

[Federal Register: March 8, 2006 (Volume 71, Number 45)]
[Notices]               
[Page 11696-11698]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08mr06-133]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53394; File No. SR-PCX-2006-07]

 
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Add Open 
Order Modifiers

March 1, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 1, 2006, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), submitted to 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\ which 
renders it effective upon filing with the Commission. On February 28, 
2006, PCX filed Amendment No. 1 to the proposed rule change.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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    \4\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PCX, through its wholly-owned subsidiary PCX Equities, Inc. 
(``PCXE''), proposes to amend its rules governing the Archipelago 
Exchange (``ArcaEx''), the equity trading facility of PCXE, to add GTC 
and GTD modifiers for use on the Exchange and to specify the method in 
which GTC and GTD Orders will be adjusted in the event of a corporate 
action. The text of the proposed rule change is below. Additions are 
italicized; deletions are in [brackets].

Rules of PCX Equities, Inc.

Rule 7

Equities Trading

* * * * *
Rule 7.31 Orders and Modifiers
    (a)-(b) No change.
    (c) Time in Force
    (1) Day Order. An order to buy or sell which, if not executed, 
expires at the end of the day on which it was entered.
    (2) Good Till Cancelled (``GTC'') Order. An order to buy or sell 
(or unexecuted portion thereof) which, if not executed, remains in 
effect until executed, cancelled by the entering party, or expiration, 
whichever comes first. All unexecuted portions of GTC Orders will be 
cancelled by the Corporation one year after initial entry.
    (3) Good Till Date (``GTD'') Order. An order to buy or sell (or 
unexecuted portion thereof) set to expire following the close of the 
core session of the pre-determined date specified by the entering party 
which, if not executed, remains in effect until executed, cancelled by 
the entering party, or expiration, whichever comes first. All 
unexecuted portions of GTD Orders will be cancelled by the Corporation 
one year after initial entry.
* * * * *
Rule 7.39 [Reserved] Adjustment of Open Orders

    The Archipelago Exchange will automatically adjust the price and/or 
size of round and odd lot Open Orders, as defined in PCXE Rule 7.31, in 
all ArcaEx eligible securities (unless instructed otherwise by the 
entering party) resident in the system in response to issuer corporate 
actions (i.e., dividend payment or distribution, stock split, mergers 
and acquisitions), as follows:
    (a) Sell Orders--Sell Orders in the system shall not be adjusted by 
the Corporate Action Processing (``CAP'') System and must be modified, 
if desired, by the entering party, except for reverse splits where such 
sell side orders shall be purged from the system.
    (b) Buy Orders--Buy side orders shall be adjusted by the CAP System 
based on the particular corporate action impacting the security as set 
forth below:
    (1) Cash Dividends: Buy side order prices shall be first reduced by 
the dividend amount and the resulting price will be rounded to the 
nearest penny.
    (2) Stock Dividends and Stock Splits: Buy side order prices shall 
be determined by first rounding up the dollar value of the stock 
dividend or split to the nearest penny. The resulting amount shall then 
be subtracted from the price of the buy order. The size of the order 
shall be adjusted by first (A) multiplying the size of the original 
order by the numerator of the ratio of the dividend split, then (B) 
dividing that result by the denominator of the ratio of the dividend 
split, then (C) rounding that result to the next lowest share.
    (3) Dividends Payable in Either Cash or Securities at the Option of 
the Stockholder: Buy side order prices shall be reduced by the dollar 
value of either the cash or securities, whichever is greater. The 
dollar value of the cash shall be determined using the formula in 
paragraph (1) above, while the dollar value of the securities shall be 
determined using the formula in paragraph (2) above. If the stockholder 
opts to receive securities, the size of the order shall be increased 
pursuant to the formula in subparagraph (2) above.
    (4) Combined Cash and Stock Dividends/Split: In the case of a 
combined cash dividend and stock split/dividend, the cash dividend 
portion shall be calculated first as per section (1) above, and stock 
portion thereafter pursuant to sections (2) and/or (3) above.
    (5) Reverse Splits: All orders (buy and sell) shall be cancelled 
and returned to the entering party.
    (c) Stop Orders To Sell--Sell Stop Orders will be handled in the 
same manner as Buy Orders as mentioned in section (b) in the event of a 
corporate action.
    (d) Open Orders that are adjusted by the CAP System pursuant to the 
above rules, and that thereafter continuously remain in the system, 
shall retain the time priority of their original entry.
    (e) In the event a corporate action is identified by the 
Corporation at a time in which an adjustment to all affected open buy 
orders and sell stop orders could not be made, the Corporation will 
cancel all such orders and notify the entering party(ies).
* * * * *

