15.
49 See the Second Extension Notice, supra note 4,
at 6534.
45 Id.
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dsatterwhite on PROD1PC65 with PROPOSAL
the transaction. Such approvals,
however, are currently expected to be
received by early March 2006 and
Archipelago would then close the sale
as soon as practicable thereafter. To that
end, the Exchange hereby proposes to
further extend the Original Wave
Exception to 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.
ii. ATS Inbound Router Function and
the Inbound Router Clearing Function
Since the execution of the definitive
agreement with OES regarding the sale
of the ATS Inbound Router Function,
Archipelago has been working to
complete the sale as soon as possible
upon satisfaction of the closing
conditions contemplated by the
agreement. It is unlikely that the sale
will be completed before the expected
closing date of the Archipelago NYSE
Merger because of the regulatory
approvals required in order to complete
the transaction. Such approvals,
however, are currently expected to be
received by early March 2006 and
Archipelago would then close the sale
as soon as practicable thereafter. To that
end, the Exchange hereby proposes to
further extend the Original Inbound
Router Exception to March 31, 2006,
subject to the same conditions as
applied to the Original Inbound Router
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
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20:31 Mar 09, 2006
Jkt 208001
the Original Inbound Router Extension
outlined above, while allowing
Archipelago to complete the sale of the
ATS Inbound Router Function.
iii. TNT
Since the approval of the Original
TNT Exception, Mr. Putnam has been
working in good faith to sell his interest
in TNT to at or below the 5% level. In
light of the fact that the sale of Mr.
Putnam’s interest in TNT is unlikely to
be consummated before the expected
closing date of the Archipelago NYSE
Merger, the Exchange hereby proposes
to extend the Original TNT Exception to
March 31, 2006, subject to the following
conditions which shall apply during
that period. First, Mr. Putnam shall
resign as a member of the management
committee of TAL. Second, Mr. Putnam
shall continue to abstain, as he has
abstained in the past, from directing the
respective day-to-day operations of TAL
or TNT or otherwise participating in the
respective management or businesses of
TAL or TNT. Third, Mr. Putnam shall
not exercise any voting rights with
respect to any equity interests of TAL or
in excess of 5% of voting rights with
respect to TNT. The second and third
conditions, however, shall be subject to
the following exception: Mr. Putnam
shall be permitted to act or vote in a
manner otherwise prohibited by such
condition if Mr. Putnam’s action or
exercise of voting rights would be
necessary to approve and consummate
the sale of Mr. Putnam’s interest in TNT
in accordance with the foregoing.
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.
iv. Inbound Router Transition Services
In connection with the sale of the
ATS Inbound Router Function to OES,
in order to ensure the successful
integration of the ATS Inbound Router
Function into OES and to maintain
consistency in customer services,
Archipelago has agreed to provide
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Sfmt 4703
12417
certain transition services to OES.
Specifically, Archipelago Securities will
continue to provide clearing functions
for trades executed by existing
customers of the ATS Inbound Router
Function for a period of 90 days after
the sale of the ATS Inbound Router
Function to OES (the ‘‘Inbound Router
Transition Services’’). As described in
Item 3.1.c, because Archipelago
Securities is a broker-dealer and an ETP
Holder of PCXE, it is deemed a Related
Person of Archipelago under the PCXH
Certificate of Incorporation. Because the
exceptions granted in the SEC Order
and the exceptions requested elsewhere
in this rule filing with respect to
Archipelago Securities are limited in
scope, absent a specific exception for
the Inbound Router Transition Services,
Archipelago Securities would fall
within the definition of ‘‘Prohibited
Persons’’ under the PCXH Certificate of
Incorporation. Therefore, the Exchange
hereby requests the Commission’s
approval of a temporary exception for
Archipelago Securities, who would be
subject to and exceed the ownership
and voting limitations imposed by the
PCXH Certificate of Incorporation, so
that Archipelago Securities would be
permitted to exceed such limitations to
the following extent and for the
following time period: Archipelago
Securities may, for a period of up to 90
days following the closing of the sale of
the ATS Inbound Router Function to
OES, provide the Inbound Router
Transition Services to OES, subject to
the condition that Archipelago
Securities may only provide such
services to existing customers of the
ATS Inbound Router Function.
