[Federal Register Volume 65, Number 242 (Friday, December 15, 2000)]
[Notices]
[Pages 78822-78893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30518]



[[Page 78821]]

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Part VII





Securities and Exchange Commission





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Self-Regulatory Organizations; Filing of a Proposed Rule Change by the 
Pacific Exchange, Inc. and Amendment No. 1 Thereto Relating to the 
Archipelago Exchange; Notice

Federal Register / Vol. 65, No. 242 / Friday, December 15, 2000 / 
Notices

[[Page 78822]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43608; File No. SR-PCX-00-25]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the Pacific Exchange, Inc. and Amendment No. 1 Thereto 
Relating to the Archipelago Exchange

November 21, 2000.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 31, 2000, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its subsidiary PCX Equities, Inc. (``PCXE'' or 
``Corporation'') pursuant to delegated authority, 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 PCXE. On November 9, 2000, the Exchange 
filed Amendment No. 1 to the proposal.\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\ This notice represents Amendment No. 1 and replaces the 
proposed rule change, as originally filed, in its entirety. See 
letter from Cherie Macauley, Counsel for the Exchange, Wilmer, 
Cutler, & Pickering, to John Polise, Senior Special Counsel, 
Division of Market Regulation, dated November 9, 2000 (``Amendment 
No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX, through its wholly-owned subsidiary PCXE, proposes to 
create a new electronic trading facility of the PCXE, called the 
Archipelago Exchange (``Arca''). The text of the proposed rule change 
has been posted to the Commission's web site, www.sec.gov, and is 
attached here (in blacklined version) as Appendix A.

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 PCXE 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 PCXE 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

    The PCXE proposes to establish rules for Arca, a new exchange 
facility, as that term is defined in Section 3(a)(2) of the Act.\4\ 
Arca, which is to be operated by Archipelago Exchange, L.L.C., would be 
an electronic securities communications and trading facility intended 
for the use of Equity Trading Permit (``ETP'') Holders and their 
customers.\5\ Arca would provide automatic order execution capabilities 
in the equity securities listed or traded on the PCXE. It is the PCXE's 
intent to operate the Arca facility in the place of the PCXE's 
traditional floor trading environment and thus PCXE also proposes to 
eliminate the existing PCXE Rules related to floor trading.
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    \4\ Under the Act the ``term ``facility'' when used with respect 
to an exchange includes its premises, tangible or intangible 
property whether on the premises or not, any right to the use of 
such premises or property or any service thereof for the purpose of 
effecting or reporting a transaction on an exchange (including, 
among other things, any system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange), and any right of the exchange to the use of any 
property or service.'' See 15 U.S.C. 78c(a)(2).
    \5\ See proposed PCXE Rule 1.1(e) (definition of ``Archipelago 
Exchange'').
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1. Relationship of Archipelago Exchange, L.L.C., to PCX Equities, Inc.
    The PCX and PCXE have entered into various agreements with 
Archipelago Holdings, L.L.C., under which Archipelago Exchange, L.L.C., 
a subsidiary of Archipelago Holdings, L.L.C., would operate Arca as a 
facility of the PCXE. Pursuant to these agreements, PCX and PCXE would 
maintain responsibility for all regulatory functions related to the 
facility and Archipelago Exchange, L.L.C., would be responsible for the 
business of the facility to the extent those activities are not 
inconsistent with the regulatory and oversight functions of PCX and 
PCXE.
    The relationship between the PCX, PCXE, and the Archipelago 
entities is explained further in proposed PCXE Rule 14.3.\6\ Under 
proposed PCXE Rule 14.3(a), the books, records, premises, officers, 
directors, agents and employees of Archipelago Exchange, L.L.C., would 
be deemed to be the books, records, premises, officers, directors, 
agents and employees of PCX and PCXE for purposes of, and subject to, 
oversight pursuant to the Act. The books and records of Archipelago 
Exchange, L.L.C., would be subject at all times to inspection and 
copying by the PCX, PCX Equities, and the SEC. In addition, proposed 
PCXE Rule 14.3(b) states that ``[a]ll officers and directors of 
Archipelago Holdings, L.L.C., shall be deemed to be officers and 
directors of PCX and PCXE for purposes of and subject to oversight 
pursuant to the Securities Exchange Act.'' As set forth in proposed 
PCXE Rule 14.3(c), however, paragraphs (a) and (b) of proposed PCXE 
Rule 14.3 would not be deemed to create any rights or benefits for any 
person or entity other than the SEC.
2. Archipelago Exchange
    The PCXE describes Arca, the proposed electronic trading venue, as 
a limit order book, characterized by price-time priority that would 
provide execution enhancements such as additional order types. Under 
the proposal, market makers would participate electronically in Arca to 
enhance liquidity in the book and could interact with order flow 
subject to automatic price improvement requirements. In addition, 
orders could be crossed on Arca subject to price improvement where the 
price and time priority of the limit order book is protected.
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    \6\ In addition to proposed PCXE Rule 14.3, the PCXE proposes to 
clarify the Delegation Plan by adding the following language to 
proposed PCXE Rule 14.1(b): ``and all officers, directors, 
employees, and agents of PCX Equities are officers, directors, 
employees, and agents of the PCX for purposes of the Act. The books 
and records of PCX Equities would be subject at all times to 
inspection and copying by the PCX.''
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    Arca is described in more detail in the following subsections. 
Specifically, subsection (a) describes who may access Arca. Subsection 
(b) discusses the registration requirements as well as the trading 
obligations of market makers and Odd Lot Dealers. Subsection (c) 
describes trading on Arca in detail, including a description of how 
orders are executed during Arca's three trading sessions. Finally, 
subsections (d) through (g) discusses the proposed rules regarding 
trade execution and reporting, clearance and settlement, Arca's 
interaction with OptiMark, and the limitation of liability with regard 
to Arca, respectively.
    a. Access to the Archipelago Exchange. The PCXE would authorize any 
ETP Holder or Sponsored Participant (collectively, ``Users'')\7\ who 
meet certain enumerated requirements to obtain access to Arca. A 
``Sponsored Participant'' is a person, such as an institutional 
investor, who has entered into a sponsorship arrangement with an

[[Page 78823]]

ETP Holder.\8\ The requirements for access are as follows: First, all 
Users--both ETP Holders and Sponsored Participants--would have to enter 
into a User Agreement\9\ with Archipelago Exchange, L.L.C., the 
operator of the Arca facility.\10\ Second, Sponsored Participants would 
have to enter into a sponsorship arrangement with a ``Sponsoring ETP 
Holder,'' which is defined as an ETP Holder that has been designated by 
a Sponsored Participant to execute, clear and settle transactions on 
Arca.\11\ The sponsorship arrangement consists of three separate 
components. First, the Sponsored Participant would have to enter into 
and maintain a customer agreement with its Sponsoring ETP Holder, 
establishing a proper relationship and account through which the 
Participant may trade on Arca.\12\
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    \7\ See proposed PCXE Rule 1.1(oo) (definition of ``User'').
    \8\ See proposed PCXE Rule 1.1(jj) (definition of ``Sponsored 
Participant'').
    \9\ See proposed PCXE Rule 1.1(pp) (definition of ``User 
Agreement'').
    \10\ See proposed PCXE Rule 7.29(a).
    \11\ See proposed PCXE Rule 1.1(kk) (definition of ``Sponsoring 
ETP Holder''). A Sponsoring ETP Holder must be either (i) a clearing 
firm with membership in a clearing agency registered with the 
Commission that maintains facilities through which transactions may 
be cleared or (ii) a correspondent firm with a clearing arrangement 
with any such clearing firm. Id.
    \12\ See proposed PCXE Rule 7.29(b)(1).
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    Second, the Sponsored Participant and its Sponsoring ETP Holder 
would have to enter into a written agreement which incorporates the 
Sponsorship Provisions,\13\ which include the following:

    \13\ See proposed PCXE Rule 1.1(ll) (definition of ``Sponsorship 
Provisions'').
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    (1) The Sponsoring ETP Holder acknowledges and agrees that: (i) 
All orders entered by its Sponsored Participant and any person 
acting on behalf of or in the name of such Sponsored Participant and 
any executions occurring as a result of such orders are binding in 
all respects on the Sponsoring ETP Holder and (ii) the Sponsoring 
ETP Holder is responsible for any and all actions taken by such 
Sponsored Participant and any person acting on behalf of or in the 
name of such Sponsored Participant.
    (2) The Sponsored Participant agrees that it will comply with 
the PCXE Certificate of Incorporation, Bylaws, Rules and procedures 
with regard to its activity on Arca, as if the Sponsored Participant 
were an ETP Holder.
    (3) The Sponsored Participant agrees that it will maintain, keep 
current and provide to the Sponsoring ETP Holder a list of its 
Authorized Traders who may obtain access to Arca on behalf of the 
Sponsored Participant(s).
    (4) The Sponsored Participant agrees that it will familiarize 
its Authorized Traders with all of the Sponsored Participant's 
obligations under its Arca-related agreements and the PCXE Rules and 
will assure that they receive appropriate training prior to any use 
or access to Arca.
    (5) The Sponsored Participant agrees that it will not permit 
anyone other than Authorized Traders to use or obtain access to 
Arca.
    (6) The Sponsored Participant agrees that it will take 
reasonable security precautions to prevent unauthorized use or 
access to Arca, including unauthorized entry of information into 
Arca, or the information and data made available therein. The 
Sponsored Participant understands and agrees that it is responsible 
for any and all orders, trades and other messages and instructions 
entered, transmitted or received under identifiers, passwords and 
security codes of Authorized Traders, and for the trading and other 
consequences thereof.
    (7) The Sponsored Participant acknowledges its responsibility 
for establishing adequate procedures and controls that permit it to 
effectively monitor its employees, agents and customers' use of and 
access to Arca for compliance with the terms of the Sponsorship 
Provisions.
    (8) The Sponsored Participant agrees that it will pay when due 
all amounts, if any, payable to the Sponsoring ETP Holder, 
Archipelago Exchange, L.L.C., PCXE, or any other third parties that 
arise from the Sponsored Participant's access to and use of Arca. 
Such amounts include, but are not limited to, applicable exchange 
and regulatory fees.\14\
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    \14\ See proposed PCXE Rule 7.29(b)(2).

    Finally, the Sponsoring ETP Holder would have to provide PCXE with 
a ``Notice of Consent,\15\ which acknowledges the Sponsoring ETP 
Holder's its responsibility for the orders, executions and actions of 
its Sponsored Participant.\16\
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    \15\ See proposed PCXE Rule 1.1(y) (definition of ``Notice of 
Consent'').
    \16\ See proposed PCXE Rule 7.29(b)(3).
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    As a further condition to access to Arca, each ETP Holder would 
have to maintain an up-to-date list of persons who could obtain access 
to Arca on behalf of the ETP Holder or the ETP Holder's Sponsored 
Participants, i.e., Authorized Traders,\17\) and provide the list to 
the PCXE upon request. In addition, each ETP Holder would have to have 
have reasonable procedures to ensure that all of its Authorized Traders 
maintain the physical security of Arca and otherwise comply with the 
PCXE Rules. If the PCXE determines that an Authorized Trader has caused 
an ETP Holder to violate the PCXE Rules, the PCXE may could direct the 
ETP Holder to suspend or withdraw the person's status as an Authorized 
Trader.\18\
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    \17\ See proposed PCXE Rule 1.1(g) (definition of ``Authorized 
Trader'').
    \18\ See proposed PCXE Rule 7.30 (``Authorized Traders'').
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    b. Market Makers. The PCXE intends to replace its traditional floor 
specialists with makers \19\ trading on Arca. Based on this change, the 
PCXE proposes to delete all existing PCXE Rules related to specialists 
and substitute rules related to market makers, as discussed in more 
detail below.\20\ The registered market makers would be designated as 
dealer-specialists on the PCXE for all purposes under the Act.\21\
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    \19\ See proposed PCXE Rule 1.1(u) (definition of ``Market 
Maker'').
    \20\ The Commission notes that the proposal does not require 
that a market be assigned to every PCXE security traded through 
Arca, and thus it is possible that PCXE trades on Arca could occur 
without the benefit of a market maker.
    \21\ See proposed PCXE Rule 7.20(a).
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    i. Registration of Market Makers. To act as a market maker on Arca, 
an ETP Holder would have to register as a market maker by filing a 
written application with the PCXE.\22\ In determining whether to 
approve a market maker application, the PCXE will would consider, among 
other things, the ETP Holder's capital operations, personnel, technical 
resources, and disciplinary history.\23\ The applicant's registration 
would become effective upon receipt by the ETP Holder of notice of the 
PCXE's approval of the registration. If the application is disapproved, 
the applicant would have the opportunity to be heard upon the specific 
grounds of the denial under the provisions of Rule 10.13.\24\
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    \22\ See proposed PCXE Rule 7.20(a) and& (b).
    \23\ See proposed PCXE Rule 7.20(b).
    \24\ See proposed PCXE Rule 7.20(c).
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    A market maker's registration could be suspended or terminated by 
the PCXE upon a determination of any substantial or continued failure 
by the market maker to engage in dealings in accordance with the market 
maker's obligations under proposed PCXE Rule 7.23, as discussed 
below.\25\ In addition, a registered market maker could withdraw its 
registration by giving written notice to the PCXE. The withdrawal would 
become effective on the tenth business day following the PCXE's receipt 
of the notice. A market maker who fails to give a ten-day notice of 
withdrawal could be subject to formal disciplinary action pursuant to 
PCXE Rule 10. After a withdrawal, the ETP Holder shall would not be 
permitted to re-register as a market maker for a period of six 
months.\26\
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    \25\ See proposed PCXE Rule 7.20(d).
    \26\ See proposed PCXE Rule 7.20(e).
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    In addition to registering as a market maker generally, a market 
maker also would have to register in each security in which it wishes 
to make a market on Arca. To become registered in a security, a market 
maker would have to