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the

[[Page 11697]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange 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
    The Exchange proposes to amend PCXE Rule 7.31 to introduce new 
time-in-force modifiers to be available for certain order types as part 
of its continuing efforts to enhance participation on the ArcaEx 
trading facility.
    The modifiers, known as Good Till Cancelled (GTC) and Good Till 
Date (GTD), would permit certain orders to buy or sell to remain in 
effect until executed, cancelled by the entering party, or until they 
expire. Currently, all non-marketable orders submitted by ETP Holders 
are eligible for execution only on the date on which they were entered. 
All unexecuted orders expire at the end of the day on which they were 
entered. This proposal seeks to add time-in-force modifiers that would 
be available to extend beyond the current trading session and provide 
ETP Holders with more flexibility in managing their orders. The 
proposed modifiers are similar to those found on other market 
centers.\5\
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    \5\ See New York Stock Exchange, Inc., Rule 13, and National 
Association of Securities Dealers, Inc., Rule 4706.
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    GTC and GTD Order Type Modifiers. A GTC or GTD Order Modifier (also 
known as ``Open Orders'') would be a time-in-force order parameter to 
permit orders to buy or sell to remain in effect until executed, 
cancelled by the entering party, or expiration. All valid Open Orders 
remaining on the ArcaEx book at the end of the core trading session (1 
p.m. Pacific Time) would be held open and be available for execution in 
the Arca Book beginning at 6:30 a.m. Pacific Time the following day.
    The difference between the various Open Orders is described as 
follows. A GTC modifier would be an order (or unexecuted portion 
thereof) to buy or sell which would remain in effect until executed or 
until cancelled by the entering party. Orders with a GTD modifier would 
be an order (or unexecuted portion thereof) to buy or sell set to 
expire following the close of the core session of the pre-determined 
date specified by the entering party and would remain in effect until 
executed, expired, or cancelled by the entering party. All Open Orders 
not executed, expired, or cancelled by the entering party within one 
year from date of entry would be automatically cancelled by the 
Exchange following notification of such action being sent to the 
entering party.
    Open Order Execution Priority in ArcaEx. All orders subject to a 
GTC and GTD modifier may be entered during any trading session but 
would be eligible for execution only during the core session. The 
orders would be ranked in accordance with PCXE Rule 7.36 and would be 
executed in such a price/date/time priority in accordance with PCXE 
Rule 7.37 based on the time and date stamp and conditions from initial 
entry.
    Orders Types Eligible for GTC or GTD Modifiers. ETP Holders, upon 
prior notice from PCXE, would be permitted to enter GTC or GTD 
modifiers for certain order types available on ArcaEx. Initially, these 
would include: Limit Orders, Stop Orders, and Stop Limit Orders.\6\ All 
other order types would be accepted if entered with any of the proposed 
order modifiers but would treated as they are currently and be 
cancelled at the end of the core trading session, rather than be 
available for execution the following day.
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    \6\ As defined by PCXE Rule 7.31.
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    Corporate Actions. PCX also proposes to add Rule 7.39 to identify 
the procedures the Exchange will follow to adjust Open Orders on the 
ArcaEx book in the event of a corporate action. These procedures are 
similar to those found on other market centers.\7\
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    \7\ See National Association of Securities Dealers, Inc. Rule 
4715; see also New York Stock Exchange, Inc. Rule 118.
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    All valid Open Orders remaining on the ArcaEx book at the end of 
the core trading session would be removed and stored within a separate 
database. During this time, any information received from the 
Depository Trust & Clearing Corporation (``DTCC'') in relation to a 
corporate action (i.e. dividend payment, stock split, mergers and 
acquisitions, etc.) for a specific security would be entered into the 
Corporate Action Processing System (``CAP''). Additionally, a 
``Corporate Action Notice System'' would produce web-based corporate 
action information relating to these events to notify ArcaEx Users.\8\ 
When this occurs, the price and/or number of shares for Open Orders 
would be modified to reflect the change to the original order as 
described in PCXE Rule 7.39. For example, open buy orders and open sell 
stop orders for a security would be similarly adjusted by the CAP 
System in accordance with the proposed rule, depending on the type of 
corporate action affecting the security. The system would not alter 
open sell orders in the event of any corporate action, and all open 
orders for a security would be cancelled and returned to the entering 
party in the event of a reverse split for that security. ArcaEx would 
offer the option to allow ETP Holders to designate whether their Open 
Order should be modified by ArcaEx in the event of a corporate action 
and would permit ETP Holders to instruct that the order be cancelled in 
such an event.
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    \8\ See PCXE Rule 1.1(x).
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    Open Orders for ETP Holders that do not wish the affected order to 
be cancelled automatically by the Exchange in the event of a Corporate 
Action would be adjusted accordingly as described above by CAP and the 
adjusted Open Order would be re-posted into the ArcaEx book. Such 
orders shall be ranked in accordance with PCXE Rule 7.36, and would be 
executed in such a price/time priority in accordance with PCXE Rule 
7.37 based upon the original order entry time.
    Open Orders that are affected by corporate actions of which the 
Exchange was not aware of prior to ranking all adjusted Open Orders in 
the ArcaEx book for execution would be automatically cancelled by 
ArcaEx.\9\
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    \9\ Open Orders would be cancelled by the Exchange only for buy-
side and sell stop orders affected by Corporate Actions. In the 
event of a reverse split, all Open Orders affected would be 
cancelled by the Exchange.
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    ArcaEx, in its efforts to continually offer a competitive market 
structure and provide more execution opportunities and ease of order 
flow management for ETP Holders, proposes to add these order modifiers.
2. Statutory Basis
    PCX believes that the proposed rule change is consistent with 
Section 6(b) \10\ of the Act, in general, and furthers the objectives 
of Section 6(b)(5),\11\ in particular, in that it is designed to 
facilitate transactions in securities, to promote just and equitable 
principles of trade, to enhance competition, and to protect investors 
and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.