2. Statutory Basis
The Exchange believes that the
proposed rule change in this filing is
consistent with section 6(b) 50 of the
Act, in general, and furthers the
objectives of section 6(b)(1),51 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
50 15
51 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(1).
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section 6(b)(5),52 in particular, because
the rules summarized herein would
create a governance and regulatory
structure with respect to the operation
of the equities and options business of
PCX that is designed to help prevent
fraudulent and manipulative acts and
practices; to promote just and equitable
principals of trade; to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities; and to remove impediments
to and perfect the mechanism of a free
and open market and a national market
system, and, in general, to protect
investors and the public interest.
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. 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:
dsatterwhite on PROD1PC65 with PROPOSAL
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–PCX–2006–21 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–2006–21. 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
52 15
U.S.C. 78f(b)(5).
VerDate Aug<31>2005
20:31 Mar 09, 2006
Jkt 208001
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–2006–21 and should
be submitted on or before March 31,
2006.
IV. Discussion of Commission Findings
and Order Granting Accelerated
Approval of Proposed Rule Change
After careful review, 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.53 In particular, the
Commission finds that the proposal is
consistent with section 6(b)(1) of the
Act,54 which requires a national
securities exchange to be so organized
and have the capacity to be able to carry
out the purposes of the Act and to
enforce compliance by its members and
persons associated with its members
with the provisions of the Act, the rules
or regulations thereunder, and the rules
of the exchange. The Commission also
finds that the proposal is consistent
with section 6(b)(5) of the Act,55 which
requires, among other things, that the
rules of an exchange be designed to
promote just and equitable principles of
trade, to facilitate transactions in
securities, to remove impediments to
and perfect the mechanisms of a free
and open market and a national market
system, and, in general, to protect
investors and the public interest.
Pursuant to section 19(b)(2) of the
Act,56 the Commission may not approve
53 In approving the proposed rule change, the
Commission has considered its impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
54 15 U.S.C. 78f(b)(1).
55 15 U.S.C. 78f(b)(5).
56 15 U.S.C. 78s(b)(2).
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any proposed rule change, or
amendment thereto, prior to the
thirtieth day after the date of
publication of the notice thereof, unless
the Commission finds good cause for so
doing. The Commission hereby finds
good cause for approving the proposed
rule change prior to the thirtieth day
after publishing notice thereof in the
Federal Register pursuant to section
19(b)(2) of the Act.57
The Commission believes that the
requested extensions for Wave, the ATS
Inbound Router Function and the
Inbound Router Clearing Function are
consistent with the terms and
conditions set forth in the SEC Order
originally approving such exceptions on
a temporary basis and the subsequent
extensions of such exceptions, and, as
such, do not raise any new or novel
issues. The Commission notes that: (1)
The requested extensions are limited in
duration; (2) Archipelago has entered
into definitive agreements for the sale of
Wave and the ATS Inbound Router
Function; and (3) the Exchange expects
that such transactions will close in early
March, but may not have closed prior to
March 7, 2006, the anticipated closing
date of the Archipelago NYSE Merger.58
Because the current exceptions are set to
expire the earlier of (i) the closing date
of the Archipelago NYSE Merger and (ii)
March 31, 2006, the Commission
believes that permitting PCX to extend
the exceptions for Wave, the ATS
Inbound Router Function and the
Inbound Router Clearing Function until
March 31, 2006 will permit Archipelago
to avoid disruption of the operation of
the services currently provided.
The current exception with respect to
Mr. Putnam’s ownership of TNT also is
set to expire the earlier of (i) the closing
date of the Archipelago NYSE Merger
(which is intended to close on March 7,
2006) and (ii) March 31, 2006. The
Exchange represents that, although Mr.