[[Page 78824]]

file a security registration application form with the PCXE. In 
determining whether to approve or disapprove the market maker's 
registration in a security, the PCXE may could consider: (1) The 
financial resources available to the market maker; (2) the market 
maker's experience, expertise and past performances in making markets, 
including the market maker's performance in other securities; (3) the 
market maker's operational capability; (4) the maintenance and 
enhancement of competition among market makers in each security in 
which it is registered; (5) the existence of satisfactory arrangements 
for clearing the market maker's transactions; and (6) the character of 
the market for the security (e.g., price, volatility, and relative 
liquidity). Registration in a security will would become effective on 
the first business day following the PCXE's approval of the 
registration.\27\
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    \27\ See proposed PCXE Rule 7.22(a).
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    Under the proposal, PCXE could terminate a market maker's 
registration in a security if the market maker fails to enter 
quotations in the security within five business days after the market 
maker's registration in the security becomes effective.\28\ 
Furthermore, PCXE could suspend or terminate the market maker's 
registration in a security or securities whenever, in the PCXE's 
judgment, the interests of a fair and orderly market are best served by 
such action.\29\
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    \28\ See proposed PCXE Rule 7.22(b).
    \29\ See proposed PCXE Rule 7.22(d).
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    In addition, a market maker could voluntarily terminate its 
registration in a security by providing PCXE with a one-day written 
notice. A market maker that failed to give advanced written notice of 
such termination could be subject to formal disciplinary action 
pursuant to PCXE Rule 10.\30\ Finally, an ETP Holder could seek review 
of any action taken by the PCXE pursuant to proposed PCXE Rule 7.22 
governing a market maker's registration in a security, including the 
denial of the application for, or the termination or suspension of, a 
market maker's registration in a security or securities, in accordance 
with PCXE Rule 10.\31\
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    \30\ See proposed PCXE Rule 7.22(c).
    \31\ See proposed PCXE Rule 7.22(e). See also proposed PCXE Rule 
10.13(a)(5).
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    ii. Market Maker Authorized Traders. Each market maker would have 
to apply in writing to the PCXE to register a ``Market Maker Authorized 
Trader'' or ``MMAT,'' \32\ which is an Authorized Trader that performs 
market making activities on behalf of his or her market maker. An MMAT 
would have to be an officer, partner, employee or another associated 
person of a market maker, who is properly qualified to perform market 
making activities and has been trained and certified in the use of 
Arca.\33\ Once registered, an MMAT could only submit orders for the 
account of its own market maker.\34\ The PCXE may suspend or withdraw 
an MMAT's registration if the PCXE determines that: (1) The person has 
caused the market maker to fail to comply with the securities laws, 
rules and regulations or the Bylaws, Rules or procedures of the PCXE; 
(2) the person is not properly performing the responsibilities of an 
MMAT; (3) the person has failed to pass the Series 7 or to acquire the 
requisite certification and/or training, as necessary; or (4) PCXE 
believes it is in the interest of maintaining fair and orderly markets. 
If the PCXE suspended the registration of a person as an MMAT, the 
market maker could not allow the person to submit orders to Arca. In 
addition, PCXE would withdraw the registration of an MMAT upon the 
written request of the MMAT's market maker.\35\
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    \32\ See proposed PCXE Rule 1.1(v) (definition of ``MMAT'').
    \33\ See proposed PCXE Rule 7.21(b). Proposed Rule PCXE 
7.21(b)(2) states that, ``[t]o be eligible for registration as a 
MMAT, a person must successfully complete the General Securities 
Representative Examination (Series 7) and complete a training and 
certification program sponsored by the Corporation; provided, 
however, the requirement to complete the Series 7 Examination may be 
waived by the Corporation if the applicant MMAT has served as a 
dealer-specialist or market maker on a registered national 
securities exchange or association for at least two consecutive 
years within three years of the date of application.'' See also 
proposed PCXE Rule 7.21(b)(5) and proposed PCXE Rule 2.4(b)(10)(A).
    \34\ See proposed PCXE Rule 7.21(a).
    \35\ See proposed PCXE Rule 7.21(c).
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    iii. Obligations of Market Makers. Market makers electronically 
engage in a course of dealings for their own account to enhance 
liquidity available to Arca and to assist in the maintenance, insofar 
as reasonably practicable, of fair and orderly markets. In addition, 
market makers may interact with directed order flow, subject to price 
improvement requirements and certain obligations and duties.
    Specifically, market makers would have to satisfy the following 
responsibilities and duties during Core Trading Hours: \36\ (1) 
maintain continuous, two-sided Q Orders, which are limit orders 
submitted to Arca by a market maker, in those securities in which the 
market maker is registered to trade; \37\; (2) maintain adequate 
minimum capital in accordance with PCXE Rule 4.1; (3) remain in Good 
Standing \38\ with the PCXE; (4) inform PCXE of any material change in 
financial or operational condition or in personnel; (5) clear and 
settle transactions through the facilities of a registered clearing 
agency; and (6) enter and maintain a Cleanup Order in each security in 
which the market maker is registered as such for each Market Order 
Auction.\39\ If the PCXE found any substantial or continued failure by 
a market maker to meet the above responsibilities and duties, the PCXE 
could subject the market maker to disciplinary action or suspension or 
revoke the market maker's registration in one or more securities. In 
accordance with PCXE Rule 10, an ETP Holder could seek review of 
actions taken by the PCXE pursuant to this Rule 7.23.\40\
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    \36\ See proposed PCXE Rule 1.1(j) (``Core Trading Hours'' mean 
the hours of 6:30 a.m. through 1:00 p.m. (Pacific Time) or such 
other hours as may be determined by the PCXE from time to time).
    \37\ See proposed PCXE Rule 7.31(k) (definition of ``Q Order''). 
A Q Order may not be a Working Order.
    \38\ See proposed PCXE Rule 1.1(p) (definition of ``Good 
Standing'').
    \39\ See proposed PCXE Rule 7.23(a) and & (b).
    \40\ See proposed PCXE Rule 7.23(c). See also proposed PCXE Rule 
10.13(a)(6).
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    The market maker could apply to the PCXE to withdraw temporarily 
from its market maker status. This request would have to be based on a 
demonstrated legal or regulatory requirement that necessitates its 
temporary withdrawal. The PCXE would act promptly on the request and, 
if the request is granted, the PCXE could temporarily reassign the 
securities to another market maker.\41\
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    \41\ See proposed PCXE Rule 7.23(d).
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    iv. Odd Lot Dealers. In addition to the market maker obligations 
discussed above, a market maker would have to become an Odd Lot Dealer 
\42\ for each security in which it is registered as a market maker.\43\ 
Furthermore, a market maker could apply to register as an Odd Lot 
Dealer in any other security.
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    \42\ See proposed PCXE Rule 1.1(aa) (definition of ``Odd Lot 
Dealer'').
    \43\ See proposed PCXE Rule 7.25(b).
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    Any market maker could become registered as an Odd Lot Dealer in 
any security by filing an odd lot registration form with the PCXE. 
Registration as an Odd Lot Dealer becomes effective on the first 
business day following the PCXE's approval of the registration. In 
considering the approval of the registration of the market maker as an 
Odd Lot Dealer in a security, the PCXE would consider such factors as 
financial resources, capital operations, personnel, technical resources 
and disciplinary history. If the PCXE denies an application to become 
an Odd Lot Dealer in a security or securities, the

[[Page 78825]]

applicant could seek review of the decision in accordance with PCXE 
Rule 10.13.\44\
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    \44\ See proposed PCXE Rule 7.25(a).
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    Once registered, an Odd Lot Dealer is obligated to: (1) Maintain an 
Odd Lot Tracking Order, as described in proposed PCXE Rule 7.31(g), 
during each day in which the PCXE is open for business for each 
security in which the Odd Lot Dealer is registered as such; \45\ and 
(2) register and maintain registration as an Odd Lot Dealer in a 
minimum of 100 securities if the Odd Lot Dealer registers as such in 
any security for which it is not registered as a market maker.\46\
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    \45\ For a discussion of Odd Lot Tracking Orders and the 
execution thereof, see Section (2)(c)(iv).
    \46\ See proposed PCXE Rule 7.25(c).
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    Under proposed PCXE Rule 7.25(d) an Odd Lot Dealer's registration 
in a security or securities could be suspended or terminated if: (1) 
The PCXE determines that the Odd Lot Dealer has substantially or 
continually failed to engage in dealings as required of an Odd Lot 
Dealer; or (2) if, in the PCXE's judgment, the interests of a fair and 
orderly market are best served by such action. An ETP Holder could seek 
review of any such termination or suspension in accordance with 
proposed PCXE Rule 10.\47\
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    \47\ See proposed PCXE Rule 7.25(d).
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    Finally, an Odd Lot Dealer could voluntarily terminate its 
registration as such in a security or securities by providing the PCXE 
with a one-day written notice of such termination. An Odd Lot Dealer 
that fails to give advance notice of termination to the PCXE could be 
subject to formal disciplinary action pursuant to proposed PCXE Rule 
10.\48\
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    \48\ See proposed PCXE Rule 7.25(e). See also proposed PCXE Rule 
10.13(a)(7).
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    v. Limitations on Dealings. Under the proposed rules, a market 
maker could: (1) Conduct an investment banking or public securities 
business; (2) function as a General Authorized Trader (``GAT''), i.e., 
an Authorized Trader who performs only non-market making activities on 
behalf of an ETP Holder; \49\ or (3) make markets in the options 
overlying the security in which it makes markets; (collectively, 
``Other Business Activities'') or it could be affiliated with a broker-
dealer that engages in Other Business Activities only if there is an 
Information Barrier (also commonly referred to as a Chinese Wall) 
between the market making activities and the Other Business 
Activities.\50\
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    \49\ See proposed PCXE Rule 1.1(o) (definition of ``General 
Authorized Trader'').
    \50\ See proposed PCXE Rule 7.26(a).
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    An Information Barrier is an organizational structure in which the 
market making functions are conducted in a physical location separate 
from the locations in which the Other Business Activities are conducted 
in a manner that impedes the free flow of communications between MMATs 
and persons conducting the Other Business Activities. However, upon 
request and not on his or her own initiative, an MMAT performing the 
function of a market maker could furnish to persons at the same firm or 
an affiliated firm (``affiliated persons'') the same sort of market 
information that the MMAT would make available to any other person in 
the normal course of its market making activity. The MMAT would have to 
provide such information to affiliated persons in the same manner that 
he or she would make such information available to a non-affiliated 
person.\51\
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    \51\ See proposed PCXE Rule 7.26(b)(1).
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    Procedures would have to be implemented to prevent the use of 
material non-public corporate or market information in the possession 
of persons on one side of the barrier from influencing the conduct of 
persons on the other side of the barrier. The procedures, at a minimum, 
would have to provide that (1) The MMAT performing the function of a 
market maker does not take advantage of knowledge of pending 
transactions, order flow information, corporate information, or 
recommendations arising from Other Business Activities; and (2) all 
information pertaining to the market maker's positions and trading 
activities is kept confidential and not made available to persons on 
the other side of the Information Barrier.\52\
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    \52\ See proposed PCXE Rule 7.26(b)(2).
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    Although persons on one side of the barrier could not exercise 
influence or control over persons on the other side of the barrier, the 
following could occur: (1) The market making function and the Other 
Business Activities could be under common management as long as any 
general management oversight does not conflict with or compromise the 
market maker's responsibilities; (2) the same person or persons (the 
``Supervisor'') could be responsible for the supervision of the market 
making and the GAT functions of the same firm or affiliated firms in 
order to monitor the overall risk exposure of the firm or affiliate 
firms. While the Supervisor could establish general trading parameters 
with respect to both market making and other proprietary trading other 
than on an order-specific basis, the Supervisor could not (1) act as 
either an MMAT or GAT; (2) provide to any GAT any information relating 
to market making activity beyond the information that an MMAT would 
normally provide to any other person in the course of its market making 
activity; or (3) provide an MMAT with specific information regarding 
the firm's pending transactions or order flow arising out of its GAT 
activities.\53\
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    \53\ See proposed PCXE Rule 7.26(b)(3).
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    An ETP Holder that intends to implement an Information Barrier 
would have to submit to the PCXE a written statement setting forth the 
following:

    (1) The manner in which it intends to comply with the 
requirements of an Information Barrier (as discussed above) and the 
compliance and audit procedures it will implement to maintain the 
Barrier;
    (2) The names and titles of the person(s) responsible for the 
maintenance and surveillance of the procedures;
    (3) A commitment to provide the PCXE with such information and 
reports as the PCXE could request relating to its transactions;
    (4) A commitment to take appropriate remedial action against any 
person violating this Rule or the ETP Holder's internal compliance 
and audit procedures and that it recognizes that the PCXE could take 
appropriate remedial action in the event of such a violation;
    (5) Whether the ETP Holder or an affiliate intends to clear its 
proprietary trades, and, if so, the procedures established to ensure 
that information with respect to such clearing activities will not 
be used to compromise the Information Barrier (which procedures, at 
a minimum, would have to be the same as those used by the ETP Holder 
or the affiliate to clear for unaffiliated third parties). These 
procedures would have to provide that any information pertaining to 
market maker securities positions and trading activities, and 
information derived from any clearing and margin financing 
arrangements, could be made available only to those employees 
specifically authorized to have access to such information or to 
other employees in senior management positions who are involved in 
exercising general managerial oversight with respect to market 
making activity. Furthermore, any margin financing arrangements 
would have to be sufficiently flexible so as not to limit the 
ability of any market maker to meet market making or other 
obligations under the PCXE Rules; and
    (6) That it recognizes that any trading by a person while in 
possession of material, non-public information received as a result 
of the breach of the internal controls could be a violation of the 
Act, or the rules thereunder, or PCXE Rules.\54\
---------------------------------------------------------------------------

    \54\ See proposed PCXE Rule 7.26(c).

