Self-regulatory organizations; proposed rule changes: Pacific Exchange, Inc.,

[Federal Register: March 1, 2004 (Volume 69, Number 40)]

[Notices]

[Page 9670-9672]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr01mr04-114]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49293; File No. SR-PCX-2004-02]

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. Relating to the Elimination of the Posting Period for an Application for Reinstatement

February 23, 2004.

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 28, 2004, the Pacific Exchange, Inc. (``PCX'' or ``Exchange''), through its wholly owned subsidiary PCX Equities, Inc. (``PCXE''), filed with the Securities and Exchange Commission (``Commission'' or ``SEC'') the proposed rule change as described in items I, II, and III below, which items have been prepared by the Exchange. On February 18, 2004, the PCX amended the proposed rule change.\3\ The PCX filed the proposal pursuant to section 19(b)(3)(A) of the Act,\4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal effective upon filing with the Commission.\6\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

\3\ See letter from Steven B. Matlin, Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (``Division''), Commission, dated February 9, 2004 (``Amendment No. 1''). In Amendment No. 1, the PCX provided additional justification for its proposal under section 6(b)(3) of the Act and corrected the title of the proposed rule change. For purposes of calculating the 60-day abrogation period, the Commission considers the period to have commenced on February 18, 2004, the date the Exchange filed Amendment No. 1.

\4\ 15 U.S.C. 78s(b)(3)(A).

\5\ 17 CFR 240.19b-4(f)(6).

\6\ The PCX provided the Commission with notice of its intent to file the proposed rule change on January 21, 2004. See Rule 19b- 4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The PCX proposes to amend its rules governing the Archipelago Exchange (``ArcxEx''), the equities trading facility of PCXE, by amending PCXE Rule 11.7 to eliminate the 10-day period upon which the Exchange must give notification to all Equity Trading Permit (``ETP'') Holders of an application for reinstatement. The text of the proposed rule change is available at the Office of the Secretary, PCX and at the Commission.

2. 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 PCX has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

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

      1. Purpose

      As part of its ongoing efforts to enhance participation on ArcaEx, the PCX recently amended its rules to expedite the timeframe within which new ETP Holders may effect transactions on the Exchange. On September 24, 2003, the Exchange eliminated its requirement that the names of all new ETP applicants must be published for 10 days in the Exchange's Weekly Bulletin.\7\ The Exchange notes that although it eliminated the 10-day posting period for new applicants, it maintains the 10-day posting period for applicants seeking reinstatement to the Exchange pursuant to PCXE Rule 11.7. In order to make the rules consistent, the Exchange is proposing to amend PCXE Rule 11.7 to eliminate the 10-day period during which the Exchange must give notification to all ETP Holders of an application for reinstatement.

      \7\ See Securities Exchange Act Release No. 34-48532 (September 24, 2003), 68 FR 56369 (September 30, 2003) (SR-PCX-2003-43).

      The Exchange's current rules governing reinstatement procedures for ETP Holders and associated persons of ETP Holders are set forth in PCXE Rule 11.7. Presently, PCXE Rule 11.7 provides that upon sufficient proof of a resolution of the problem or problems responsible for such suspension, the Exchange shall notify in writing all ETP Holders of the application for reinstatement and that a meeting of the PCXE Board will be held not less than 10 business days subsequent to such notice. Historically, membership-based exchanges in which members have ownership and involvement in determining who should be granted access to their facilities used posting

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      rules to notify members of parties interested in joining the exchange. Consistent with the rationale of eliminating the requirement for new applicants, the Exchange believes that because PCXE is a demutualized organization in which there are no ownership or voting rights, the posting period is not a critical part of the application or reinstatement process. Accordingly, the Exchange proposes to amend PCXE Rule 11.7 to eliminate the 10-day notification period.

      The Exchange believes that the elimination of the posting process promotes a more efficient and effective market operation by enabling Exchange access to ETP Holders in a more timely manner. Due to the fact that ETP Holders are not involved in the application approval process, and because the basis for the notification process was to inform individuals who were involved in membership decisions of the status of such applications, the Exchange believes eliminating the posting period is merely an administrative change necessary to streamline the process of enabling ETP Holders access to the Exchange. 2. Statutory Basis

      The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act,\8\ in general, and further the objectives of section 6(b)(5),\9\ in particular, because it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments and perfect the mechanisms of a free and open market and to protect investors and the public interest. Furthermore, the Exchange believes the elimination of this requirement is consistent with section 6(b)(3) of the Act.\10\ While PCXE is demutualized and therefore does not contain the traditional approval process for its applicants as a membership-based exchange, the fair representation requirements of section 6(b)(3) of the Act \11\ would still be satisfied after the proposed rule change is approved through the ETP representative on the PCX Board of Governors.\12\

      \8\ 15 U.S.C. 78f(b).

      \9\ 15 U.S.C. 78f(b)(5).

      \10\ 15 U.S.C. 78f(b)(3).

      \11\ Id.

      \12\ See Amendment No. 1, supra note 3.

   2. 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.

   3. 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.

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

   The proposed rule change has been filed by the Exchange as a ``non- controversial'' rule change pursuant to section 19(b)(3)(A) of the Act \13\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\14\ Consequently, 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) by its terms does not become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\

   \13\ 15 U.S.C. 78s(b)(3)(A).

   \14\ 17 CFR 240.19b-4(f)(6).

   \15\ 15 U.S.C. 78s(b)(3)(A).

   \16\ 17 CFR 240.19b-4(f)(6).

   Pursuant to Rule 19b-4(f)(6)(iii),\17\ a proposed ``non- controversial'' rule change does not become operative for 30 days after 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 PCX has requested that the Commission waive the 30-day operative delay so that the proposed rule change will become immediately effective upon filing.\18\

   \17\ 17 CFR 240.19b-4(f)(6)(iii).

   \18\ In its original filing, the PCX inadvertently requested that the Commission also waive the five-day pre-filing period. The PCX had, in fact, already provided the Commission with the appropriate five-day pre-filing notice. Telephone call between Steven B. Matlin, Regulatory Policy, PCX, and David Hsu, Attorney, Division, Commission on February 4, 2004.

   The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest,\19\ because it will allow for a more efficient and effective market operation by enabling Exchange access to new ETP Holders in a more timely manner. For this reason, the Commission designates the proposed rule change to be effective and operative immediately.

   \19\ For purposes of accelerating the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).

   At any time within 60 days after 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.

4. Solicitation of Comments

   Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed change, as amended, 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-2004-02. 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 Section. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-PCX-2004-02 and should be submitted by March 22, 2004.

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   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\20\

   \20\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 04-4431 Filed 2-27-04; 8:45 am]

   BILLING CODE 8010-01-P