[Federal Register: December 29, 2003 (Volume 68, Number 248)]
[Notices]
[Page 75010-75011]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de03-107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48928; File No. SR-PCX-2003-59]
Self-Regulatory Organizations; Notice of Filing of a Proposed
Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc.
To Amend Its Rules Governing Market-Maker Obligations on the
Archipelago Exchange
December 16, 2003.
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 October 21, 2003, the Pacific Exchange, Inc. (``PCX'' or
``Exchange''), through its wholly-owned subsidiary PCX Equities, Inc.
(``PCXE''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been substantially prepared by the PCX.
On December 2, 2003, the PCX filed Amendment No. 1 to the proposed rule
change.\3\ 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\ Amendment No. 1 replaces the originally filed Form 19b-4 in
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PCX proposes to amend its rules governing Market Maker
obligations on the Archipelago Exchange (``ArcaEx''), the equities
trading facility of PCXE. Specifically, the Exchange proposes to modify
PCXE Rule 7.25(b) to eliminate the stipulation that Market Makers must
become Odd Lot Dealers in the securities in which they are registered.
Furthermore, the Exchange proposes to modify PCXE Rule 7.34(b) to
eliminate the requirement that Market Makers must maintain one Cleanup
Order for all of the securities in which they are registered. The text
of the proposed rule change is set forth below. Proposed new language
is in italics; proposed deletions are in [brackets].
* * * * *
Rule 7
Equities Trading
Registration of Odd Lot Dealers
Rule 7.25(a)--No change.
(b) Market Makers Registered in a Security. For each security in
which a Market Maker is registered, the Market Maker [must] may become
an Odd Lot Dealer in that security.
(c)-(e)--No change.
Trading Sessions
Rule 7.34(a)--No change.
(b) Market Maker Obligations.
(1)--No change.
(2) Market Makers [must] may, at their discretion, maintain one
Cleanup Order for [all] any securities in which they are registered for
each Market Order Auction.
(c)-(f)--No change.
* * * * *
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 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. The Exchange 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
As part of its continuing efforts to enhance participation on the
ArcaEx, the PCX is proposing to eliminate the stipulation that Market
Makers \4\ must become Odd Lot Dealers \5\ in the securities for which
they are registered. In addition, the Exchange is seeking to eliminate
the requirement for Market Makers to maintain Cleanup Orders.\6\ The
Exchange believes these restrictions currently impose a competitive
barrier vis-[agrave]-vis other market centers in attracting Market
Maker participation on ArcaEx because competing market centers do not
impose such requirements.\7\ Hence, the Exchange believes that removal
of these restrictions will place the ArcaEx at competitive parity with
other market centers.
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\4\ See PCXE Rule 1.1(u) (definition of ``Market Maker''). See
also PCXE Rules 7.20-7.23 relating to the registration and
obligations of Market Makers.
\5\ See PCXE Rule 1.1(gg) (definition of ``Odd Lot Dealer'').
See also PCXE Rule 7.25 relating to the registration of Odd Lot
Dealers.
\6\ See PCXE Rule 7.31(u) (definition of ``Cleanup Order'').
\7\ See e.g., NASD Rules 4611 and 4612.
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Currently, PCXE Rule 7.25(b) requires Market Makers to become Odd
Lot Dealers in each security in which they are registered. Once
registered, an Odd Lot Dealer is obligated to maintain an Odd Lot
Tracking Order \8\ during each day in which the PCXE is open for
business for each security in which the Odd Lot Dealer is registered.
The Exchange proposes to modify the requirement for all Market Makers
to become Odd Lot Dealers making it optional rather than a requirement.
The Exchange represents that the overall system impact from elimination
of this requirement would be minimal due to the fact that current
Market Maker activity on the ArcaEx affects a small number of
securities.\9\
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\8\ If an unfilled order or portion of an order that enters the
Tracking Order Process is an odd lot, ArcaEx would match the order
against any Odd Lot Tracking Orders (``OLTO''), using the same
rotation process as the Tracking Order Process. An OLTO, which could
only be submitted to ArcaEx by a registered Odd Lot Dealer, is a
Tracking Order in which: (1) The maximum aggregate size is
unlimited; (2) the maximum tradeable size is 99 shares; (3) the
price is set at the NBBO; (4) the security is one in which the Odd
Lot Dealer is registered as such; and, (5) the instruction would
have to be in effect for the duration of Core Trading Hours. See
PCXE Rule 7.31(f)(3), 7.31(g), and 7.37(c).
\9\ Currently, odd lots are able to receive execution by
matching to other odd lot or round lot orders. Under the proposed
rule change, odd lots would be handled in the same manner. Hence,
elimination of the requirement for Market Makers to become an Odd
Lot Dealer would have minimal impact on how odd lots are treated in
the marketplace as odd lots interact with round lot orders on a pure
price, time priority basis.
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Furthermore, pursuant to PCXE Rule 7.34(b), Market Makers are
required to maintain one Cleanup Order \10\ in all
[[Page 75011]]
securities for which they are registered for each Market Order
Auction.\11\ The Exchange proposes to allow Market Makers to submit
Cleanup Orders at their discretion. As the Cleanup Orders are only
utilized during Market Order Auction (when there is an imbalance of
order), as well as for the reasons stated above, the impact on the
system from removing this requirement would be minimal on the ArcaEx.
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\10\ Cleanup Up Orders are only applicable to Market Order
Auctions. Cleanup Orders (1) could be submitted only by Market
Makers; (2) would have to be submitted to ArcaEx before 6:15 a.m.
(Pacific time) and remain in effect until the conclusion of the
Market Order Auction; (3) would have to be 2500 shares in size; (4)
would have to be entered as both buy or sell orders, provided,
however, the Cleanup Order could be executed only on the side of the
market opposite the Imbalance; (5) would be executed at the
Indicative Match Price as of the time of the Market Order Auction;
and (6) would be executed only if: (i) there was an Imbalance of
eligible orders at the conclusion of the Market Order Auction, as
provided in proposed PCXE Rule 7.35; and (ii) the Imbalance is less
than or equal to aggregate size of all Cleanup Orders in the
relevant security. If there is an Imbalance and Cleanup Orders would
be executed, the market orders which make up the Imbalance would be
divided equally among, and allocated to, all Market makers
registered in the relevant security and executed against such market
makers' Cleanup Orders. If no Imbalance exists at the time of the
Market Order Auction, all Cleanup Orders would be cancelled at that
time.
\11\ See PCXE Rule 7.35(c) for a discussion of the Market Order
Auction process.
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The Exchange believes eliminating the aforementioned requirements
will facilitate additional Market Maker participation on ArcaEx and
will further enhance order interaction, provide greater depth in
liquidity, and foster price competition. Moreover, the Exchange
believes that the elimination of such requirements will place ArcaEx on
a level playing field with other market centers and allow ArcaEx to
fairly compete for Market Maker participation.
2. Statutory Basis
The PCX believes that the rule change is consistent with section
6(b) of the Act in general \12\ and section 6(b)(5) of the Act in
particular.\13\ The Exchange believes that the proposed rule change is
intended to remove impediments to and perfect the mechanism for a free
and open market and a national market system, and, in general, to
protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not 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
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the amended
proposal is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-PCX-2003-59. 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, comments should be sent in hard
copy or by e-mail, but not by both methods. 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 will also be available for
inspection and copying at the principal office of the PCX. All
submissions should refer to File No. SR-PCX-2003-59 and should be
submitted by January 20, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31809 Filed 12-24-03; 8:45 am]
BILLING CODE 8010-01-P