    After the submission of the written statement detailing the 
internal controls and compliance and audit procedures to PCXE, if the 
PCXE determines that the structure and procedures are acceptable, PCXE 
will inform the ETP Holder in writing of their acceptability. Absent a

[[Page 78826]]

finding that an ETP Holder's Information Barrier procedures are 
acceptable, a market maker could not conduct Other Business 
Activities.\55\
---------------------------------------------------------------------------

    \55\ See proposed PCXE Rule 7.26(d).
---------------------------------------------------------------------------

    Finally, an ETP Holder or an affiliate of the ETP Holder could 
clear the ETP Holder's market maker transactions if it establishes 
procedures to ensure that information with respect to clearing 
activities would not be used to compromise the Information Barrier. In 
this regard, the procedures would have to provide that any information 
pertaining to market maker securities positions and trading activities, 
and information derived from any clearing and margin financing 
arrangements, could be made available only to those employees (other 
than employees actually performing clearing and margin functions) 
specifically authorized to have access to such information or to other 
employees in senior management positions who are involved in exercising 
general managerial oversight with respect to the market making 
activity. Furthermore, any margin financing arrangements would have to 
be sufficiently flexible so as not to limit the ability of any market 
maker to meet market making or other obligations under the PCXE 
Rules.\56\
---------------------------------------------------------------------------

    \56\ See proposed PCXE Rule 7.26(e).
---------------------------------------------------------------------------

    c. Trading on the Archipelago Exchange. i. Order Entry--Users would 
enter into Arca the following standard types of orders: Market orders, 
limit orders, Day Orders, Good-Til-Canceled (GTC) Orders, Immediate-or-
Cancel Orders, Stop Orders, Stop Limit Orders, Do Not Reduce, Do Not 
Increase, and Timed Orders.\57\
---------------------------------------------------------------------------

    \57\ See generally proposed PCXE Rule 7.31.
---------------------------------------------------------------------------

    In addition, Users could utilize Working Orders, which are defined 
to include ``any order with a conditional or undisplayed price and/or 
size designated as a `Working Order,' '' including All-or-None, 
Discretionary, and Reserve Orders.\58\ An All-or-None Order is a limit 
order which is to be executed in its entirety or not at all.\59\ A 
Discretionary Order is an order to buy or sell a stated amount of a 
security at a specified, undisplayed price (the ``discretionary 
price''), in addition to at a specified, displayed price (``displayed 
price'').\60\ For example, a User could submit a Discretionary Order to 
buy 5000 shares of XYZ at 20, with discretion to 20.25. In that case, 
the User represents a displayed price of 20, but the User is willing to 
buy the 5000 shares at a price up to the discretionary price of 20.25. 
A Reserve Order is a limit order with a portion of the size displayed 
and with a reserve portion of the size (``reserve size'') that is not 
displayed on the Arca book.\61\ For example, a User could submit a 
Reserve Order to buy 5000 shares of XYZ at 20 with a request that 1000 
shares be displayed. Therefore, the 1000 shares are displayed and 4000 
shares, as the reserve size, are not displayed.
---------------------------------------------------------------------------

    \58\ See proposed PCXE Rule 7.31(h).
    \59\ See proposed PCXE Rule 7.31(h)(1).
    \60\ See proposed PCXE Rule 7.31(h)(2).
    \61\ See proposed PCXE Rule 7.31(h)(3).
---------------------------------------------------------------------------

    Arca would also accept NOW Orders.\62\ A NOW Order is a Limited 
Price Order \63\ that is to be executed in whole or in part on Arca, 
and the portion not so executed would be routed pursuant to Rule 
7.37(d) only to one or more NOW Recipients for immediate execution as 
soon as the order is received by the NOW Recipient. Any portion not 
immediately executed by the NOW Recipient would be cancelled. If a NOW 
Order is not marketable when it is submitted to the PCXE, it would be 
cancelled. NOW Orders cannot be Directed Orders.\64\ For the purposes 
of a NOW Order, a NOW Recipient means any exchange, ECN, or other 
broker-dealer (1) with which Arca maintains an electronic linkage, 
which includes ITS, and (2) which provides instantaneous responses to 
NOW Orders routed from Arca. The PCXE would designate from time to time 
those exchanges, ECNs, or other broker-dealers that qualify as NOW 
Recipients.\66\ An Auction-Only Limit Order, which is a limit order 
that could be executed only during the Market Order Auction, would also 
be submitted to Arca.\67\ In addition, Users could submit Primary Only 
Orders (``PO Orders'') which are market orders, for exchange-listed 
securities only, that are to be routed as a market-on-open order to the 
primary market for participation in the primary market opening process. 
A PO Order would have to be entered before 6:28 a.m. (Pacific Time) and 
it would not be included in the Market Order Auction.
---------------------------------------------------------------------------

    \62\ See proposed PCXE Rule 7.31(v).
    \63\ See proposed PCXE Rule 1.1(s) (``Limited Price Order'' is 
defined as any order with a specified price or prices (e.g., limit 
orders and Working Orders), other than Stop Orders).
    \64\ See proposed Rule 7.31(i) (definition of ``Directed 
Order'').
    \66\ See proposed PCXE Rule 1.1(z) (definition of ``NOW 
Recipient'').
    \67\ See proposed PCXE Rule 7.31(t). See Section 2(c)(vii) for a 
discussion of the Auction-Only Limit Orders role in the Market Order 
Auction.
---------------------------------------------------------------------------

    Furthermore, as discussed in more detail in other sections, Users 
could submit Tracking Orders, Odd Lot Tracking Orders, Directed Orders, 
Directed Fills, Q Orders, Fill-or-Return Orders, Fill-or-Return Plus 
Orders, PNP Orders, Cross Orders and Cleanup Orders as well.\68\
    Finally, as a general matter, consistent with proposed PCXE Rules, 
ETP Holder Users of Arca could enter both proprietary orders and agency 
orders for the account of a customer. Proprietary orders entered into 
Arca are subject to the same display and execution processes as agency 
orders. An ETP Holder User that enters a proprietary order into Arca 
would mark the order with the appropriate designator to identify the 
order as proprietary.\69\
---------------------------------------------------------------------------

    \68\ See generally proposed PCXE Rule 7.31.
    \69\ See proposed PCXE Rule 7.33.
---------------------------------------------------------------------------

    ii. Order Ranking and Display. Arca would maintain an electronic 
file of orders, called the Arca Book, which contains all the User's 
orders in the four components, called Processes, of the Arca Book.\70\ 
Specifically, the Arca Book contains the Directed Order, Display Order, 
Working Order, and Tracking Order Processes.\71\ Limited Price Orders 
of Users submitted to Arca (other than such orders as Directed Fills 
and Tracking Orders) would be ranked and maintained in the Display 
Order Process and/or Working Order Process of the Arca Book according 
to price-time priority, such that within each price level, all orders 
would be organized by the time of entry, as discussed in more detail 
below.
---------------------------------------------------------------------------

    \70\ See proposed PCXE Rule 1.1(a) (definition of ``Arca 
Book'').
    \71\ See proposed PCXE Rule 1.1(a) (definition of ``Arca 
Book'').
---------------------------------------------------------------------------

    The displayed portion of orders are ranked in the Display Order 
Process. One category of orders--limit orders, with no other 
conditions--would be ranked in the Display Order Process based on the 
specified limit price and the time of original order entry. With regard 
to Reserve Orders, the displayed portion of Reserve Orders (not the 
reserve size) would be ranked in the Display Order Process at the 
specified limit price and the time of order entry. If the displayed 
portion of the Reserve Order is decremented in its entirety, the 
displayed portion of the Reserve Order would be refreshed for the 
displayed amount from the reserve portion and would be submitted and 
ranked at the specified limit price and the new time that the displayed 
portion of the order was refreshed. Finally, Discretionary Orders would 
be ranked in the Display Order Process based on the displayed price 
(not the discretionary price) and the time of order entry. If a 
Discretionary Order is decremented, it remains ranked based on the 
displayed price and the time of original order entry.

[[Page 78827]]

    Only All-or-None Orders and the undisplayed portion of Reserve 
Orders and Discretionary Orders are ranked in the Working Order 
Process. The reserve portion of Reserve Orders would be ranked in the 
Working Order Process based on the specified limit price and the time 
of original order entry. After the displayed portion of a Reserve Order 
is refreshed from the reserve portion, the reserve portion remains 
ranked based on the original time of order entry, while the displayed 
portion is sent to the Display Order Process with a new time-stamp. 
Discretionary Orders would be ranked in the Working Order Process based 
on the displayed price and the time of original order entry. After a 
Discretionary Order is decremented, it remains ranked as described 
above. All-or-None Orders would be ranked in the Working Order Process 
based on the specified limit price and the time of order entry.
    PCXE offers the following example to clarify how orders are ranked 
in the Display and Working Order Processes. Suppose that the following 
orders are submitted to Arca by Users:

10:00 a.m.--Order A--Limit order to buy 1000 XYZ at 20
10:01 a.m.--Order B--Reserve Order to buy 5000 XYZ at 20 (show 1000)
10:02 a.m.--Order C--Limit order to buy 500 XYZ at 20
10:03 a.m.--Order D--Discretionary Order to buy 5000 XYZ at 20 
(discretion to 20.25)
10:04 a.m.--Order E--All-or-None to buy 1500 XYZ at 20
10:05 a.m.--Order F--Q Order to buy 1000 XYZ at 20
10:06 a.m.--Order G--Limit order to buy 700 XYZ at 20
10:07 a.m.--Order H--Q Order to buy 500 XYZ at 20
10:08 a.m.--Order I--Discretionary Order to buy 10,000 XYZ at 20 
(discretion to 20.25)

Orders A-H would be ranked in the Arca Book as follows: In the Display 
Order Process, the orders would be ranked in the following order: (1) 
Order A; (2) Order B1 (the displayed 1000 shares of Order B); (3) Order 
C; (4) Order D1 (the displayed price of 20 for Order D); (5) Order F; 
(6) Order G; (7) Order H; and (8) Order I1 (the displayed price of 20 
for Order I). In the Working Order Process, the orders would be ranked 
in the following order: (1) Order B2 (4000 shares of the reserve 
portion of Order B); (2) Order D2 (the discretionary price up to 20.25 
for Order D); (3) Order E; and (4) Order I2 (the discretionary price up 
to 20.25 for Order I).
    iii. Order Display and Dissemination. Arca would operate the Arca 
Book on an open basis. All orders at all price levels in the Display 
Order Process of the Arca Book would be displayed to all Users on an 
anonymous basis. In addition, the same information would be made 
available to other interested parties.\72\ Furthermore, the best-ranked 
displayed order(s) to buy and sell in the Arca Book and the 
corresponding aggregate size of such orders associated with such prices 
would be collected and made available to quotation vendors for 
dissemination pursuant to the requirements of Rule 11Ac1-1 \73\ under 
the Act.\74\
---------------------------------------------------------------------------

    \72\ See proposed PCXE Rule 7.36(b).
    \73\ 17 CFR 240.11Ac1-1.
    \74\ See proposed PCXE Rule 7.36(c).
---------------------------------------------------------------------------

    iv. Order Execution. Subject to the restrictions on short sales 
under Rule 10a-1 under the Exchange Act,\75\ like-priced orders, bids 
and offers would be matched for execution by following Steps 1 through 
5, as described below; provided, however, that for an execution to 
occur in any Order Process the price would have to be equal to or 
better than the NBBO,\76\ unless Arca has routed orders to all away 
markets at the NBBO:
---------------------------------------------------------------------------

    \75\ 17 CFR 240.10a-1.
    \76\ See proposed PCXE Rule 1.1(x) (the term ``NBBO'' refers to 
the national best bid or offer).
---------------------------------------------------------------------------

    Step 1: Directed Order Process. The first step of the Arca 
execution algorithm is the Directed Order Process. Through this 
process, Users could direct an order to a market maker with whom they 
have a relationship and the market maker would execute the order. To 
access this process, the User would have to submit a Directed Order, 
which is a market or limit order to buy or sell which has been directed 
to a particular market maker by the User.\77\ Any type of order other 
than a Directed Order would skip the Directed Order Process and 
immediately enter Step 2, the Display Order Process. The Directed Order 
Process is available only during Core Trading Hours.\78\
---------------------------------------------------------------------------

    \77\ See proposed PCXE Rule 7.31(i) (definition of ``Directed 
Order'').
    \78\ See proposed PCXE Rule 7.37(a).
---------------------------------------------------------------------------

    In the Directed Order Process, the User's Directed Order would be 
executed against a Directed Fill, which is the order of the User's 
designated market maker. Specifically, any market maker could submit a 
standing instruction to Arca for the parameters of a Directed Fill, 
including, but not limited to, the size of the order, the Users that 
could send such market maker a Directed Order, the price improvement 
algorithm, and the period of time the instruction is effective. The 
market maker's Directed Fill described in the instruction would be 
generated only in response to a Directed Order directed to such market 
maker. The Directed Fill is a limit order with a size that is equal to 
or less than the size of the Directed Order and a price that improves 
the BBO\79\ by an automatically preset amount, which would have to be 
equal to or greater than the Minimum Price Improvement Increment,\80\ 
pursuant to a price improvement algorithm; provided, however, that the 
Directed Fill would not be generated if the price is not equal to or 
better than the NBBO. In other words, a market maker may not execute 
against a Directed Order without improving the best price on the Arca 
Book. A market maker may modify the parameters of the instruction for a 
Directed Fill from time to time, as the PCXE permits.\81\
---------------------------------------------------------------------------