Putnam has been working in good faith
to reduce his stake in TNT, he will not
be able to complete the sale of his
interest in TNT before the expiration of
the current exception. Thus, absent an
extension, TNT would be in violation of
the PCXH ownership and voting
limitations. The Commission believes
that the requested extension to permit
Mr. Putnam to continue to own in
excess of 5% of TNT until March 31,
2006, subject to certain conditions, is
consistent with the Act and finds good
cause to accelerate approval of such
proposed rule change. The Commission
notes that the extension is limited in
scope and duration and is subject to
57 Id.
58 See
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certain conditions that will apply
during the extension period.
Specifically, Mr. Putnam shall: (1)
Resign as a member of the management
committee of TAL; (2) continue to
abstain from directing the day-to day
operations of TAL or TNT or otherwise
participate in the day to day operations
of TAL or TNT; and (3) not exercise any
voting rights with respect to any equity
interests of TAL or in excess of 5% of
voting rights with respect to TNT. The
Commission believes that these
conditions should serve to limit the
potential for conflicts of interest during
the interim period.
The Commission also believes that the
requested exception to allow
Archipelago Securities to provide
certain transition services to OES for a
period of 90 days after the sale of the
Inbound Router Function to OES,
subject to the condition that
Archipelago Securities may only
provide such services to existing
customers of the ATS Inbound Router
Function, is consistent with the Act and
the protection of investors and the
public interest in that the provision of
such services would facilitate the sale of
the ATS Inbound Router Function and
provide customers continuity of service
during the transition period following
such sale.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act the rules and
regulations thereunder, and finds that
good cause exists to accelerate approval
of the proposed rule change, pursuant to
section 19(b)(2) of the Act.59
dsatterwhite on PROD1PC65 with PROPOSAL
V. Conclusion
It Is Therefore Ordered, pursuant to
section 19(b)(2) of the Act,60 that the
proposed rule change (SR–PCX–2006–
21) is approved on an accelerated basis.
Specifically, Archipelago may continue
to own Wave, and may continue to own
and operate the ATS Inbound Router
Function and the Inbound Router
Clearing Function, until March 31,
2006, subject to the conditions
described above; Mr. Putnam may
continue to own in excess of 5% of TNT
until March 31, 2006, subject to the
conditions described above; and
Archipelago Securities may provide
transition services to OES as described
above, subject to the conditions
described above.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.61
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6–3437 Filed 3–9–06; 8:45 am]
BILLING CODE 8010–01–P
VerDate Aug<31>2005
SMALL BUSINESS ADMINISTRATION
Revocation of License of Small
Business Investment Company
Pursuant to the authority granted to
the United States Small Business
Administration by the Final Order of the
United States District Court for the
Southern District of New York, dated
April 5, 2005, Case No. 01–10780
(DAB), the United States Small Business
Administration hereby revokes the
license of Prospect Street NYC
Discovery Fund, L.P., a Delaware
Limited Partnership, to function as a
small business investment company
under the Small Business Investment
Company License No. 02/72–0561
issued to Prospect Street NYC Discovery
Fund, L.P. on May 23, 1995 and said
license is hereby declared null and void
as of July 9, 2005.
Small Business Administration.
Dated: March 1, 2006.
Jaime Guzman-Fournier,
Associate Administrator for Investment.
[FR Doc. E6–3395 Filed 3–9–06; 8:45 am]
BILLING CODE 8025–01–P
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BILLING CODE 8025–01–M
National Advisory Council; Public
Meeting
The U.S. Small Business
Administrations (SBA), National
Advisory Council (NAC) will hold a
public meeting on Tuesday, March 21,
2006 at 3 p.m. to discuss such matters
that may be presented by members, staff
of the SBA, or interested others. The
meeting will take place using an audio/
web conferencing system. To
participate, please call our toll free
conferencing service at 1–866–740–1260
and enter access code 3711001 at the
prompt.
Anyone wishing to attend or to make
a presentation must contact Balbina
Caldwell in writing or by fax, in order
to be put on the agenda. Balbina
Caldwell, Director of the National
Advisory Council, SBA Headquarters,
409 3rd Street SW., Washington DC
20416, phone (202) 205–6914, fax (202)
481–4678, e-mail:
Balbina.Caldwell@sba.gov.
