

[Federal Register: November 10, 2005 (Volume 70, Number 217)]
[Notices]               
[Page 68503-68504]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10no05-165]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52719; File No. SR-PCX-2005-73]

 
Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to 
the Establishment of a Portfolio Crossing Service on the Archipelago 
Exchange

November 2, 2005.

I. Introduction

    On June 7, 2005, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to establish an after-hours Portfolio Crossing 
Service (``PCS''). The PCX filed Amendment No. 1 to the proposed rule 
change on September 14, 2005.\3\ The proposed rule change, as amended, 
was published for comment in the Federal Register on September 28, 
2005.\4\ The Commission received no comments from the public in 
response to the proposed rule change. This order

[[Page 68504]]

approves the proposed rule, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
    \4\ See Securities Exchange Act Release No. 52472 (September 20, 
2005), 70 FR 56762.
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II. Description

    The PCX, through its wholly-owned subsidiary PCX Equities, Inc. 
(``PCXE''), proposed to establish the PCS, a new transaction and trade 
reporting mechanism for Equity Trading Permit Holders (``ETP Holders'') 
\5\ to allow the execution and reporting of portfolio trades in equity 
securities on the Archipelago Exchange (``ArcaEx''). In order to use 
PCS, ETP Holders would input a basket of individual cross orders, each 
with a basket number identifier tying it to the other orders in the 
basket. These baskets of individual cross orders would not interact 
with other orders residing in the Arca Book.\6\ Each side of an 
individual coupled order in a basket entered into PCS would execute 
without regard to the priority of other orders entered into PCS.
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    \5\ See PCXE Rule 1.1(n).
    \6\ See PCXE Rule 1.1(a).
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    To be eligible for PCS, orders must be part of a basket of 
individual cross orders comprised of at least 15 securities and with a 
total market value of at least $1,000,000.\7\ All symbols eligible for 
trading on ArcaEx would be eligible for trading on PCS. If a basket of 
orders meets the standards as set forth in proposed Rule 7.65, the 
basket would be referred to as a ``PCS Order.'' Each individual 
component of a PCS Order must be appended with a basket number 
identifier tying it to the other order components of the PCS Order. 
This identifier would be used to distinguish the individual components 
of any PCS Order from an ordinary Cross Order \8\ destined for ArcaEx.
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    \7\ See proposed PCXE Rule 7.65(a)(4)(a) for definition of ``PCS 
Order.''
    \8\ See PCXE Rule 7.31(s).
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    ETP Holders would be able to enter PCS Orders at any time during 
the Exchange's trading day.\9\ When the Exchange receives a PCS Order, 
it would hold such order until the end of trading, currently 5 p.m. 
Pacific Time. All PCS Orders received during any particular trading day 
would be executed simultaneously in PCS at least one minute after the 
close of trading on the Exchange, but in no event later than 8:59 p.m. 
Pacific Time. Each individual order component of a PCS Order would not 
interact with other PCS Orders or other orders residing in the Arca 
Book in any way. Furthermore, trading halts occurring during the normal 
market hours in one or more individual stocks would not affect the 
execution of PCS Orders. However, if there is a market-wide halt in a 
symbol that remains in effect at 1 p.m. Pacific Time, the Exchange 
would halt trading in such symbol through its PCS.
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    \9\ The New York Stock Exchange's Crossing Session II (``NYSE CS 
II'') is another after hours session which allows member firms the 
ability to cross a portfolio of orders. The NYSE CS II, however, 
does not accept orders until after the close of regular trading.
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    The Exchange would handle trade reporting for PCS executions in one 
of two different ways, depending on whether a particular PCS component 
execution involved exchange-listed or Nasdaq-listed securities. With 
respect to exchange-listed securities, the system would calculate the 
total shares and total dollar amounts \10\ of all exchange-listed 
symbols executed in PCS on any particular trading day. The Exchange 
would then transmit this total as an administrative message over the 
high speed line to The Securities Industry Automation Corporation 
(``SIAC'').\11\ The Exchange would not consolidate the exchange-listed 
volume attributable to PCS with the volume in those securities 
occurring in the non-PCS trading session occurring on ArcaEx. With 
respect to Nasdaq-listed securities, the Exchange would report symbols 
individually to Nasdaq as regular transactions as of the following 
morning.\12\
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    \10\ Since shares and dollar amounts will be calculated on a 
aggregate basis, volume and price information will not be available 
at an individual security level.
    \11\ ArcaEx represented that it would coordinate with SIAC to 
ensure it would be able to receive messages from ArcaEx reflecting 
aggregate PCS executions. See infra note 14.
    \12\ Nasdaq is the securities information processor for Nasdaq-
listed securities. Section 11 of the Nasdaq Unlisted Trading 
Privileges Plan deals with trade reporting for Nasdaq securities 
after 6:30 p.m. Eastern Time.
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    All PCS executions, whether exchange-listed or Nasdaq securities, 
will be ``covered sales'' occurring on the Exchange for the purposes of 
Section 31 of the Act.\13\ The Exchange will report PCS activity to the 
Commission in Part II of Form R31 under the Act.
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    \13\ 15 U.S.C. 78ee.
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    In addition, the Exchange has requested exemptive relief from the 
requirement in Rule 11Aa3-1 under the Act \14\ that the Exchange 
disseminate on a consolidated basis trading volume for each of the 
component securities executed on the Exchange's PCS. In addition, the 
Exchange has requested clarification from the Commission with respect 
to the application of Rule 10a-1 under the Exchange Act and Regulation 
SHO.
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    \14\ The Commission notes that Rule 11Aa3-1 has been 
redesignated as Rule 601 of Regulation NMS. 17 CFR 242.601.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\15\ In particular, the Commission finds that the 
proposal, as amended, is consistent with the provisions of Section 
6(b)(5) of the Act,\16\ which requires, among other things, that a 
national securities exchange's rules be designed to prevent fraud and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and to 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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    \15\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the establishment of PCS appears to be 
reasonably designed to promote a free and open market and the national 
market system by offering ETP Holders the opportunity to enter crossing 
portfolio orders to be executed against each other following the 
conclusion of the ArcaEx Late Trading Session.\17\ The establishment of 
the PCS also appears to be reasonably designed to enhance order 
execution opportunities on ArcaEx by providing investors and ETP 
Holders with greater opportunities for executing large portfolio 
trades.
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    \17\ See PCXE Rule 7.34(a)(3).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-PCX-2005-73), as amended, 
be, and it hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
Jonathan G. Katz,
Secretary.
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    \19\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 05-22415 Filed 11-9-05; 8:45 am]

BILLING CODE 8010-01-P