    \79\ See proposed PCXE Rule 1.1(h) (the term ``BBO'' refers to 
the best bid or offer on Arca).
    \80\ See proposed PCXE Rule 7.6, Commentary .06.
    \81\ See proposed PCXE Rule 7.31(j) (definition of ``Directed 
Fill'').
---------------------------------------------------------------------------

    If a User submits a marketable \82\ Directed Order to Arca and the 
User's designated market maker has a standing instruction for a 
Directed Fill, the Directed Order would be executed against the 
Directed Fill of the designated market maker. If a User submits a 
marketable Directed Order and the User's designated market maker has 
not submitted an instruction for a Directed Fill, or if a User submits 
any order other than a marketable Directed Order, the Directed Order 
would enter the Display Order Process without interacting with any 
Directed Fills.\83\
---------------------------------------------------------------------------

    \82\ See proposed PCXE Rule 1.1(t) (``Marketable'' means, for a 
Limited Price Order, the matches or price crosses the NBBO on the 
other side of the market. Market orders are always considered 
marketable.).
    \83\ See proposed PCXE Rule 7.37(a).
---------------------------------------------------------------------------

    Step 2: Display Order Process. If an incoming marketable order has 
not been executed in its entirety in the Directed Order Process, any 
remaining part of the order would be routed to the Display Order 
Process, Step 2 of the execution algorithm.\84\ In the Display Order 
Process, Arca would match an incoming marketable order against orders 
in the Display Order Process at the display price of the resident order 
for the total size available at that price or for the size of the 
incoming order, whichever is smaller. For the purposes of the Display 
Order Process, the size of an incoming Reserve Order includes the 
displayed and reserve size and the size of the portion of the Reserve 
Order resident in the Display Order Process is equal to its displayed 
size. If the incoming marketable order has not been executed in its 
entirety, the remaining part of the

[[Page 78828]]

order would be routed to the Working Order Process.\85\
---------------------------------------------------------------------------

    \84\ See proposed PCXE Rule 7.37(b).
    \85\ See proposed PCXE Rule 7.37(b)(1).
---------------------------------------------------------------------------

    An incoming order that is not marketable would skip the Display 
Order Process and enter the Working Order Process to be executed 
against any Discretionary Orders at or better than the NBBO.\86\
---------------------------------------------------------------------------

    \86\ See proposed PCXE Rule 7.37(b)(2).
---------------------------------------------------------------------------

    Step 3: Working Order Process. An incoming marketable order would 
be matched for execution against orders in the Working Order Process in 
the following manner: An incoming marketable order would be matched 
against orders within the Working Order Process in the order of their 
ranking, at the price of the displayed portion (or in the case of an 
All-or-None Order, at the limit price), for the total amount of stock 
available at that price or for the size of the incoming order, 
whichever is smaller. If the BBO is outside the NBBO and any 
Discretionary Orders within the Working Order Process have a 
discretionary price equal to or better than the NBBO, the incoming 
order would execute against such Discretionary Order(s) at the NBBO up 
to the size of the smaller of the two orders. If an incoming marketable 
order is a Discretionary Order or a Reserve Order and its prices 
overlap with the prices of a Discretionary Order(s) in the Working 
Order Process, then the orders would be executed at the display price 
of the order that was entered first up to the size of the smaller of 
the two orders. For the purposes of this subsection, the size of the 
incoming Reserve Order includes the displayed and reserve size. If the 
incoming marketable order has not been executed in its entirety, the 
remaining part of the order would be routed to the Tracking Order 
Process.\87\
---------------------------------------------------------------------------

    \87\ See proposed PCXE Rule 7.37(b)(2)(A).
---------------------------------------------------------------------------

    An incoming order that is not marketable would be matched for 
execution against orders in the Working Order Process in the following 
manner: The incoming order would be matched against any Discretionary 
Orders in the Working Order Process that have discretionary prices that 
would satisfy an otherwise displayable incoming Limited Price Order. 
The execution would occur at the limited price of the incoming order. 
If the incoming order is a Discretionary Order and its prices overlap 
with the prices of a Discretionary Order in the Working Order Process, 
then the orders would be executed at the discretionary price of the 
incoming order that would be the best price available for the order 
entered first. If any change in the NBBO or other available away 
trading interest would cause a potential match between the away order 
and an order in the Working Order Process, a commitment to trade would 
be sent to that market center or market participant \88\ pursuant to 
Step 5 below.\89\
---------------------------------------------------------------------------

    \88\ See proposed PCXE Rule 1.1(w) (``Market Participant'' 
includes ECNs, dealer-specialists registered with a national 
securities exchange and market makers registered with a national 
securities association).
    \89\ See proposed PCXE Rule 7.37(b)(2)(B).
---------------------------------------------------------------------------

    Step 4: Tracking Order Process. During Core Trading Hours only, the 
fourth step of the execution algorithm is the Tracking Order Process. 
If an order has not been executed in its entirety in the Directed, 
Display, or Working Order Processes, Arca then would match and execute 
any remaining part of the order in the Tracking Order Process, unless 
the order or portion thereof was received from another market center or 
market participant, in which case it would be cancelled 
immediately.\90\
---------------------------------------------------------------------------

    \90\ See proposed PCXE Rule 7.37(c).
---------------------------------------------------------------------------

    If the unfilled order or portion of an order that enters the 
Tracking Order Process is a mixed lot or round lot order, Arca would 
match the order against any Tracking Orders.\91\ Any User could submit 
an instruction to Arca for the parameters of a Tracking Order at any 
time during the day, where such parameters include: (1) the maximum 
aggregate size, which is the aggregate size of all partial orders 
generated in the Tracking Order Process for a particular security that 
the User is willing to trade on that day; (2) the maximum tradeable 
size, which is the maximum size of any partial order generated in 
response to an order entering the Tracking Order Process that the User 
is willing to trade on that day; (3) the price in relation to the NBBO; 
and (4) the relevant security. Once a User has submitted an instruction 
for the parameters of the Tracking Order, the instruction would remain 
in effect until closing or until the User has traded its maximum 
aggregate size for that day, whichever comes first.\92\
    Users who have submitted an instruction for the parameters of a 
Tracking Order would be assigned trades on a price/time rotating basis, 
such that within each price level, trades would be assigned by the time 
the Users' instructions are received by Arca. Within each price level, 
the first User to send an instruction for a Tracking Order would be the 
first User to be assigned a trade in the rotation process. For each 
order that enters the Tracking Order Process, the Tracking Order 
Process would rotate once through the Users in the rotation pattern. In 
each rotation, the User would be responsible for one trade up to the 
User's maximum tradeable size.
---------------------------------------------------------------------------

    \91\ See proposed PCXE Rule 7.37(c)(1).
    \92\ See proposed PCXE Rule 7.31(f) (definition of ``Tracking 
Order'').
---------------------------------------------------------------------------

    The order described in the User's Tracking Order instruction would 
be generated only if an unfilled round or mixed lot order enters the 
Tracking Order Process and it is such User's turn as determined by the 
Tracking Order Process rotation pattern.
    Each partial order generated in a rotation is a limit order in 
which (1) the price is set at or better than the NBBO at the time the 
unfilled order enters the Tracking Order Process, based on the User's 
parameters; and (2) the size is (i) equal to the User's maximum 
tradeable size if the unfilled order is equal to or larger than the 
maximum tradeable size; or (ii) equal to the size of the unfilled order 
if the unfilled order is smaller than the maximum tradeable size. A 
User could modify the parameters of the instruction for the Tracking 
Order from time to time, as the PCXE permits.
    After the order has been matched against any Tracking Orders, if 
the order has not been executed in its entirety and the remaining part 
of the order is an odd lot, the odd lot order would be executed in the 
Odd Lot Tracking Order Process, as described below. Otherwise the order 
would be routed pursuant to the final step of the execution algorithm.
    If the unfilled order or portion of an order that enters the 
Tracking Order Process is an odd lot, Arca would match the order 
against any Odd Lot Tracking Orders \93\ (``OLTOs''), using the same 
rotation process described above with regard to Tracking Orders.\94\ An 
OLTO, which could only be submitted to Arca 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. The order described in 
the instruction would be generated only if an unfilled odd lot market 
order enters the Odd Lot Tracking Order Process or an odd lot limit 
order causes a locked market as described in proposed PCXE Rule 7.56.
---------------------------------------------------------------------------

    \93\ See proposed PCXE Rule 7.31(g) (definition of ``OLTO'').
    \94\ See proposed PCXE Rule 7.37(c)(2).
---------------------------------------------------------------------------

    Whenever in the judgment of the PCXE, because of an influx of 
orders, a system malfunction, or other unusual conditions or 
circumstances, the interests of a fair and orderly market so

[[Page 78829]]

require, the PCXE could suspend the Tracking Order Process. If the PCXE 
suspends the Tracking Order Process, the Process would become 
operational again when the PCXE determines that the conditions 
supporting the suspension no longer exist.\95\
---------------------------------------------------------------------------

    \95\ See proposed PCXE Rule 7.31(f)(7).
---------------------------------------------------------------------------

    Step 5: Routing. The fifth step of the Arca execution algorithm, 
which involves routing orders away to other market centers or market 
participants, is available only to those ETP Holders who have entered 
into a Routing Agreement. A Routing Agreement is an agreement between 
an ETP Holder and a broker-dealer affiliate of Archipelago Exchange, 
L.L.C., under which the broker-dealer affiliate agrees to act as agent 
for routing orders of the ETP Holder and the ETP Holder's Sponsored 
Participants to other market centers or broker-dealers for execution, 
whenever routing is required.\96\
---------------------------------------------------------------------------

    \96\ See proposed PCXE Rule 1.1(gg) (definition of ``Routing 
Agreement'').
---------------------------------------------------------------------------

    For those ETP Holders that are parties to a Routing Agreement and 
indicate that they wish the order to be routed away, if necessary, if 
the order has not been executed in its entirety pursuant to the other 
Order Processes, the order would be routed to another market center or 
market participant as follows:\97\ Arca would route the order to 
another market center or market participant as a limit order priced at 
the quote published by the market center or market participant. Arca 
would attempt to match the part of the order that has not been routed 
away against then available trading interest in the Arca Book for an 
internal fill by following Steps 1 through 4 again.
---------------------------------------------------------------------------

    \97\ See proposed PCXE Rule 7.37(d)(2).
---------------------------------------------------------------------------

    Orders routed to other market centers or market participants would 
remain outside Arca for a prescribed time period during which such 
orders could be executed (in whole or in part) or declined. While an 
order remains outside Arca, it would have no time standing relative to 
other orders received from Users at the same price which could be 
executed against the Arca Book. Requests from Users to cancel their 
orders while the order is routed away to another market center or 
market participant and remains outside Arca would be processed, subject 
to applicable trading rules of the relevant market center or market 
participant.
    In the event that a marketable order routed from Arca to another 
market center or market participant is not executed in its entirety at 
the other market center or market participant's quote (i.e., all 
attempts to fill the order are declined or timed-out), Arca would 
attempt to match the residual or declined market order against then 
available trading interest in the Arca Book for an internal fill by 
following Steps 1 through 4 above. Any remaining unmatched trading 
interest would be re-routed to another market center or market 
participant at the next available displayed price level.
    When routing an order away to another market center, the PCXE would 
utilize such electronic intermarket linkages and order delivery 
facilities as could be approved by the Board of Directors from time to 
time, subject to such applicable requirements as could be agreed to 
with the relevant market center.
    Under the proposal, if an ETP Holder has not entered into a Routing 
Agreement, the ETP Holder and its Sponsored Participants could submit 
to Arca only Fill-or-Return, Fill-or-Return Plus, or PNP Orders, which 
are orders that could not be routed outside of Arca.\98\ Specifically, 
a Fill-or-Return Order is an order to buy or sell that is to be 
executed in whole or in part on the PCXE, and any portion not executed 
on the PCXE is to be cancelled, without routing the order to another 
market center or market participant.\99\ Similarly, a Fill-or-Return 
Plus Order is a Fill-or-Return Order, except, in the event any portion 
of the order is not executed on the PCXE and would have to be 
cancelled, Arca, after canceling the unexecuted portion of the order, 
would send an administrative message to an ETP Holder designated by the 
order entry ETP Holder informing the designated ETP Holder that a 
portion of the order was cancelled.\100\ A Post No Preference (``PNP'') 
Order is a limit order to buy or sell that is to be executed in whole 
or in part on the PCXE, and the portion not so executed is to be ranked 
in the Arca Book, without routing any portion of the order to another 
market center. However, the PCXE would cancel a PNP Order that would 
lock or cross the NBBO.\101\ Therefore, if an order has not been 
executed in its entirety pursuant to the other Order Processes and it 
has been designated as a Fill-or-Return, Fill-or-Return Plus Order, or 
a PNP Order, the order would be cancelled at the routing step, without 
routing the order away from Arca.\102\
---------------------------------------------------------------------------

    \98\ See proposed PCXE Rule 7.32.
    \99\ See proposed PCXE Rule 7.31(p) (definition of ``Fill-or-
Return'').
    \100\ See proposed PCXE Rule 7.31(r) (definition of ``Fill-or-
Return Plus'').
    \101\ See proposed PCXE 7.31(w).
    \102\ See proposed PCXE Rule 7.37(d)(1).
---------------------------------------------------------------------------

    Finally, if an order has not been executed in its entirety after 
following Steps 1--5, the order would be ranked in the Arca Book 
pursuant to Rule 7.36.\103\
---------------------------------------------------------------------------

    \103\ See proposed PCXE Rule 7.37(e).
---------------------------------------------------------------------------

