

[Federal Register: February 8, 2006 (Volume 71, Number 26)]
[Notices]
[Page 6530-6535]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08fe06-153]

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SECURITIES AND EXCHANGE COMMISSION

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


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

January 31, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 27, 2006, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by PCX. PCX filed the proposed
rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

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

[[Page 6531]]

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

    In its filing with the Commission, PCX included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. PCX has prepared summaries, set forth in Sections A, B,
and C below, of the most significant aspects of such statements.

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

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

[[Page 6532]]

``Permitted Person'' under the PCXH Certificate of Incorporation.\20\
The PCXH Certificate of Incorporation further provides that any
Prohibited Person not covered by the definition of a Permitted Person
who is subject to and exceeds the voting and ownership limitations
imposed by Article Nine as of the date of the closing of the PCXH
Acquisition shall be permitted to exceed the voting and ownership
limitations imposed by Article Nine only to the extent and for the time
period approved by the Commission.\21\
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    \16\ Id., Article Nine, Section 4.
    \17\ Id.
    \18\ PCX rules define an ``OTP Holder'' to mean any natural
person, in good standing, who has been issued an Options Trading
Permit (``OTP'') by the Exchange for effecting approved securities
transactions on the Exchange's trading facilities, or has been named
as a Nominee. PCX Rule 1.1(q). The term ``Nominee'' means an
individual who is authorized by an ``OTP Firm'' (a sole
proprietorship, partnership, corporation, limited liability company
or other organization in good standing who holds an OTP or upon whom
an individual OTP Holder has conferred trading privileges on the
Exchange's trading facilities) to conduct business on the Exchange's
trading facilities and to represent such OTP Firm in all matters
relating to the Exchange. PCX Rule 1.1(n).
    \19\ PCXE rules define an ``ETP Holder'' to mean any sole
proprietorship, partnership, corporation, limited liability company
or other organization in good standing that has been issued an
Equity Trading Permit, a permit issued by the PCXE for effecting
approved securities transactions on the trading facilities of PCXE.
PCXE Rule 1.1(n).
    \20\ ``Permitted Person'' is defined to mean (A) any broker or
dealer approved by the Commission after June 20, 2005 to be a
facility (as defined in Section 3(a)(2) of the Act) of PCX; (B) any
Person that has been approved by the Commission prior to it becoming
subject to the provisions of Article Nine of the PCXH Certificate of
Incorporation with respect to the voting and ownership of shares of
PCXH capital stock by such Person; and (C) any Person that is a
Related Person of Archipelago solely by reason of beneficially
owning, either alone or together with its Related Persons, less than
20% of the outstanding shares of Archipelago capital stock. PCXH
Certificate of Incorporation, Article Nine, Section 4.
    \21\ Id.
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    b. Wave. Wave is an introducing broker for Archipelago's
institutional customers and provides such customers with access to
ArcaEx and other market centers. Because Wave, a broker-dealer and an
ETP Holder of PCXE, is a wholly-owned subsidiary and, consequently, a
Related Person, of Archipelago, it falls within the definition of
``Prohibited Persons'' under the PCXH Certificate of Incorporation.
Consequently, absent an exception, Archipelago's ownership of PCXH
would cause Wave, as an ETP Holder, to exceed the voting and ownership
limitations imposed by Article Nine of the PCXH Certificate of
Incorporation. Therefore, in connection with the PCXH Acquisition, PCX
requested a temporary exception from the ownership and voting
limitations in the PCX Certificate of Incorporation for Archipelago's
ownership of Wave until December 31, 2005, subject to the condition
that during that interim period Archipelago would continue to maintain
and comply with its current information barriers between Wave, on the
one hand, and PCX, PCXE and other subsidiaries of Archipelago that are
facilities of PCX or PCXE, on the other hand.\22\
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    \22\ See Original Rule Filing at 36-37 and Amendment No. 2 to
the Original Rule Filing (September 16, 2005) (``Amendment No. 2''),
at 4.
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    The Commission approved PCX's rule proposal regarding Wave (the
``Original Wave Exception'').\23\ In the SEC Order, the Commission
stated that the affiliation of an exchange with one of its members that
provides inbound access to the exchange--in direct competition with
other members of the exchange--raises potential conflicts of interest
