[Federal Register: December 16, 2003 (Volume 68, Number 241)]
[Notices]
[Page 70071-70072]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16de03-99]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48888; File No. SR-PCX-2003-46]
Self-Regulatory Organizations; Order Approving a Proposed Rule
Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc.
Relating to Transmission of Identity Orders
December 5, 2003.
I. Introduction
On September 5, 2003, the Pacific Exchange, Inc. (``PCX'') 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 offer an
identity order feature to its Equities Trading Permit (``ETP'')
Holders. On September 30, 2003, the Exchange filed Amendment No. 1 to
the proposed rule change. The proposed rule change, as amended, was
published for public comment in the Federal Register on October 16,
2003.\3\ The Commission received one comment letter on the proposal.\4\
This order approves the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 48598 (October 7,
2003), 68 FR 59663.
\4\ See letter dated November 21, 2003, from Duncan L.
Niederauer, Managing Director, Spear, Leeds and Kellogg to Jonathan
G. Katz, Secretary, Commission.
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II. Description of the Proposal
The PCX proposes to offer ETP Holders the ability to display their
identities with orders entered into the Archipelago Exchange
(``ArcaEx''). The identity order feature would offer an ETP Holder the
choice to display its unique ETP Identifier (``ETPID'') with a
specified order. Alternatively, an ETP Holder may choose to remain
anonymous.
Any identity orders entered into ArcaEx would be included in the
Arca Book data feed that ArcaEx makes available free of charge to Users
\5\ and other subscribers. Identity orders would also be included in
the ArcaEx limit order book that is displayed for free on the ArcaEx
Web site.
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\5\ See PCXE Rule 1.1( yy) for the definition of ``User.''
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ArcaEx would process orders designated as identity orders no
differently from other orders sent to ArcaEx. PCXE Rules 7.36 (Order
Ranking and Display) and 7.37 (Order Execution) set forth the order
interaction process for orders entered on the ArcaEx. Orders designated
as identity orders would be ranked, displayed, and executed under the
same criteria (under PCXE Rules 7.36 and 7.37) as anonymous orders in
the ArcaEx. ArcaEx has no capacity limitations on the number of
identity orders that could be displayed for an individual security.
The purpose of the identity order feature is to provide more
visibility to those ETP Holders who may choose to identify their ETPIDs
with their trading interest in a particular security. The PCX believes
that the identity order feature would benefit investors by increasing
market transparency in an automatic execution venue such as ArcaEx. By
providing a mechanism by which ETP Holders could display their
identities, ArcaEx hopes to attract more orders and contribute more
liquidity to the market while adding to the transparency of trading
interest.
III. Summary of Comments
As noted above, the Commission received one comment in response to
the proposed rule change, which supported the proposal. The commenter
believed that allowing ETP Holders to choose to display their orders
with their unique ETPIDs promotes market transparency in general and is
therefore consistent with a key National Market System goal. The
commenter also noted that the ability to trade on ArcaEx on an
attributed or anonymous basis would be similar to the ability of
participants in the Nasdaq Stock Market, Inc's SuperMontage to trade on
an attributed basis using their own MPID or on an anonymous basis using
the SIZE feature.
IV. Discussion
To facilitate the identity order feature, the PCX has proposed to
amend PCXE Rules 7.7(b) and 7.36(b). Currently, PCXE Rule 7.7(b)
prohibits an ETP Holder from transmitting information ``regarding a
bid, offer or other indication of an order'' to a non-ETP Holder until
the bid, offer or other indication of information has been disclosed
and permission to transmit the information has been obtained from the
originating ETP Holder. Conversely, PCXE Rule 7.36(b) provides for
anonymity in displaying orders in the Display Order Process \6\ of the
ArcaEx Book.\7\
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\6\ See PCXE Rule 7.36(a)-(c) for a discussion of the Display
Order Process.
\7\ See PCXE Rule 1.1(a) for a definition of Arca Book.
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The Exchange wishes to revise PCXE Rule 7.36(b) to state that
except as
[[Page 70072]]
provided by PCXE Rule 7.7(b), all orders at all price levels will
continue to be displayed on an anonymous basis. Therefore, a User could
choose to either display its ETPID or remain anonymous.
Additionally, the Exchange proposes to revise PCXE Rule 7.7(a) \8\
to reflect the proposed changes to PCXE Rules 7.7(b) and 7.36(b).
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\8\ PCXE Rule 7.7(a) provides that ``[t]he names of ETP Holders
bidding for or offering securities through the use of the facilities
of the Corporation shall not be transmitted from the facilities of
the Corporation to a non-holder of an ETP. No ETP Holder having the
right to trade through the facilities of the Corporation and who has
been a party to or has knowledge of an execution shall be under
obligation to divulge the name of the buying or selling firm in any
transaction.''
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In the proposed rule change, the PCX represented that identity
orders would be centrally processed for execution by computer, subject
to the same price, time, and priority rules that govern the automated
matching and execution of orders. According to the PCX, the use of
identity orders on ArcaEx would not confer ETP Holders any time and
place advantages over other orders on ArcaEx, and would therefore
comply with the requirements and policy concerns underlying section
11(a) of the Act.\9\ The PCX also represented that the proposed rule
change would not alter the responsibilities of market makers and would
not change the manner in which market maker orders are processed and
executed within ArcaEx. Finally, the PCX represented that PCXE has
developed procedures to maintain a high level of surveillance of ETP
Holders and their use of specific order types, including mechanisms to
help detect manipulation of prices on ArcaEx, through the use of
identity orders or otherwise.
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\9\ 15 U.S.C. 78k(a).
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Based, in part, on the PCX's representations, the Commission is
approving the PCX's introduction of the identity order feature. The
Commission finds that the proposed rule change, as amended, is
consistent with the requirements of section 6 of the Act \10\ and the
rules and regulations thereunder applicable to a national securities
exchange.\11\ In particular, the Commission finds that the identity
order feature is consistent with section 6(b)(5) of the Act,\12\ which
requires, among other things, that the Exchange's rules be designed to
perfect the mechanisms of a free and open market and, in general, to
protect investors and the public interest. The Commission believes that
providing ETP Holders with the ability to display their identity on an
order-by-order basis will add to market transparency by offering market
participants the option of anonymity in placing orders on the PCX.
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\10\ 15 U.S.C. 78f(b).
\11\ In approving the proposed rule change, the Commission has
considered its 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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V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-PCX-2003-46), is approved,
as amended.
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\13\ 15 U.S.C. 78s(b)(2).
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. 03-30940 Filed 12-15-03; 8:45 am]
BILLING CODE 8010-01-P