    Examples. The following examples clarify the order execution 
process for the Arca Book. Assuming PCXE has the orders in the Arca 
Book as specified in the ranking example above (see Section 2(c)(ii)), 
suppose an incoming order, which is not a Directed Order and therefore 
bypasses the Directed Order Process, enters Arca:
    Example 1. Suppose the incoming order is a market order to sell 
1000 shares of XYZ. The market order would execute against Order A, 
filling both Order A and the incoming order for 1000 shares at the 
price of 20.
    Example 2. Suppose the incoming order is a market order to sell 
5000 shares of XYZ.
    (1) The incoming order would execute against Order A, filling Order 
A and executing 1000 shares of the incoming order at 20.
    (2) Next, 1000 shares of the incoming order would execute against 
the 1000 displayed shares of Order B1 at 20, without affecting the 4000 
undisplayed shares of Order B2 in the Working Order Process.
    (3) Third, the incoming order would execute against Order C, 
filling both Order C and executing 500 shares of the incoming order at 
20.
    (4) Finally, the remaining 2500 shares of the incoming order would 
execute against 2500 shares of D1 at 20, completing the incoming order.
    Example 3. Suppose the incoming order is a market order to sell 
25,200 shares of XYZ.
    (1) The incoming order would execute against Orders A, B1, and C in 
the same manner as in Example 3.
    (2) Then, the incoming order would execute against Order D1 for 
5000 shares at 20, filling Order D.
    (3) Next, the incoming order would execute against Order F for 1000 
shares at 20, thereby filling Order F.
    (4) The incoming order then would execute against Order G for 700 
shares at 20, thereby filling Order G.
    (5) Then, the incoming order would execute against Order H for 5000 
shares at 20, thereby filling Order H.
    (6) Then, the incoming order would execute against Order I1 for 
10,000 shares at 20, thereby filling Order I.
    (7) Then, because the incoming order has exhausted orders in the 
Display Order Process and has not been filled in its entirety, it 
enters the Working Order Process. First, the incoming order is

[[Page 78830]]

executed against the 4000 shares of reserve size for Order B2. This 
fills the balance of Order B.
    (8) The incoming order does not interact with Order D2 in the 
Working Order Process because Order D was filled in the Display Order 
Process.
    (9) The incoming order then executes against the 1500 shares of 
Order E at 20, thereby filling both Order E and the incoming order.
    Example 4. Suppose the incoming order is a market order to sell 
25,300 shares of XYZ. The order would be executed as described in 
Example 3, paragraphs (1)-(9). The remaining 100 shares would be routed 
to the Tracking Order Process, where they would be executed against 
Tracking Order(s), if any.
    Example 5. Suppose the incoming order is a market order to sell 
25,250 shares of XYZ. The order would be executed as described in 
Example 3, paragraphs (1)-(9). The remaining 50 shares would be routed 
to the Tracking Order Process, where they would be executed against Odd 
Lot Tracking Order(s), if any.
    v. Crosses. Arca permits the execution of a Cross Order, which is 
defined as a two-sided order with instructions to match the identified 
buy-side with the identified sell-side at a specified price (the 
``cross price''), subject to price improvement requirements described 
below.\104\ A Cross Order would be executed as follows; provided, 
however, no Cross Orders would be matched at the cross price without 
interacting with any orders in the Arca Book unless the cross price 
improves the BBO by the Minimum Price Improvement Increment.\105\
---------------------------------------------------------------------------

    \104\ See proposed PCXE Rule 7.31(s) (definition of a ``Cross 
Order'').
    \105\ For a description of the Minimum Price Improvement 
Increment, see proposed PCXE Rule 7.6(a), Commentary .06.
---------------------------------------------------------------------------

    (1) If the cross price is equal to or better than the NBBO and is 
between the BBO, the orders could be crossed without interacting with 
any other orders.
    (2) If the cross price is equal to or better than the NBBO and is 
at the BBO, the remainder of the Cross Order could be crossed, after 
any relevant portion is matched against any displayed orders with 
priority in the Arca Book.
    (3) If the cross price is outside the NBBO and is between the BBO, 
the remainder of the Cross Order could be crossed, after the relevant 
portion is routed away to other markets for execution.
    (4) If the cross price is outside the NBBO and is at the BBO, the 
remainder of the Cross Order could be crossed, after any relevant 
portion is first routed away to other markets for execution and then 
any relevant portion is matched against any displayed orders with 
priority in the Arca Book.
    (5) If the cross price is outside the NBBO and the BBO and the NBBO 
is better than the BBO, the relevant portion of the order first would 
be routed away to other markets for execution. Then, the Cross Order 
would be matched at the displayed price (if the Cross Order is smaller 
than block size \106\) or at the cross price (if the Cross Order is of 
block size) against displayed orders with priority in the Arca Book. 
Then, the Cross Order would be matched at the price at which the 
Working Order is represented in the Book against all Working Orders 
with priority. Finally, any remainder of the Cross Order would be 
matched at the cross price.
---------------------------------------------------------------------------

    \106\ For the purposes of a Cross Order, an order of block size 
would have the same meaning as set forth in proposed PCXE Rule 7.57 
regarding ITS. See proposed PCXE Rule 7.31(s).
---------------------------------------------------------------------------

    (6) If the cross price is outside the NBBO and the BBO and the NBBO 
equals the BBO, then the Cross Order first would be matched at the 
displayed price (if the Cross Order is smaller than block size) or at 
the cross price (if the Cross Order is of block size) against displayed 
orders with priority in the Arca Book. Then, the Cross Order would be 
matched at the price at which the Working Order is represented in the 
Book against all Working Orders with priority. Then, the relevant 
portion of the order would be routed away to other markets for 
execution. Finally, any remainder of the Cross Order would be matched 
at the cross price.
    vi. Trading Sessions. Arca would have three trading sessions each 
day the PCXE is open for business: the Opening Session, the Core 
Trading Session and the Late Trading Session. The Opening Session 
begins at 5:00 a.m. (Pacific Time) and concludes at the commencement of 
the Core Trading Session. The Opening Auction and the Market Order 
Auction \107\ would occur during the Opening Session. The Core Trading 
Session begins for each security at 6:30 a.m. (Pacific Time) or at the 
conclusion of the Market Order Auction, whichever comes later, and 
concludes at 1:00 p.m. (Pacific Time). Finally, the Late Trading 
Session begins after the conclusion of the Core Trading Session and 
concludes at 5:00 p.m. (Pacific Time).\108\
---------------------------------------------------------------------------

    \107\ For a discussion of the Opening Auction and the Market 
Order Auction, see Section 2(c)(vii).
    \108\ See proposed PCXE Rule 7.34(a).
---------------------------------------------------------------------------

    During the Core Trading Session, market makers would be obligated 
to enter Q Orders in securities in which they are registered by the 
time Core Trading Hours begin. During the Opening Session and the Late 
Trading Session, market makers are not obligated to enter Q Orders in 
securities in which they are registered. Market makers are required to 
enter at least one Cleanup Order for all securities in which they are 
registered for each Market Order Auction.\109\
---------------------------------------------------------------------------

    \109\ See proposed PCXE Rule 7.34(b).
---------------------------------------------------------------------------

    Any Day Order entered into Arca could remain in effect for one or 
more consecutive trading sessions on a particular day. For each Day 
Order entered into Arca, the User would have to designate for which 
trading session(s) the order would remain in effect. Any GTC Order 
entered into Arca would remain in effect only during Core Trading 
Sessions, unless the User indicates that the GTC Order would remain in 
effect for the Opening and/or Late Trading Sessions.\110\
---------------------------------------------------------------------------

    \110\ See proposed PCXE Rule 7.34(c).
---------------------------------------------------------------------------

    For each trading session, some order types are eligible to be 
executed and others are not eligible to be executed. During the Opening 
Session, orders eligible for the Display Order Process (other than Q 
Orders) and for the Working Order Process that have been designated as 
available for the Opening Session are eligible for entry into and 
execution on Arca. Stop Orders are not eligible for execution during 
the Opening Session. Users could enter market and Auction Only Limit 
Orders for inclusion in the Market Order Auction. Market orders and 
Auction Only Limit Orders are not eligible for execution during the 
Opening Session, except during the Market Order Auction. Neither the 
Directed Order Process nor the Tracking Order Process is available 
during the Opening Session. For the purposes of the Opening Session, 
market Directed Orders are eligible for execution in the Market Order 
Auction. NOW Orders are eligible for execution during the Opening 
Session; however, NOW Orders are not eligible for the Opening Auction 
or the Market Order Auction. PNP Orders are eligible for execution 
during the Opening Session.\111\
---------------------------------------------------------------------------

    \111\ See proposed PCXE Rule 7.34(d)(1).
---------------------------------------------------------------------------

    During the Core Trading Session, market orders, Stop Orders, NOW 
Orders, PNP Orders and orders eligible for the Directed Order, Display 
Order, Working Order, and Tracking Order Processes are eligible for 
entry into and execution on Arca.\112\
---------------------------------------------------------------------------

    \112\ See proposed PCXE Rule 7.34(d)(2).

---------------------------------------------------------------------------

[[Page 78831]]

    During the Late Trading Session, orders eligible for the Display 
Order Process (other than Q Orders) and for the Working Order Process, 
including NOW Orders and PNP Orders, that have been designated as 
available for the Late Trading Session are eligible for entry into and 
execution on Arca. Market orders and Stop Orders are not eligible for 
execution during the Late Trading Session. The Directed Order Process 
and Tracking Order Process are not available during the Late Trading 
Session.\113\
---------------------------------------------------------------------------

    \113\ See proposed PCXE Rule 7.34(d)(3).
---------------------------------------------------------------------------

    Because Arca would operate the Opening and Late Trading Sessions 
outside of traditional trading hours, the PCXE requires certain 
customer disclosures.\114\ In particular, no ETP Holder could accept an 
order from a non-ETP Holder for execution in the Opening or Late 
Trading Session without disclosing to such non-ETP Holder that:
---------------------------------------------------------------------------

    \114\ See proposed PCXE Rule 7.34(e).
---------------------------------------------------------------------------

    (1) Except for market orders eligible for execution during the 
Market Order Auction, Limited Price Orders are the only orders that are 
eligible for execution during the Opening and Late Trading Sessions;
    (2) An order would have to be designated specifically for trading 
in the Opening and/or Late Trading Session to be eligible for trading 
in the Opening and/or Late Trading Session; and
    (3) Extended hours trading involves material trading risks, 
including the possibility of lower liquidity, high volatility, changing 
prices, unlinked markets, an exaggerated effect from news 
announcements, wider spreads and any other relevant risk. The 
disclosures required pursuant to this paragraph could take the 
following form or such other form as provides substantially similar 
information:
    1. Risk of Lower Liquidity. Liquidity refers to the ability of 
market participants to buy and sell securities. Generally, the more 
orders that are available in a market, the greater the liquidity. 
Liquidity is important because with greater liquidity it is easier for 
investors to buy or sell securities, and as a result, investors are 
more likely to pay or receive a competitive price for securities 
purchased or sold. There may be lower liquidity in extended hours 
trading as compared to regular market hours. As a result, your order 
may only be partially executed, or not at all.
    2. Risk of Higher Volatility. Volatility refers to the changes in 
price that securities undergo when trading. Generally, the higher the 
volatility of a security, the greater its price swings. There may be 
greater volatility in extended hours trading than in regular market 
hours. As a result, your order may only be partially executed, or not 
at all, or you may receive an inferior price in extended hours trading 
than you would during regular markets hours.
    3. Risk of Changing Prices. The prices of securities traded in 
extended hours trading may not reflect the prices either at the end of 
regular market hours, or upon the opening of the next morning. As a 
result, you may receive an inferior price in extended hours trading 
than you would during regular market hours.
    4. Risk of Unlinked Markets. Depending on the extended hours 
trading system or the time of day, the prices displayed on a particular 
extended hours system may not reflect the prices in other concurrently 
operating extended hours trading systems dealing in the same 
securities. Accordingly, you may receive an inferior price in one 
extended hours trading system than you would in another extended hours 
trading system.
    5. Risk of News Announcements. Normally, issuers make news 
announcements that may affect the price of their securities after 
regular market hours. Similarly, important financial information is 
frequently announced outside of regular market hours. In extended hours 
trading, these announcements may occur during trading, and if combined 
with lower liquidity and higher volatility, may cause an exaggerated 
and unsustainable effect on the price of a security.
    6. Risk of Wider Spreads. The spread refers to the difference in 
price between what you can buy a security for and what you can sell it 
for. Lower liquidity and higher volatility in extended hours trading 
may result in wider than normal spreads for a particular security.
    Finally, trades on Arca executed and reported outside of the Core 
Trading Session would have to be designated as .T trades.\115\
---------------------------------------------------------------------------

    \115\ See proposed PCXE Rule 7.34(f).
---------------------------------------------------------------------------

    vii. Opening Session Auctions. Definitions. Arca would operate two 
auctions during its Opening Session--the Opening Auction and the Market 
Order Auction. In preparation for a description of these two auctions, 
PCXE would define several new terms applicable to the auctions.
    First, for the purposes of the Opening Auction and the Market Order 
Auction, PCXE proposes to define the term ``Indicative Match Price'' to 
mean ``for each security'' (1) the price at which the maximum volume of 
orders are executable; or (2) if there are two or more prices at which 
the maximum volume of orders are executable, the price that is closest 
to the closing price of the previous trading day's normal market hours, 
as determined by the Consolidated Tape.'' \116\
---------------------------------------------------------------------------

    \116\ See proposed PCXE Rule 1.1(r) (definition of ``Indicative 
Match Price'').
---------------------------------------------------------------------------