between the exchange's regulatory responsibilities and its commercial
interests, and the potential for unfair competitive advantage that the
affiliated member could have by virtue of informational or operational
advantages, or the ability to receive preferential treatment.\24\
However, noting that the conditions to be imposed during the interim
period were designed to mitigate potential conflicts of interest and
the potential for unfair competitive advantage, the Commission
concluded that it would be appropriate and consistent with the Act to
allow a limited, temporary exception for Archipelago to continue its
ownership of Wave.\25\ In granting the approval for the Original Wave
Exception, the Commission also noted that in addition to being a member
of PCX, Wave is a member of the National Association of Securities
Dealers, Inc. (``NASD''), a self-regulatory organization (``SRO'') not
affiliated with Archipelago, and the NASD has been designated by the
Commission as the ``Designated Examining Authority'' for Wave pursuant
to Rule 17d-1 of the Act.\26\ Furthermore, during the interim period,
Wave would continue to be covered by the scope of an agreement between
NASD and PCX, which was entered into pursuant to Rule 17d-2 under the
Act \27\ (the ``17d-2 Agreement'') and provides for a plan concerning
the regulatory responsibilities of NASD with respect to certain members
of PCX, including Wave.\28\
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    \23\ See SEC Order at 56960.
    \24\ Id. at 56959.
    \25\ Id.
    \26\ Id. Pursuant to Rule 17d-1 under the Act, where a member of
the Securities Investor Protection Corporation is a member of more
than one SRO, the Commission shall designate to one of such
organizations the responsibility of examining such member for
compliance with the applicable financial responsibility rules. In
making such designation, the Commission shall take into
consideration the regulatory capabilities and procedures of the
SROs, availability of staff, convenience of location, unnecessary
regulatory duplication, and such other factors as the Commission may
consider germane to the protection of investors, the cooperation and
coordination among SROs, and the development of a national market
system for the clearance and settlement of securities transactions.
17 CFR 240.17d-1.
    \27\ Rule 17d-2 under the Act provides that any two or more SROs
may file with the Commission a plan for allocating among such SROs
the responsibilities to receive regulatory reports from persons who
are members or participants of more than one of such SROs to examine
such persons for compliance, or to enforce compliance by such
persons, with specified provisions of the Act, the rules and
regulations thereunder, and the rules of such SROs, or to carry out
other specified regulatory functions with respect to such persons.
17 CFR 240.17d-2.
    \28\ See SEC Order at 56959.
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    In accordance with the terms of the Original Wave Exception,
Archipelago has been working to sell its ownership interests in Wave.
On December 19, 2005, the Exchange submitted the Original Extension
Rule Filing requesting an extension of the Original Wave Exception to
January 31, 2006, subject to the same conditions as applied to the
Original Wave Exception described above.\29\ The extension took effect
immediately upon the filing of the Original Extension Rule Filing (the
``Original Wave Extension''). On January 19, 2006, Archipelago entered
into a definitive agreement for the sale of Wave. The definitive
agreement conditions the sale on the satisfaction of a number of
closing conditions, including the receipt of certain regulatory
approvals, and Archipelago intends to complete the sale as soon as
possible following the satisfaction of these conditions.
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    \29\ The Original Extension Rule Filing at 13-14.
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    c. ATS Inbound Router Function and the Inbound Router Clearing
Function. Archipelago currently owns ATS, a wholly owned subsidiary
that is a broker-dealer and an ETP Holder of PCXE. The business of ATS
consists of, among other things, acting as an introducing broker for
non-ETP Holder broker or dealer clients for securities traded on ArcaEx
(the ``ATS Inbound Router Function''). Archipelago Securities, a
wholly-owned subsidiary of Archipelago, is a registered broker-dealer,
a member of the NASD and an ETP Holder. In addition to its other
functions, Archipelago Securities provides clearing functions for
trades executed by the ATS Inbound Router Function (the ``Inbound
Router Clearing Function'').
    Because ATS, a broker-dealer and an ETP Holder of PCXE, is a
wholly-owned subsidiary and, consequently, a Related Person, of
Archipelago, it falls within the definition of ``Prohibited Persons''
under the PCXH Certificate of Incorporation. Consequently, absent an
exception, Archipelago's ownership of PCXH would cause ATS to exceed
the voting and ownership limitations imposed by Article Nine of the
PCXH Certificate of Incorporation. Likewise, because Archipelago
Securities, a broker-dealer and an ETP Holder of PCXE, is a wholly
owned subsidiary and, consequently, a Related Person, of Archipelago,
and the approvals of