For more information, see our Web
site at https://www.sba.gov/nac/
index.html.
Matthew K. Becker,
Committee Management Officer.
[FR Doc. E6–3418 Filed 3–9–06; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
Revocation of License of Small
Business Investment Company
Pursuant to the authority granted to
the United States Small Business
Administration by the Final Order of the
United States District Court for the
Western District of Louisiana, LafayetteOpelousas Division, dated June 24,
2003, the United States Small Business
Administration hereby revokes the
license of SCDF Investment
Corporation, a Louisiana corporation, to
function as a small business investment
company under the Small Business
Investment Company License No 06/10–
5157 issued to SCDF Investment
Corporation on April 26, 1973 and said
license is hereby declared null and void
as of September 22, 2003.
61 17
20:31 Mar 09, 2006
Dated: February 21, 2006.
Jaime Guzman-Fournier,
Associate Administrator for Investment.
[FR Doc. 06–2266 Filed 3–9–06; 8:45am]
SMALL BUSINESS ADMINISTRATION
59 Id.
60 Id.
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SMALL BUSINESS ADMINISTRATION
Public Federal Regulatory
Enforcement Fairness Hearing; U.S.
Small Business Administration, Region
IV Regulatory Fairness Board
The U.S. Small Business
Administration (SBA) Region IV
Regulatory Fairness Board and the SBA
Office of the National Ombudsman will
hold a public hearing on Thursday,
March 23, 2006, at 9 a.m. The meeting
will take place at the North Florida
District Office Conference Room, 7825
Baymeadows Way, Suite 100B,
Jacksonville, FL to receive comments
and testimony from small business
owners, small government entities, and
small non-profit organizations
concerning regulatory enforcement and
compliance actions taken by Federal
agencies.
Anyone wishing to attend or to make
a presentation must contact Annette
E:\FR\FM\10MRN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 47 (Friday, March 10, 2006)]
[Notices]
[Pages 12413-12419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-3437]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53411; File No. SR-PCX-2006-21]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
Relating to the Certificate of Incorporation of PCX Holdings, Inc.
March 3, 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 March 3, 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. 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\ 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
PCX hereby submits to the Commission a proposed rule change to (x)
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'') \3\ and extended pursuant to
certain subsequent rule filings,\4\ 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 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''), in each case until March 31, 2006, and (y)
to allow Archipelago Securities to provide certain transition services
to Order Execution Services Holdings, Inc. (``OES'') and, in each case
of (x) and (y), subject to the conditions set forth in this proposed
rule filing.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 52497 (September 22,
2005), 70 FR 56949 (September 29, 2005) (the ``SEC Order'').
\4\ See Securities Exchange Act Release No. 53034 (December 28,
2005), 71 FR 636 (January 5, 2006) (the ``First Extension Notice'')
and Securities Exchange Act Release No. 53202 (January 31, 2006), 71
FR 6530 (February 8, 2006) (the ``Second Extension Notice'').
---------------------------------------------------------------------------
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 III 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
that operates as a facility of PCX. 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
[[Page 12414]]
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'').\5\ The Original Rule Filing, as amended by
Amendment Nos. 1 and 2 thereto, was approved by the Commission on
September 22, 2005 \6\ and the amended PCXH Certificate of
Incorporation became effective on September 26, 2005, upon the closing
of the PCXH Acquisition.
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\5\ 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).
\6\ See SEC Order, supra note 3.
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Article Nine of the PCXH Certificate of Incorporation provides that
no Person,\7\ either alone or together with its Related Persons,\8\ may
own, directly or indirectly, shares constituting more than 40% of the
outstanding shares of any class of PCXH capital stock,\9\ 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.\10\ 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.\11\ 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.\12\
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\7\ ``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).
\8\ 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).
\9\ 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).
\10\ Id., Article Nine, section 1(b)(ii).
\11\ Id., Article Nine, section 1(c).