    In addition, the PCXE defines the term ``Imbalance'' as the number 
of buy or sell shares orders that can not be matched with other orders 
at the Indicative Match Price at any given time.\117\
    Finally, the PCXE introduces the Cleanup Order for the Market Order 
Auction.\118\ Cleanup Orders (1) could be submitted only by Market 
makers; (2) would have to be submitted to Arca 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.
---------------------------------------------------------------------------

    \117\ See proposed PCXE Rule 1.1(q) (definition of 
``Imbalance'').
    \118\ See proposed PCXE Rule 7.31(u) (definition of ``Cleanup 
Order'').
---------------------------------------------------------------------------

    Order Entry and Cancellation Before the Opening Auction.\119\ Users 
could submit any orders to Arca beginning at 4:30 a.m. (Pacific Time). 
Any such Limited Price Orders designated for the Opening Session would 
be queued until 5:00 a.m. (Pacific Time) at which time they would be 
eligible to be executed pursuant to the Opening Auction. Any such 
market orders would be queued until the Market Order Auction at which 
time they would be executed pursuant to the Market Order Auction.
---------------------------------------------------------------------------

    \119\ See proposed PCXE Rule 7.35(a).
---------------------------------------------------------------------------

    Only Limited Priced Orders designated for the Opening Session would 
be eligible for the Opening Auction. Market orders entered before the 
Opening Auction would participate

[[Page 78832]]

in the Market Order Auction. Limited Price Orders not designated for 
the Opening Session would become eligible for execution pursuant to 
Rule 7.37 at the commencement of the Core Trading Session.
    Beginning at 4:30 a.m. (Pacific Time), and various times thereafter 
as determined from time to time by the PCXE, the Indicative Match Price 
of the Opening Auction, and any Imbalance associated therewith, would 
be published via electronic means as determined from time to time by 
the PCXE. Orders that are eligible for the Opening Auction could not be 
cancelled between 4:58 a.m. (Pacific Time) and the conclusion of the 
Opening Auction.
    Opening Auction. At 5:00 a.m. (Pacific Time), Limited Price Orders 
designated for the Opening Session are matched and executed in the 
Opening Auction. The orders in the Opening Auction would be executed at 
the Indicative Match Price as of the time of the Opening Auction. 
Orders that are eligible for, but not executed in, the Opening Auction 
would become eligible for the Opening Session immediately upon 
conclusion of the Opening Auction.\120\
---------------------------------------------------------------------------

    \120\ See proposed PCXE Rule 7.35(b).
---------------------------------------------------------------------------

    For example, if the last .T sale is 50, Arca has a limit order to 
buy 1000 shares at 50.5 and a limit order to sell 1000 shares at 50.2, 
the opening execution would occur at 50.2 for 1000 shares. As another 
example, suppose the last .T sale is at 50 and Arca has (1) a limit 
order to buy 1500 shares at 50.5; (2) a limit order to sell 1000 shares 
at 50.25; and (3) a limit order to sell 300 at 50.5. The opening 
execution would occur at 50.5 for 1300 shares. The remaining 200 shares 
would be bid at 50.5 in the Opening Session.
    Market Order Auction.\121\ Beginning at 5:00 a.m. (Pacific Time), 
and various times thereafter as determined from time to time by the 
PCXE, the Indicative Match Price of the Market Order Auction and the 
volume available to trade at such price, would be published via 
electronic means as determined from time to time by the PCXE. If such a 
price does not exist (i.e., there is an Imbalance of market orders), 
Arca would indicate via electronic means that an Indicative Match Price 
does not exist. In addition, beginning at 5:00 a.m. (Pacific Time), and 
various times thereafter as determined from time to time by the PCXE, 
the market order Imbalance associated with the Market Order Auction, if 
any, would be published via electronic means as determined from time to 
time by the PCXE. If the difference between the Indicative Match Price 
and the closing price of the previous trading day's normal market 
hours, as determined by the Consolidated Tape, is equal to or greater 
than a pre-determined amount, as determined from time to time by the 
PCXE, Arca would assign a ``SIG'' designator to such Indicative Match 
Price and publish such designator via electronic means as determined 
from time to time by the PCXE.
---------------------------------------------------------------------------

    \121\ See proposed PCXE Rule 7.35(c).
---------------------------------------------------------------------------

    For example, suppose Arca has the following orders: (1) market 
order to buy 5000 shares; (2) Auction-Only Limit Order to sell 1000 at 
50; (3) limit order to sell 1000 at 50.50; and (4) limit order to sell 
500 at 50.75. Arca would publish an Indicative Match Price of 50.75, a 
volume of 2500 shares and a buy Imbalance of 2500 shares.
    As another example, suppose Arca has the following orders: (1) 
market order to buy 3000 shares; (2) market order to sell 1000; (3) 
limit order to sell 1000 at 41.00; and (4) limit order to sell 1000 at 
41.25. Arca would publish an Indicative Match Price of 41.25 and a 
volume of 3000 shares and would not publish an Imbalance.\122\
---------------------------------------------------------------------------

    \122\ See proposed PCXE Rule 7.35(c)(1).
---------------------------------------------------------------------------

    Any Imbalance in the Market Order Auction could be reduced by new 
orders, entered on the side of the market opposite the Imbalance, 
pursuant to the following priority: (1) Market orders; (2) Limited 
Price Orders eligible for the Opening Session; (3) Limited Price Orders 
entered before 6:28 a.m. (Pacific Time); (4) Auction-Only Limit Orders; 
and (5) Cleanup Orders. Between 6:28 a.m. (Pacific Time) and the 
conclusion of the Market Order Auction, Limited Price Orders eligible 
for the Opening Session or the Core Trading Session could be cancelled, 
but market orders, Auction-Only Limit Orders and Cleanup Orders could 
not be cancelled. In addition, between 6:28 a.m. (Pacific Time) and the 
conclusion of the Market Order Auction, market orders and Auction-Only 
Limit Orders could not be entered on the same side as the Imbalance. 
Market orders and Auction-Only Limit Orders may could be entered on the 
opposite side of the Imbalance, however, any time before the Market 
Order Auction.\123\
---------------------------------------------------------------------------

    \123\ See proposed PCXE Rule 7.35(c)(2).
---------------------------------------------------------------------------

    Arca would determine the price of the Market Order Auction as 
follows: If there is no Imbalance, orders would be executed in the 
Market Order Auction at the Indicative Match Price as of 6:30 a.m. 
(Pacific Time). If an Imbalance exists, or if an equilibrium exists 
between buy market orders and sell market orders, as many buy market 
orders and sell market orders as possible would be matched, on a time 
priority basis, (1) at the midpoint of the NBBO at 6:30 a.m. (Pacific 
Time), in the case of exchange-listed securities for which the PCXE is 
not the primary market; or (2) at the midpoint of the NBBO at 6:30 a.m. 
(Pacific Time), in the case of Nasdaq securities, provided that the 
NBBO is not crossed; (3) at the midpoint of the first uncrossed NBBO 
after 6:30 a.m. (Pacific Time), in the case of Nasdaq securities in 
which the NBBO is crossed but the BBO is not crossed by the NBBO; (4) 
at the bid (offer) of the BBO that was crossed prior to 6:30 a.m. 
(Pacific Time), in the case of Nasdaq securities in which the BBO is 
crossed by a market participant; or (5) at the Indicative Match Price 
as of 6:30 a.m. (Pacific Time) in the case of those issues for which 
the PCXE is the primary market; if an equilibrium exists between buy 
and sell market orders, the match price would be the last Corporation 
sale price in the security regardless of the trading session, provided 
that, if the last Corporation sale price is inferior to the BBO, the 
match price would be the Corporation bid (offer). Such executions would 
be designated with a modifier to identify them as Market Order Auction 
trades. The market orders that are eligible for, but not executed in 
the Market Order Auction, would become eligible for execution in the 
Core Trading Session immediately upon conclusion of the Market Order 
Auction.\124\
---------------------------------------------------------------------------

    \124\ See proposed PCXE Rule 7.35(c)(3).
---------------------------------------------------------------------------

    The following examples clarify how the Market Order Auction works:
    Example 1. Suppose Arca has the following orders: (1) Market order 
to buy 5000; (2) Opening Session active limit order to buy 1000 at 50; 
(3) Opening Session active limit order to sell 1000 at 50.5; (4) Core 
Session limit order to sell 500 at 50.25; (5) Auction Only Limit order 
to sell 3000 at 50.5 and; (6) One Market maker Cleanup Order for 2500 
shares. The Market Order Auction would occur at 50.5 with the market 
order being executed against orders in the following manner: (1) 1000 
executed against the Opening Session Limit sell order; (2) 500 executed 
against the Core Session limit order; (3) 3000 executed against the 
Auction Only Limit Order; and (4) 500 executed against the Cleanup 
Order.
    Example 2. Suppose Arca has the following orders: (1) Market order 
to buy 5000; (2) Market order to sell 5000; and (3) NBBO at 6:30 is 50 
to 50.5. The Market Order Auction would occur at 50.25 with the market 
buy order being

[[Page 78833]]

executed against the market sell order at the mid-point of the spread.
    Example 3. Suppose Arca has the following orders: (1) Market order 
to buy 5000; (2) Market order to sell 5000; and (3) NBBO at 6:30: 50.6 
bid quoted at 6:29 and 50.5 offer quoted at 6:15. The Market Order 
Auction would occur at 50.55 with the market buy order being executed 
against the market sell order at the price of the most recent quote.
    Example 4. Suppose Arca has the following orders for Nasdaq 
securities: (1) Market order to buy 5000; (2) Market order to sell 
5000; (3) Opening Session active limit order to sell 1000 at 50.5; and 
(4) NBBO at 6:30: 50.6 bid quoted at 6:29 and 50.5 offer quoted at 6:15 
(Arca). The Market Order Auction would occur at 50.5 with the market 
buy order being executed against the market sell order at the price of 
the Arca quote that has been locked crossed.
    Transition to Core Trading Session. Limited Price Orders entered 
before 6:28 a.m. (Pacific Time) would participate in the Market Order 
Auction. Limited Price Orders designated for the Core Trading Session 
entered after 6:28 a.m. (Pacific Time) would become eligible for 
execution at 6:30 a.m. (Pacific Time) or at the conclusion of the 
Market Order Auction, whichever is later. Market orders entered after 
6:28 a.m. (Pacific Time) and before 6:30 a.m. (Pacific Time), which are 
eligible for either the Market Order Auction or the Core Trading 
Session, would become eligible for execution at 6:30 a.m. (Pacific 
Time) or at the conclusion of the Market Order Auction, whichever is 
later, unless otherwise provided in proposed Rule 7.350(c)(2)(C). Stop 
Orders entered before or during the Opening Session become eligible for 
execution at 6:30 a.m. (Pacific Time) or at the conclusion of the 
Market Order Auction, whichever is later.\125\
---------------------------------------------------------------------------

    \125\ See proposed PCXE Rule 7.35(e).
---------------------------------------------------------------------------

    viii. Odd and Mixed Lots. In addition to round lots, Users could 
also submit odd and mixed lots to Arca and, therefore, proposed PCXE 
Rule 7.38 describes the treatment of odd and mixed lots on Arca. All 
odd lot orders submitted by Users to Arca would have to be market 
orders or limit orders, where such orders are subject to no additional 
conditions. In other words, odd lot orders could not be Working Orders, 
Directed Orders, Directed Fills, Tracking Orders, or other similar 
orders. As an exception to this prohibition on conditional odd lot 
orders, Odd Lot Dealers could submit Odd Lot Tracking Orders. Mixed lot 
orders could be any order type supported by Arca.\126\
---------------------------------------------------------------------------

    \126\ See proposed PCXE Rule 7.38(a).
---------------------------------------------------------------------------

    Round lot, mixed lot, and odd lot orders are treated in the same 
manner in Arca, except in the Tracking Order Process. The Tracking 
Order Process treats odd lot orders in a different manner from mixed 
lot and round lot orders, as discussed above.\127\
---------------------------------------------------------------------------

    \127\ See proposed PCXE Rule 7.38(b). For a discussion of the 
Tracking Order Process, see Section 2(c)(iv).
---------------------------------------------------------------------------

    Finally, proposed PCXE Rule 7.38(c) states that the following 
actions related to odd lot orders would be considered conduct 
inconsistent with just and equitable principles: (1) combining odd lot 
orders given by different customers into a round lot order or orders 
unless specifically requested to do so by the customers giving the 
orders; (2) unbundling round lots for the purpose of entering odd lot 
limit orders in comparable amounts; (3) failing to aggregate odd lot 
orders into round lots when such orders are for the same account or for 
various accounts in which there is a common monetary interest; and (4) 
entering both buy and sell odd lot limit orders in the same stock 
before one of the orders is executed for the purpose of capturing the 
spread in the stock.\128\
---------------------------------------------------------------------------

    \128\ See proposed PCXE Rule 7.38(c).
---------------------------------------------------------------------------

    ix. Miscellaneous Trading Rules. A. Trading Units and 
Differentials. The PCXE proposes to reduce the unit of trading in 
stocks from the current 100 shares to 1 share.\129\ The PCXE also 
proposes to establish the minimum price variation for equity securities 
traded on Arca as \1/64\ of $1.00 for those securities that are quoted 
in fractions and $0.01 for those equity securities that are quoted in 
decimals. However, at all times, the minimum price variation must would 
have to be consistent with the Decimalization Implementation Plan.\130\ 
In addition, the PCXE proposes to make the Minimum Price Improvement 
Increment on Arca equal to $0.01 or 10% of the spread, whichever is 
more.\131\
---------------------------------------------------------------------------

    \129\ See proposed PCXE Rule 7.5.
    \130\ See proposed PCXE Rule 7.6(a), Commentary .05.
    \131\ See proposed PCXE Rule 7.6(a), Commentary .06.
---------------------------------------------------------------------------