[[Page 6533]]

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

[[Page 6534]]

the sale is unlikely to be consummated by January 31, 2006, the
Exchange hereby proposes to further extend the Original Wave Exception
to the earlier of (x) the closing date of the Archipelago NYSE Merger
and (y) March 31, 2006, subject to the same conditions as applied to
the Original Wave Exception described above. In requesting such
extension, Archipelago and the Exchange note that the NASD is the
``Designated Examining Authority'' for Wave pursuant to Rule 17d-1 of
the Act. Furthermore, during the interim period, Wave would continue to
be covered by the scope of the 17d-2 Agreement, which provides for a
plan concerning the regulatory responsibilities of NASD with respect to
certain members of PCX, including Wave. Archipelago and the Exchange
believe that this extension would be in keeping with the policy
justifications for the Original Wave Exception and the Original Wave
Extension outlined above, while allowing Archipelago to complete the
sale of Wave.
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    \43\ The purchaser of Wave is neither a Related Person of
Archipelago nor a ``Prohibited Person'' under the PCXH Certificate
of Incorporation.
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    ii. ATS Inbound Router Function and the Inbound Router Clearing
Function. On December 23, 2005, Archipelago entered into a definitive
agreement for the sale of the ATS Inbound Router Function to OES.\44\
The definitive agreement conditions the sale on the satisfaction of a
number of closing conditions, including the receipt of NASD and other
regulatory approvals, and Archipelago intends to complete the sale as
soon as possible following the satisfaction of these conditions. The
Original Inbound Router Extension expires on January 31, 2006. Because
of the uncertainties associated with the timing of the regulatory
approvals, it is unclear whether Archipelago would be able to complete
the sale by January 31, 2006. Therefore, the Exchange hereby proposes
to further extend the Original Inbound Router Exception to the earlier
of (x) the closing date of the Archipelago NYSE Merger and (y) March
31, 2006, subject to the same conditions as applied to the Original
Wave Exception described above. In requesting such extension,
Archipelago and the Exchange note that the NASD is the ``Designated
Examining Authority'' for ATS pursuant to Rule 17d-1 of the Act.
Furthermore, during the interim period, ATS would continue to be
covered by the scope of the 17d-2 Agreement, which provides for a plan
concerning the regulatory responsibilities of NASD with respect to
certain members of PCX, including ATS. Archipelago and the Exchange
believe that this extension would be in keeping with the policy
justifications for the Original Inbound Router Exception and the
Original Inbound Router Extension outlined above, while allowing
Archipelago to complete the sale of the ATS Inbound Router Function.
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    \44\ PCX clarified that the Inbound Router Clearing Function
will be discontinued after the sale of the ATS Inbound Router
Function subject only to the provision of transition services by
Archipelago Securities to OES, and that PCX intends to file a
proposed rule change requesting approval of such services. Telephone
Conversation.
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    iii. TNT. Mr. Putnam has been working to eliminate the affiliation
with TNT. Once he has reduced his interest in TNT, Mr. Putnam would
also cease serving as a director of TAL.\45\ The Original TNT Extension
expires on January 31, 2006. In light of the fact that the sale of Mr.
Putnam's interest in TNT is unlikely to be consummated by January 31,
2006, the Exchange hereby proposes to extend the Original TNT Exception
to the earlier of (x) the closing date of the Archipelago NYSE Merger
and (y) March 31, 2006. In requesting such extension, Archipelago and
the Exchange note that the NASD is the ``Designated Examining
Authority'' for TNT pursuant to Rule 17d-1 of the Act. Furthermore,
during the interim period, TNT would continue to be covered by the
scope of the 17d-2 Agreement, which provides for a plan concerning the
regulatory responsibilities of NASD with respect to certain members of
PCX, including TNT. Archipelago and the Exchange believe that this
extension would be in keeping with the policy justifications for the
Original TNT Exception and the Original TNT Extension outlined above,
while allowing Mr. Putnam a reasonable amount of time to effectuate the
actions necessary to eliminate the affiliation between TNT and
Archipelago.
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    \45\ PCX clarified that Mr. Putnam would cease serving as a
director of TAL once he has reduced his interest in TNT. Telephone
Conversation.
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2. Statutory Basis
    The Exchange believes that the proposed rule change in this filing
is consistent with Section 6(b) \46\ of the Act, in general, and
furthers the objectives of Section 6(b)(1),\47\ in particular, in that
it enables the Exchange to be so organized so as to have the capacity
to be able to carry out the purposes of the Act and to comply, and
(subject to any rule or order of the Commission pursuant to Section
17(d) or 19(g)(2) of the Act) to enforce compliance by its exchange
members and persons associated with its exchange members, with the
provisions of the Act, the rules and regulations thereunder, and the
rules of the Exchange. The Exchange also believes that this filing
furthers the objectives of Section 6(b)(5),\48\ in particular, because
the rules summarized herein would create a governance and regulatory
structure with respect to the operation of the equities and options
business of PCX that is designed to help prevent fraudulent and
manipulative acts and practices; to promote just and equitable
principles of trade; to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities; and to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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    \46\ 15 U.S.C. 78f(b).
    \47\ 15 U.S.C. 78f(b)(1).
    \48\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) \49\ of the Act and Rule 19b-
4(f)(6) thereunder.\50\ At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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    \49\ 15 U.S.C. 78s(b)(3)(A).
    \50\ 17 CFR 240.19b-4(f)(6). The Exchange provided the
Commission with written notice of its intent to file this proposed
rule change on January 23, 2006.

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[[Page 6535]]

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

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include

File Number SR-PCX-2006-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-PCX-2006-04. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments,

all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the PCX.
    All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-PCX-2006-04
and should be submitted on or before March 1, 2006.

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

BILLING CODE 8010-01-P