\12\ 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.\13\ These
exceptions to the ownership and voting limitations, however, shall not
apply to any ``Prohibited Persons,'' \14\ 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) \15\ or (ii) an ETP
Holder (as defined in the rules of PCXE),\16\ unless such Person is
also a ``Permitted Person'' under the PCXH Certificate of
Incorporation.\17\ 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.\18\
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\13\ Id., Article Nine, section 4.
\14\ Id.
\15\ 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).
\16\ 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).
\17\ ``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.
\18\ 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
[[Page 12415]]
facilities of PCX or PCXE, on the other hand.\19\
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\19\ See Original Rule Filing, supra note 5, 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'').\20\ 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.\21\
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.\22\ 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.\23\ 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 \24\ (the ``17d-2 Agreement'') and provides for a plan concerning
the regulatory responsibilities of NASD with respect to certain members
of PCX, including Wave.\25\
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\20\ See SEC Order, supra note 3, at 56960.
\21\ Id. at 56959.
\22\ Id.
\23\ 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.
\24\ 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.
\25\ See SEC Order, supra note 3, 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.
Due to uncertainties in the timing of the negotiations regarding the
sale, on December 19, 2005, the Exchange submitted a proposed rule
filing (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.\26\ The extension took effect immediately upon the filing of the
Original Extension Rule Filing.\27\ On January 19, 2006, Archipelago
entered into a definitive agreement for the sale of Wave to Merrill
Lynch.\28\ The definitive agreement conditions the sale on the
satisfaction of a number of closing conditions, including the receipt
of certain regulatory approvals. Because of uncertainties in the timing
of the regulatory approvals, on January 27, 2006, the Exchange
submitted another proposed rule filing (the ``Second Extension Rule
Filing'') requesting a further extension of the Original Wave Exception
to the earlier of (x) the closing date of the merger of Archipelago and
the New York Stock Exchange, Inc. (the ``Archipelago NYSE Merger'')
\29\ and (y) March 31, 2006, subject to the same conditions as applied
to the Original Wave Exception described above. \30\ The second
extension took effect immediately upon the filing of the Second
Extension Rule Filing.\31\
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\26\ 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), as amended by Amendment No. 1
thereto (December 23, 2005).
\27\ See First Extension Notice, supra note 4, at 640.
\28\ Merrill Lynch is neither a Related Person of Archipelago
nor a ``Prohibited Person'' under the PCXH Certificate of
Incorporation.
\29\ The closing of the Archipelago NYSE Merger is currently
expected to occur on March 7, 2006.
\30\ See Pacific Exchange, Inc., Proposed Rule Change Relating
to the Certificate of Incorporation of PCX Holdings, Inc., File No.
SR-PCX-2006-04 (January 27, 2006).
\31\ See the Second Extension Notice, supra note 4, at 6534.
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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 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
PCXH 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
[[Page 12416]]
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.\32\ The
Commission approved PCX's rule proposal regarding the ATS Inbound
Router Function and the Inbound Router Clearing Function (the
``Original Inbound Router Exception'').\33\ 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.\34\ 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.\35\ 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.\36\ Furthermore, during the interim period, ATS would
continue to be covered by the scope of the 17d-2 Agreement,\37\ which
provides for a plan concerning the regulatory responsibilities of NASD
with respect to certain members of PCX, including ATS.\38\
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\32\ See Amendment No. 2, supra note 19, at 5-6.
\33\ See SEC Order, supra note 3, at 56960.
\34\ Id. at 56959.
\35\ Id.
\36\ Id. See supra note 23 for a description of Rule 17d-1 under
the Act.
\37\ See supra note 24.
\38\ See SEC Order, supra note 3, 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. Due to uncertainties in the timing
of the negotiations regarding the sale and 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.\39\ The extension
took effect immediately upon the filing of Amendment No. 1 to the
Original Extension Rule Filing.\40\ On December 23, 2005, Archipelago
entered into a definitive agreement for the sale of the ATS Inbound
Router Function to OES.\41\ The definitive agreement conditions the
sale on the satisfaction of a number of closing conditions, including
the receipt of NASD and other regulatory approvals. In light of the
fact that the sale of the ATS Inbound Router Function was unlikely to
be consummated by January 31, 2006, in the Second Extension Rule
Filing, the Exchange requested that the Original Inbound Router
Exception be further extended 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 Inbound Router Exception
described above.\42\ The extension took effect immediately upon the
filing of the Second Extension Rule Filing.\43\
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\39\ See the Original Extension Rule Filing, supra note 26, at
13-14.