    B. Firm Orders and Quotes. The proposed rules require that ETP 
Holders submit firm quotes and orders to Arca. Proposed PCXE Rule 
7.17(a) states no ETP Holder could submit to the PCXE an order 
(including Q Orders) to buy from or sell to any person any security at 
a stated price and/or size unless such ETP Holder is prepared to, and, 
upon submission of an appropriate contra-side order, does, purchase or 
sell, as the case may be, at such price and/or size and under such 
conditions as are stated at the time of submission of such order to buy 
or sell. Additionally, proposed PCXE Rule 7.17(b) requires that all 
bids and all offers be made in accordance with the provisions of Rule 
11Ac1-1 under the Act,\132\ governing the dissemination of quotations 
for reported securities.
---------------------------------------------------------------------------

    \132\ 17 CFR 240.11Ac1-1.
---------------------------------------------------------------------------

    C. Trading Halts and Suspensions. The PCXE guidelines for trading 
halts and suspensions are set forth in proposed PCXE Rules 7.12 and 
7.13. PCXE proposes to keep current PCXE Rule 7.47, entitled ``Trading 
Halts Due to Extraordinary Market Volatility,'' renumbered as proposed 
PCXE Rule 7.12. In addition, proposed PCXE Rule 7.13 regarding trading 
suspensions states that, except as otherwise stated in the proposed 
rules, the Chair of the Board or the President, or the officer designee 
of the Chair or the President, would have the power to suspend trading 
in any and all securities traded on the PCXE whenever in his or her 
opinion such suspension would be in the public interest. No such action 
would continue longer than a period of two days, or as soon thereafter 
as a quorum of Directors can be assembled, unless the Board approves 
the continuation of such suspension.\133\
---------------------------------------------------------------------------

    \133\ Proposed PCXE Rule 7.13 would replace existing PCXE Rule 
7.46, entitled ``Trading Halts and Suspensions.''
---------------------------------------------------------------------------

    D. Clearly Erroneous Policy. Given the change from a manual to an 
electronic trading environment, the PCXE proposes to adopt a rule 
regarding clearly erroneous submissions to Arca.\134\ Proposed PCXE 
Rule 7.11 would allow an ETP Holder that receives an execution on an 
order that was submitted erroneously to the PCXE for its own or 
customer account to request that the PCXE review the transaction. Such 
a request for review could be made via telephone and in writing via 
facsimile or e-mail. The telephonic request should be submitted 
immediately and the written request should be submitted within fifteen 
(15) minutes of the time the trade in question was executed. Once the 
request has been received, an officer of the PCXE designated by the 
President would review the transaction under dispute and determine 
whether it is clearly erroneous, with a view toward maintaining a fair 
and orderly market and the protection of investors and the public 
interest. For the purposes of proposed PCXE Rule 7.11, the terms of a 
transaction executed on the PCXE are ``clearly erroneous'' when there 
is an obvious error in any term, such as price,

[[Page 78834]]

number of shares or other unit of trading, or identification of the 
security. Each party to the transaction would provide, on a timely 
basis, any supporting written information as could be reasonably 
requested by the designated officer to aid resolution of the matter.
---------------------------------------------------------------------------

    \134\ See proposed PCXE Rule 7.11.
---------------------------------------------------------------------------

    Unless both parties (or party, in the case of a cross) to the 
disputed transaction agree to withdraw the initial written request for 
review, the transaction under dispute would be reviewed, and a 
determination would be rendered by the designated PCXE officer. If the 
officer determines that the transaction is not clearly erroneous, the 
officer would decline to take any action in connection with the 
completed trade. In the event that the officer determines that the 
transaction in dispute is clearly erroneous, the officer would declare 
the transaction null and void or modify one or more of the terms of the 
transaction to achieve an equitable rectification of the error that 
would place the parties in the same position, or as close as possible 
to the same position that they would have been in, had the error not 
occurred. The officer would promptly notify the parties of the 
determination reached and would issue a written resolution of the 
matter. The ETP Holder aggrieved by the officer's determination could 
appeal such determination in accordance with the provisions of proposed 
PCXE Rule 10.13.
    In the event of any disruption or a malfunction in the use or 
operation of any electronic communications and trading facilities of 
the PCXE, the Chief Executive Officer or the President could declare a 
transaction arising out of the use or operation of such facilities 
during the period of such disruption or malfunction null and void or 
modify the terms of these transactions. Absent extraordinary 
circumstances, any such action of the Chief Executive Officer or 
President would be taken within thirty (30) minutes of detection of the 
erroneous transaction. Each ETP Holder involved in the transaction 
would be notified as soon as practicable, and the ETP Holder aggrieved 
by the action could appeal such action in accordance with the 
provisions of proposed PCXE Rule 10.13.
    E. Trading Ahead of Customer Limit Orders. PCXE proposes to adopt a 
rule prohibiting ETP Holders from trading ahead of customer limit 
orders.\135\ Proposed PCXE Rule 6.16 states that:
---------------------------------------------------------------------------

    \135\ See proposed PCXE Rule 6.16, which would replace current 
PCXE Rule 6.7.
---------------------------------------------------------------------------

    No ETP Holder may accept and hold an unexecuted limit order from 
its customer (whether its own customer or a customer of another ETP 
Holder) and continue to trade on the Corporation the subject security 
for its own account at prices that would satisfy the customer's limit 
order, without executing that limit order; provided, however, that an 
ETP Holder may negotiate specific terms and conditions applicable to 
the acceptance of limit orders only with respect to limit orders that 
are:

    (1) For institutional customer accounts, where such account is 
defined as the account of:
    (A) A bank, savings and loan association, insurance company, or 
registered investment company;
    (B) An investment adviser registered either with the Securities 
and Exchange Commission under Section 203 of the Investment Advisers 
Act of 1940\136\ or with a state securities commission (or agency or 
office performing like functions); or
---------------------------------------------------------------------------

    \136\ 15 U.S.C. 80b-3.
---------------------------------------------------------------------------

    (C) Any other entity (whether a natural person, corporation, 
partnership, trust or otherwise) with total assets of at least $50 
million; or
    (2) 10,000 shares or more, unless such orders are less than 
$100,000 in value.

    Proposed PCXE Rule 6.16 would not apply to a customer limit order 
if the limit order is marketable at the time it is received by the ETP 
Holder; provided, however, if the limit order were marketable when 
received and then becomes non-marketable, the limit order would be 
subject to the Rule's prohibitions. Nothing in proposed PCXE Rule 6.16 
would require ETP Holders to accept limit orders from customers. For 
the purposes of proposed PCXE Rule 6.16 an ETP Holder that controls or 
is controlled by another ETP Holder would be considered a single 
entity, absent appropriate information barriers. Thus, if a customer's 
limit order is accepted by one affiliate and forwarded to another 
affiliate for execution, the firms would be considered a single entity.
    d. Trade Execution and Reporting. Under the proposal, executions 
occurring as a result of orders matched against the Arca Book would be 
reported by the PCXE to an appropriate consolidated transaction 
reporting system. Executions occurring as a result of orders routed 
away from Arca would be reported to an appropriate consolidated 
transaction reporting system by the relevant reporting market center. 
Arca would promptly notify Users of all executions of their orders as 
soon as the executions take place.\137\
---------------------------------------------------------------------------

    \137\ See proposed PCXE Rule 7.40.
---------------------------------------------------------------------------

    e. Clearance and Settlement Under the proposed rule for clearance 
and settlement, each ETP Holder would have to be a clearing firm, clear 
transactions on the PCXE through a clearing firm, or clear transactions 
through an entity duly authorized by the PCXE.\138\ Pursuant to 
proposed PCXE Rule 7.14, an ETP Holder would have to must give up the 
name of the clearing firm through whom each transaction on the PCXE 
would be cleared. If the identity of the clearing firm subsequently 
changed, the ETP Holder would have to report such change to the PCXE at 
least five (5) business days in advance.\139\
---------------------------------------------------------------------------

    \138\ See proposed PCXE Rule 7.14(a).
    \139\ See proposed PCXE Rule 7.14(b).
---------------------------------------------------------------------------

    Pursuant to proposed PCXE Rule 7.14, each clearing firm must would 
have to be admitted to the PCXE as an ETP Holder, by meeting the 
qualification requirements for becoming an ETP Holder. However, if a 
clearing firm becomes an ETP Holder for the sole purpose of acting as a 
clearing firm on the PCXE, the clearing firm would not have to pay the 
regular ETP Holder fee. As a general matter, the clearing firm would be 
responsible for the clearance of the transactions effected by each ETP 
Holder which gives up such clearing firm's name pursuant to a letter of 
authorization, letter of guarantee or other authorization given by such 
clearing firm to such ETP Holder, which authorization would be 
submitted to the PCXE.\140\
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    \140\ See proposed PCXE Rule 7.14(c).
---------------------------------------------------------------------------

    Notwithstanding any other provisions contained in proposed PCXE the 
Rule 7.14 to the contrary, the Board could extend or postpone the time 
of the delivery of a transaction on the PCXE whenever, in its opinion, 
such action is called for by the public interest, by just and equitable 
principles of trade or by the need to meet unusual conditions. In such 
case, delivery would be effected at such time, place and manner as 
directed by the Board of Directors.\141\
---------------------------------------------------------------------------

    \141\ See proposed PCXE Rule 7.14(d).
---------------------------------------------------------------------------

    The details of each transaction executed within Arca would be 
automatically processed for clearance and settlement on a locked-in 
basis. ETP Holders would not have to separately report their 
transactions to the PCXE for trade comparison purposes. All 
transactions effected by a Sponsored Participant would be cleared and 
settled, using the relevant Sponsoring ETP Holder's mnemonic or its 
clearing firm's mnemonic, as applicable.\142\
---------------------------------------------------------------------------

    \142\ See proposed PCXE Rule 7.41.
---------------------------------------------------------------------------

    f. Interaction with PCXE Application of the OptiMark System. The 
PCXE Application of the OptiMark System would continue to operate as it 
does now. In addition, however, the

[[Page 78835]]

information from the Arca Book, but not the orders themselves, would be 
submitted to OptiMark at relevant times during Core Trading Hours in 
the form of Arca Profiles.\143\ Arca Profiles are defined as ``the 
satisfaction profile generated by the OptiMark System from processing 
the Arca Book.''\144\ Any Order generated from a Cycle representing 
matches involving Arca Profiles would be routed as an Immediate-or-
Cancel Order to Arca for execution against the relevant Arca limit 
order. If the relevant limit order is no longer available on Arca, the 
Order generated from the Cycle would be automatically cancelled.\145\
---------------------------------------------------------------------------

    \143\ See proposed PCXE Rules 7.39(a) and 7.47(b). Proposed PCXE 
Rule 7.47(b) replaces PCXE Rule 7.73(b) which described a 
specialist's obligations regarding the OptiMark System.
    \144\ See proposed PCXE Rule 7.45(a)(6).
    \145\ See proposed PCXE Rules 7.39(b), 7.45(a)(5) and 7.48(b).
---------------------------------------------------------------------------

    g. Limitation of Liability. The PCXE proposes to limit the 
liability of the PCXE, Archipelago Exchange, L.L.C., and their 
respective affiliates with regard to Arca.\146\ Specifically, proposed 
PCXE Rule 7.42 states that:
---------------------------------------------------------------------------

    \146\ See proposed PCXE Rule 7.42.
---------------------------------------------------------------------------

    Neither the PCXE, any affiliate of the PCXE, Archipelago Exchange, 
L.L.C., nor any affiliate of the Archipelago Exchange, L.L.C., would be 
liable to Users for any loss, damages, claim or expense:

    (1) growing out of the use or enjoyment of Arca; or
    (2) arising from or occasioned by any inaccuracy, error or delay 
in, or omission of or from the collection, calculation, compilation, 
maintenance, reporting or dissemination of any information derived 
from Arca, resulting either from any act or omission by the PCXE, 
any affiliate of the PCXE, Archipelago Exchange, L.L.C., or any 
affiliate of Archipelago Exchange, L.L.C., or from any act, 
condition or cause beyond the reasonable control of the PCXE, any 
affiliate of the PCXE, Archipelago Exchange, L.L.C., or any 
affiliate of Archipelago Exchange, L.L.C., including, but not 
limited to, flood, extraordinary weather conditions, earthquake or 
other acts of God, fire, war, insurrection, riot, labor dispute, 
accident, action of government, communications or power failure, or 
equipment or software malfunction.