[[Page 11698]]

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

    PCX has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\13\ Because the foregoing proposed rule change: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder. As required under Rule 19b-
4(f)(6)(iii), PCX provided the Commission with written notice of its 
intent to file the proposed rule change at least five business days 
prior to filing the proposal with the Commission or such shorter period 
as designated by the Commission. PCX has requested that the Commission 
waive 30-day delayed operational date provisions contained in the above 
rule, based upon a representation that accelerating the operative date 
would allow investors to immediately benefit from execution 
opportunities on ArcaEx. For this reason, the Commission designates the 
proposal to be effective and operative upon filing with the Commission.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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.\14\
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    \14\ The effective date of the original proposed rule change is 
February 1, 2006 and the effective date of Amendment No. 1 is 
February 28, 2006. For purposes of calculating the 60-day period 
within which the Commission may summarily abrogate the proposed rule 
change, as amended, under section 19(b)(3)(C) of the Act, the 
Commission considers the period to commence on February 28, 2006, 
the date on which PCX submitted Amendment No. 1. See 15 U.S.C. 
78s(b)(3)(C).
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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, as amended, 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-2006-07 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-2006-07. 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 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-2006-07 and should be submitted on or before March 29, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
Nancy M. Morris,
Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-3276 Filed 3-7-06; 8:45 am]

BILLING CODE 8010-01-P