\40\ See the First Extension Notice, supra note 4, at 640.
\41\ OES is neither a Related Person of Archipelago nor a
``Prohibited Person'' under the PCXH Certificate of Incorporation.
\42\ See the Second Extension Rule Filing, supra note 30, at 11-
14.
\43\ See the Second Extension Notice, supra note 4, at 6534.
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d. TNT
TNT is a wholly-owned subsidiary of TAL Financial Services, LLC
(``TAL'') and Mr. Putnam indirectly owns a 40% interest in TAL.
Accordingly, Mr. Putnam indirectly owns in excess of 5% of TNT. The
management committee of TAL performs on behalf of TNT the functions
usually associated with a board of directors and executive committee of
a corporation. Mr. Putnam is one of the five members of the TAL
management committee. 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 member of the
management committee 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'').\44\ 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.\45\
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\44\ See SEC Order, supra note 3, at 56960-61.
\45\ Id. at 56960.
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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.\46\ The extension took effect immediately upon the
filing of Amendment No. 1 to the Original Extension Rule Filing.\47\ In
the Second Extension Rule Filing, the Exchange requested that the
Original TNT Exception be further extended to the earlier of (x) the
closing date of the Archipelago NYSE Merger and (y) March 31, 2006.\48\
The extension took effect immediately upon the filing of the Second
Extension Rule Filing.\49\
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\46\ See the Original Extension Rule Filing, supra note 26, at
15-16.
\47\ See the First Extension Notice, supra note 4, at 640.
\48\ See the Second Extension Rule Filing, supra note 30, at 14-
15.
\49\ See the Second Extension Notice, supra note 4, at 6534.
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e. Further Extensions of the Temporary Exceptions
i. Wave
Since the execution of the definitive agreement with Merrill Lynch
regarding the sale of Wave, Archipelago has been working to complete
the sale as soon as possible upon satisfaction of the closing
conditions contemplated by the agreement. It is unlikely that the sale
will be completed before the expected closing date of the Archipelago
NYSE Merger because of the regulatory approvals required in order to
complete
[[Page 12417]]
the transaction. Such approvals, however, are currently expected to be
received by early March 2006 and Archipelago would then close the sale
as soon as practicable thereafter. To that end, the Exchange hereby
proposes to further extend the Original Wave Exception to 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.
ii. ATS Inbound Router Function and the Inbound Router Clearing
Function
Since the execution of the definitive agreement with OES regarding
the sale of the ATS Inbound Router Function, Archipelago has been
working to complete the sale as soon as possible upon satisfaction of
the closing conditions contemplated by the agreement. It is unlikely
that the sale will be completed before the expected closing date of the
Archipelago NYSE Merger because of the regulatory approvals required in
order to complete the transaction. Such approvals, however, are
currently expected to be received by early March 2006 and Archipelago
would then close the sale as soon as practicable thereafter. To that
end, the Exchange hereby proposes to further extend the Original
Inbound Router Exception to March 31, 2006, subject to the same
conditions as applied to the Original Inbound Router 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.
iii. TNT
Since the approval of the Original TNT Exception, Mr. Putnam has
been working in good faith to sell his interest in TNT to at or below
the 5% level. In light of the fact that the sale of Mr. Putnam's
interest in TNT is unlikely to be consummated before the expected
closing date of the Archipelago NYSE Merger, the Exchange hereby
proposes to extend the Original TNT Exception to March 31, 2006,
subject to the following conditions which shall apply during that
period. First, Mr. Putnam shall resign as a member of the management
committee of TAL. Second, Mr. Putnam shall continue to abstain, as he
has abstained in the past, from directing the respective day-to-day
operations of TAL or TNT or otherwise participating in the respective
management or businesses of TAL or TNT. Third, Mr. Putnam shall not
exercise any voting rights with respect to any equity interests of TAL
or in excess of 5% of voting rights with respect to TNT. The second and
third conditions, however, shall be subject to the following exception:
Mr. Putnam shall be permitted to act or vote in a manner otherwise
prohibited by such condition if Mr. Putnam's action or exercise of
voting rights would be necessary to approve and consummate the sale of
Mr. Putnam's interest in TNT in accordance with the foregoing.
