

[Federal Register: February 27, 2006 (Volume 71, Number 38)]
[Notices]               
[Page 9845]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27fe06-80]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53338; File No. SR-PCX-2005-141]

 
Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change Relating to Modifications to the 
Archipelago Exchange's Closing Auction

February 21, 2006.
    On December 21, 2005, the Pacific Exchange, Inc. (``PCX''), through 
its wholly owned subsidiary PCX Equities, Inc. (``PCXE''), 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 amend its rules 
governing the Closing Auction \3\ of the Archipelago Exchange 
(``ArcaEx''), the equities trading facility of PCXE. The proposed rule 
change was published for notice and comment in the Federal Register on 
January 19, 2006.\4\ The Commission received no comment letters on the 
proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See PCXE Rule 7.35(e).
    \4\ See Securities Exchange Act Release No. 53096 (January 11, 
2006), 71 FR 3145.
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    The proposed rule change would clarify ArcaEx's Closing Auction 
functionality and conform it substantially to its Market Order Auction 
rules.\5\ Specifically, the proposed rule change would provide that if 
there were Limited Price Orders \6\ eligible for execution in the 
Closing Auction, the Closing Auction price would be the Indicative 
Match Price \7\ and that if no such orders were eligible for execution, 
any Market-on-Close Orders (``MOC'') \8\ submitted to participate in 
the Closing Auction, would be rejected. In addition to a few non-
substantive changes, the proposed rule change would clarify the 
priority for execution of orders on the side of an imbalance in the 
Closing Auction and the circumstances, such as system malfunctions, in 
which Limit-on-Close Orders (``LOC'') \9\ and MOC Orders would be 
cancelled. The Exchange also proposes to delete a provision in the 
Closing Auction rule related to limiting the Closing Auction price to a 
threshold amount since a similar concept is already incorporated into 
the definition ``Indicative Match Price.''
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    \5\ See PCXE Rule 7.35(c).
    \6\ See PCXE Rule 1.1(s).
    \7\ See PCXE Rule 1.1(r).
    \8\ See PCXE Rule 7.31(dd).
    \9\ See PCXE Rule 7.31(ee).
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    The proposed rule change would limit the Closing Auction to 
Exchange-listed securities, including Exchange-listed funds for which 
PCXE is the primary market. In its filing, the Exchange explained that, 
as a result of limited participation and limited liquidity in the 
ArcaEx Closing Auction, orders are frequently executed at prices that 
vary from the closing prices at other primary markets. The proposed 
rule change is aimed at protecting Users \10\ from executions that may 
occur at such prices. In addition, the proposal would clarify that 
orders submitted to the Closing Auction while such auction is suspended 
would be rejected.
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    \10\ See PCXE Rule 1.1(yy).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\11\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\12\ which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and, in general, to protect investors and the public 
interest. The Commission believes that the proposed rule change is 
reasonably designed to clarify and conform substantially the Closing 
Auction pricing mechanism to the Market Order Auction pricing 
mechanism, as well as to provide investors with a clearer understanding 
of how orders will be priced in the Closing Auction. Further, the 
proposal appears to be reasonably designed to delineate the 
circumstances under which the PCXE may suspend the Closing Auction, 
which should enhance transparency for Users as to when a Closing 
Auction in a particular security may not occur.
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    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-PCX-2005-141) be, and hereby 
is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Nancy M. Morris,
Secretary.
[FR Doc. E6-2686 Filed 2-24-06; 8:45 am]

BILLING CODE 8010-01-P