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.
iv. Inbound Router Transition Services
In connection with the sale of the ATS Inbound Router Function to
OES, in order to ensure the successful integration of the ATS Inbound
Router Function into OES and to maintain consistency in customer
services, Archipelago has agreed to provide certain transition services
to OES. Specifically, Archipelago Securities will continue to provide
clearing functions for trades executed by existing customers of the ATS
Inbound Router Function for a period of 90 days after the sale of the
ATS Inbound Router Function to OES (the ``Inbound Router Transition
Services''). As described in Item 3.1.c, because Archipelago Securities
is a broker-dealer and an ETP Holder of PCXE, it is deemed a Related
Person of Archipelago under the PCXH Certificate of Incorporation.
Because the exceptions granted in the SEC Order and the exceptions
requested elsewhere in this rule filing with respect to Archipelago
Securities are limited in scope, absent a specific exception for the
Inbound Router Transition Services, Archipelago Securities would fall
within the definition of ``Prohibited Persons'' under the PCXH
Certificate of Incorporation. Therefore, the Exchange hereby requests
the Commission's approval of a temporary exception for Archipelago
Securities, who would be subject to and exceed the ownership and voting
limitations imposed by the PCXH Certificate of Incorporation, so that
Archipelago Securities would be permitted to exceed such limitations to
the following extent and for the following time period: Archipelago
Securities may, for a period of up to 90 days following the closing of
the sale of the ATS Inbound Router Function to OES, provide the Inbound
Router Transition Services to OES, subject to the condition that
Archipelago Securities may only provide such services to existing
customers of the ATS Inbound Router Function.
2. Statutory Basis
The Exchange believes that the proposed rule change in this filing
is consistent with section 6(b) \50\ of the Act, in general, and
furthers the objectives of section 6(b)(1),\51\ 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
[[Page 12418]]
section 6(b)(5),\52\ in particular, because the rules summarized herein
would create a governance and regulatory structure with respect to the
operation of the equities and options business of PCX that is designed
to help prevent fraudulent and manipulative acts and practices; to
promote just and equitable principals of trade; to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities; and to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect investors and the public interest.
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\50\ 15 U.S.C. 78f(b).
\51\ 15 U.S.C. 78f(b)(1).
\52\ 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. 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-2006-21 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-2006-21. 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-2006-21 and should be submitted on or before March
31, 2006.
IV. Discussion of Commission Findings and Order Granting Accelerated
Approval of Proposed Rule Change
After careful review, 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.\53\ In particular, the Commission finds that the proposal is
consistent with section 6(b)(1) of the Act,\54\ which requires a
national securities exchange to be so organized and have the capacity
to be able to carry out the purposes of the Act and to enforce
compliance by its members and persons associated with its members with
the provisions of the Act, the rules or regulations thereunder, and the
rules of the exchange. The Commission also finds that the proposal is
consistent with section 6(b)(5) of the Act,\55\ which requires, among
other things, that the rules of an exchange be designed to promote just
and equitable principles of trade, to facilitate transactions in
securities, to remove impediments to and perfect the mechanisms 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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\53\ In approving the proposed rule change, the Commission has
considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\54\ 15 U.S.C. 78f(b)(1).
\55\ 15 U.S.C. 78f(b)(5).
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Pursuant to section 19(b)(2) of the Act,\56\ the Commission may not
approve any proposed rule change, or amendment thereto, prior to the
thirtieth day after the date of publication of the notice thereof,
unless the Commission finds good cause for so doing. The Commission
hereby finds good cause for approving the proposed rule change prior to
the thirtieth day after publishing notice thereof in the Federal
Register pursuant to section 19(b)(2) of the Act.\57\
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\56\ 15 U.S.C. 78s(b)(2).
\57\ Id.
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The Commission believes that the requested extensions for Wave, the
ATS Inbound Router Function and the Inbound Router Clearing Function
are consistent with the terms and conditions set forth in the SEC Order
originally approving such exceptions on a temporary basis and the
subsequent extensions of such exceptions, and, as such, do not raise
any new or novel issues. The Commission notes that: (1) The requested
extensions are limited in duration; (2) Archipelago has entered into
definitive agreements for the sale of Wave and the ATS Inbound Router
Function; and (3) the Exchange expects that such transactions will
close in early March, but may not have closed prior to March 7, 2006,
the anticipated closing date of the Archipelago NYSE Merger.\58\
Because the current exceptions are set to expire the earlier of (i) the
closing date of the Archipelago NYSE Merger and (ii) March 31, 2006,
the Commission believes that permitting PCX to extend the exceptions
for Wave, the ATS Inbound Router Function and the Inbound Router
Clearing Function until March 31, 2006 will permit Archipelago to avoid
disruption of the operation of the services currently provided.
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\58\ See supra note 29.
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The current exception with respect to Mr. Putnam's ownership of TNT
also is set to expire the earlier of (i) the closing date of the
Archipelago NYSE Merger (which is intended to close on March 7, 2006)
and (ii) March 31, 2006. The Exchange represents that, although Mr.
Putnam has been working in good faith to reduce his stake in TNT, he
will not be able to complete the sale of his interest in TNT before the
expiration of the current exception. Thus, absent an extension, TNT
would be in violation of the PCXH ownership and voting limitations. The
Commission believes that the requested extension to permit Mr. Putnam
to continue to own in excess of 5% of TNT until March 31, 2006, subject
to certain conditions, is consistent with the Act and finds good cause
to accelerate approval of such proposed rule change. The Commission
notes that the extension is limited in scope and duration and is
subject to
[[Page 12419]]
certain conditions that will apply during the extension period.
Specifically, Mr. Putnam shall: (1) Resign as a member of the
management committee of TAL; (2) continue to abstain from directing the
day-to day operations of TAL or TNT or otherwise participate in the day
to day operations of TAL or TNT; and (3) not exercise any voting rights
with respect to any equity interests of TAL or in excess of 5% of
voting rights with respect to TNT. The Commission believes that these
conditions should serve to limit the potential for conflicts of
interest during the interim period.
The Commission also believes that the requested exception to allow
Archipelago Securities to provide certain transition services to OES
for a period of 90 days after the sale of the Inbound Router Function
to OES, subject to the condition that Archipelago Securities may only
provide such services to existing customers of the ATS Inbound Router
Function, is consistent with the Act and the protection of investors
and the public interest in that the provision of such services would
facilitate the sale of the ATS Inbound Router Function and provide
customers continuity of service during the transition period following
such sale.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the requirements of the Act the rules
and regulations thereunder, and finds that good cause exists to
accelerate approval of the proposed rule change, pursuant to section
19(b)(2) of the Act.\59\
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\59\ Id.
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V. Conclusion
It Is Therefore Ordered, pursuant to section 19(b)(2) of the
Act,\60\ that the proposed rule change (SR-PCX-2006-21) is approved on
an accelerated basis. Specifically, Archipelago may continue to own
Wave, and may continue to own and operate the ATS Inbound Router
Function and the Inbound Router Clearing Function, until March 31,
2006, subject to the conditions described above; Mr. Putnam may
continue to own in excess of 5% of TNT until March 31, 2006, subject to
the conditions described above; and Archipelago Securities may provide
transition services to OES as described above, subject to the
conditions described above.
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\60\ Id.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\61\
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\61\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-3437 Filed 3-9-06; 8:45 am]
BILLING CODE 8010-01-P