    In addition, proposed PCXE Rule 7.42(b) provides that ``[e]ach ETP 
Holder expressly agrees, in consideration of the issuance of the ETP, 
to release and discharge the Corporation, any affiliate of the 
Corporation, Archipelago Exchange, L.L.C., and any affiliate of the 
Archipelago Exchange, L.L.C., and any officers, directors, employees 
and agents thereof, of and from all claims and damages arising from 
their acceptance and use of Archipelago Exchange.''
    Furthermore, proposed PCXE Rule 7.42(c) states that ``[n]either the 
Corporation, any affiliate of the Corporation, Archipelago Exchange, 
L.L.C., nor any affiliate of the Archipelago Exchange, L.L.C., makes 
any express or implied warranties or conditions to Users as to results 
that any person or party may obtain from Archipelago Exchange for 
trading or for any other purpose, and all warranties of merchantability 
or fitness for a particular purpose or use, title, and non-infringement 
with respect to Arca are hereby disclaimed.''
    3. PCXE Membership Structure: Equity Trading Permits. With the 
introduction of Arca, the PCXE intends to simplify its membership rules 
to reflect more accurately the change from a traditional floor trading 
environment. The PCXE would only have one category of members, as that 
term is defined in the Section 3 of the Act: \147\ ETP Holders.\148\ 
Any registered broker-dealer who wishes to be a member once Arca begins 
operation would have to must become an ETP Holder by purchasing an 
Equity Trading Permit (``ETP'') \149\ from the PCXE.\150\ By becoming 
an ETP Holder, the registered broker-dealer may effect approved 
securities transactions on the PCXE's two trading facilities, Arca and 
the PCXE Application of OptiMark. As is the case under the current PCXE 
Rules, an ETP Holder: (1) Must agree to be bound by the Certificate of 
Incorporation, Bylaws and Rules of the PCXE, and by all applicable 
rules and regulations of the SEC; (2) haves no ownership or 
distribution rights in the PCXE; and (3) have limited voting rights to 
nominate two Directors to the PCXE's Board of Directors and one 
Governor to the Board of Governors of the PCX Parent.
---------------------------------------------------------------------------

    \147\ 15 U.S.C. 78c.
    \148\ See proposed PCXE Rule 1.1(n) (definition of ``ETP 
Holder'').
    \149\ See proposed PCXE Rule 1.1(m) (definition of ``ETP'').
    \150\ See proposed PCXE Rule 2.100 (Any PCX member, as defined 
in the PCX Parent Rule 1.1, or Equity ASAP Holder that wishes to 
continue to effect securities transactions without interruption on 
the PCXE's Trading Facilities must obtain an ETP prior to the first 
day Arca becomes operational. If the PCX member or Equity ASAP 
Holder fails to obtain an ETP prior to that date, the PCX member or 
Equity ASAP Holder will not be permitted to effect securities 
transactions on the PCXE's Trading Facilities until such time as it 
does obtain an ETP).
---------------------------------------------------------------------------

    With the elimination of the trading floor and the introduction of 
remote electronic trading on the PCXE, two aspects of the current PCXE 
Rules relating to memberships become obsolete. First, under the 
existing PCXE Rules, an ETP Firm must have a natural person, a Nominee, 
to act as its representative on the PCXE. Because an ETP Firm no longer 
needs a natural person to act on its behalf on the floor, the concept 
of a Nominee of the ETP Firm has been eliminated.\151\ Therefore, an 
ETP Firm would be re-designated as an ETP Holder.\152\ In addition, the 
definition of an ETP Holder would no longer be defined as a ``natural 
person'' or ``Nominee,'' but rather a ``sole proprietorship, 
partnership, corporation, limited liability company or other 
organization'' that has been issued an ETP.\153\
---------------------------------------------------------------------------

    \151\ PCXE proposes to delete the following Nominee-related PCXE 
Rules or sections thereof: PCXE Rule 1.1(n) (definition of 
``Nominee''); PCXE Rule 2.1(b)(2) (``Securities Business''); PCXE 
Rule 2.2 (``Qualifications and Application of Individual 
Applicants''); PCXE Rule 2.3(b)-(d) (``Qualifications of Firm 
Applicants''); PCXE Rule 2.11(b)-(c) (``Sole Proprietors''); PCXE 
Rule 2.21(c) (``Termination of Trading Privileges''); and PCXE Rule 
2.22(c) (``Limited Transferability'').
    \152\ PCXE proposes to delete PCXE Rule 1.1(m) (``ETP Firm'').
    \153\ Compare PCXE Rule 1.1(l) (``ETP Holder'') with proposed 
PCXE Rule 1.1(n) (``ETP Holder'').
---------------------------------------------------------------------------

    Second, an important difference between an Equity Automated Systems 
Access Permits (``ASAP'') and an ETP today is that an ETP allows its 
holder to transact business on the floor of the PCXE, whereas the 
Equity ASAP does not.\154\ Because the PCXE proposes to eliminate the 
floor, there will no longer be a need for two separate membership 
categories. Therefore, Equity ASAP Holders would be re-designated as 
ETP Holders and the rules related to Equity ASAP Holders would be 
deleted.\155\
---------------------------------------------------------------------------

    \154\ Compare PCXE Rule 1.1(i) (``Equity ASAP'') with proposed 
PCXE Rule 1.1(m) (``ETP'').
    \155\ PCXE proposes to delete the following Equity ASAP-related: 
PCXE Rule 1.1(i) (definition of ``Equity ASAP''); PCXE Rule 1.1(j) 
(definition of ``Equity ASAP Holder'') and Rule 2.16 (Terms and 
Conditions Relating to Equity ASAPs).
---------------------------------------------------------------------------

    4. Applicability of Existing PCXE Rules. In addition to the new 
proposed rules set forth above, the PCXE proposes to delete the 
following existing PCXE Rules, which relate primarily to floor trading 
and specialists or are otherwise inapplicable to the new trading 
environment: PCXE Rule 1.1(g) (Floor Trader); PCXE Rule 1.1(o) (Non-
Resident Organization); PCXE Rule 2.12(a); PCXE Rule 2.24 (Trading 
Floor Employees of ETP Firms); PCXE Rule 4.1(b-c) (Minimum Net Capital 
for Specialist Firms); PCXE Rule 4.2 (Specialist Post Capital); PCXE 
Rule 6.8 (Discretionary Transactions); PCXE Rule 6.16(b) (Miscellaneous 
Prohibitions); PCXE Rule 7.1(a)(6) (Freely Transferable Security); PCXE 
Rule 7.1(a)(8) (Local Security); PCXE Rule 7.1(a)(9) (Dually

[[Page 78836]]

Traded Security); PCXE Rule 7.2, Comm. 01; PCXE Rule 7.4 (Types of 
Orders); PCXE Rule 7.5 (Authority of Trading Officials); PCXE Rule 7.8 
(Trading Floor Standards); PCXE Rule 7.12 (Recognized Quotations); PCXE 
Rule 7.14 (Trading in ``When Issued/Distributed'' Securities); PCXE 
Rule 7.17 (Manner of Bidding and Offering); PCXE Rule 7.18 (Types of 
Bids or Offers); PCXE Rule 7.19 (Priority and Precedence of Bids and 
Offers); PCXE Rule 7.20 (Cabinet Dealings); PCXE Rule 7.21 (Error 
Accounts); PCXE Rule 7, Section 5 (ETP Holders Acting as Specialists); 
PCXE Rule 7, Section 6 (Specialists Acting as Odd-lot Dealers); PCXE 
Rule 7, Section 7 (Trading Practices and Procedures) (except for Rule 
7.40--Short Sales, Rule 7.45--Stock Option Transactions and Rule 7.47--
Trading Halts Due to Extraordinary Market Volatility); PCXE Rule 7, 
Section 8 (Contracts in Securities) (except for Rules 7.50 & 7.51--
Definitions and General Provisions and Rule 7.53--Delivery of 
Securities); PCXE Rule 7.69 (Liability of Corporation Relating to 
Operation of ITS); PCXE Rule 7.70 (Pacific Computerized Order Access 
System (``P/COAST'')); PCXE Rule 10.12(g) (Floor Citations); PCXE Rule 
10.13 (Summary Sanction Procedures); and PCXE Rule 12.1(a); PCXE Equity 
Floor Procedure Advices.
    Furthermore, minor conforming changes have been made throughout the 
existing PCXE Rules to conform the proposed rules to the new 
terminology associated with Arca. For example, PCXE we have deleted 
references to, among other things, Equity ASAP Holders, ETP Firms and 
the trading floor throughout the PCXE Rules. Finally, any other 
existing PCXE rules which have not been deleted or amended as specified 
remain in effect as they are currently.
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\156\ in general, and furthers the objectives 
of Section 6(b)(5),\157\ in particular, in that 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.
---------------------------------------------------------------------------

    \156\ 15 U.S.C. 78f(b).
    \157\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. In fact, PCX and PCXE 
believe that the introduction of a fully electronic trading venue will 
serve to enhance competition.

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

    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. SEC's Solicitation of Comments

    The PCX proposes that Arca become a facility of PCXE that would 
replace the PCX's traditional floor-based auction market for equity 
securities. The PCX's proposal presents several novel issues with 
respect to the operation of a national securities exchange. In addition 
to requesting comments concerning the overall proposal, the Commission 
requests comments addressed to the following specific items: (1) 
Discretionary Orders, (2) the minimum price improvement level, (3) 
customer order priority, and (4) the opening and late trading sessions.
    First, the PCX's proposal would enable users to submit 
``Discretionary Orders'' for execution on Arca. Proposed PCXE Rule 
7.31(h)(2) defines a Discretionary Order as ``an order to buy or sell a 
stated amount of a security at a specified, undisplayed price (the 
`discretionary price'), in addition to at a specified, displayed 
price.'' For example, an incoming marketable limit order may be matched 
for execution against the displayed price of a Discretionary Order. An 
otherwise non-marketable incoming limit order, however, may trigger an 
execution against a Discretionary Order at a price within the 
undisplayed, discretionary price range of the Discretionary Order. The 
PCX believes that Discretionary Orders will help replicate the dynamic 
of a traditional floor-based auction market, in particular the trading 
discretion of a floor broker.\158\
---------------------------------------------------------------------------

    \158\ Telephone conversation between Peter Bloom, Director of 
Regulatory Projects, PCX, and Patrick Joyce, Special Counsel, 
Commission, November 16, 2000.
---------------------------------------------------------------------------

    The Commission notes that, pursuant to Rule 11Ac1-1 under the Act 
\159\ (the ``Quote Rule''), each responsible broker or dealer is 
required promptly to communicate to its exchange or association, 
pursuant to the procedures established by that exchange or association, 
its best bids, offers, and quotation sizes for any subject security. 
The Commission seeks general comments on the proposed availability of 
Discretionary Orders on Arca in the light of the Quote Rule. In 
addition, the Commission seeks specific comments on the following:
---------------------------------------------------------------------------

    \159\ 17 CFR 240.11Ac1-1.
---------------------------------------------------------------------------

    <bullet> What are the potential advantages or disadvantages of 
Discretionary Orders with regard to:
    (a) price discovery;
    (b) market transparency; and
    (c) transaction costs for investors?
    <bullet> Should a distinction be made between Discretionary Orders 
placed on behalf of public customers and Discretionary Orders placed by 
PCXE market makers trading for their own accounts?
    Second, proposed PCXE Rule 7.6(a), Commentary .06, would establish 
a minimum price improvement increment of $.01 or 10% of the spread, 
whichever is greater, with regard to the execution of Directed Orders 
\160\ and Cross Orders.\161\ Accordingly, under the PCX's proposal, the 
minimum price improvement increment for Directed Orders and Cross 
Orders would not be less than $.01. The Commission notes that, under 
the PCX's proposal, the minimum price variation for equity securities 
traded on Arca would be \1/64\ of $1.00 for securities that are quoted 
in fractions, and $.01 for equity securities that are quoted in 
decimals.\162\ The Commission seeks comment on whether the PCX's 
proposed minimum price

[[Page 78837]]

improvement interval that may be greater than the minimum price 
variation for internalized or otherwise preferenced orders is 
appropriate.\163\
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    \160\ See proposed PCXE Rules 7.31(i) (definition of ``Directed 
Order'') and (j) (definition of ``Directed Fill''). The Commission 
notes that only executions of Directed Orders against Directed Fills 
would be subject to the minimum price improvement increment. See 
proposed PCXE Rule 7.37.
    \161\ See proposed PCXE Rule 7.31(s) (definition of ``Cross 
Order'').
    \162\ The proposed rule further specifies that the minimum price 
variation shall be consistent with the Decimal Implementation Plan. 
See proposed PCXE Rule 7.6(a), Commentary .05.
    \163\ The Commission notes that no other registered national 
securities exchange has such a requirement, but that the NASD 
requires a registered Nasdaq market maker to improve the price of a 
customer order that it holds by at least \1/16\ or one-half of the 
spread, whichever is less.
---------------------------------------------------------------------------

    Third, historically, securities exchanges have adopted rules that 
give priority to the agency orders of public customers over the 
proprietary trades of member firms, in recognition that traders on the 
floor of an exchange generally possess an informational advantage over 
public customers. Because the PCX seeks to establish Arca as a purely 
electronic facility that would not employ a trading floor, the PCX does 
not believe that its users would possess any informational advantage 
over public customers who submit agency orders for execution on the 
Arca Book. Accordingly, the Arca Book would not give precedence to 
agency orders over principal orders, but rather would rank orders based 
upon price/time priority.\164\ The Commission seeks comment on the 
order execution priority of the Arca Book, including whether market 
makers' orders should have priority equal to orders of the same type 
placed by public customers.
---------------------------------------------------------------------------

    \164\ The Commission notes that proposed PCXE Rule 6.16 would 
prohibit a market maker from trading for its proprietary account on 
Arca ahead of its own customer's limit order at the same price.
---------------------------------------------------------------------------

    Fourth, and finally, the PCX proposes to operate three distinct 
trading sessions: an opening session, a core trading session, and a 
late trading session. The opening session, which would begin at 5:00 
a.m. (Pacific Time) and run until the start of the core trading 
session, would include an Opening Auction at the start of the opening 
session and a Market Order Auction that would begin at 6:30 a.m. 
(Pacific Time). The core trading session for each security would begin 
immediately after conclusion of the Market Order Auction for such 
security. The Commission seeks comments about the opening session, 
particularly the opening procedures and the transition from the opening 
session to the core trading session.
    The PCX also proposes to operate a late trading session that would 
begin when the core trading session ends and conclude at 5:00 p.m. 
(Pacific Time), contingent upon arrangements with the Consolidated Tape 
Association. Currently, after-hours trading sessions for listed 
securities end at 3:30 p.m. (Pacific Time). The Commission invites 
comments about the PCX's proposed late trading session, including the 
possible extension of the late trading session to 5:00 p.m. (Pacific 
Time).
    The Commission invites interested persons to submit written data, 
views, and arguments concerning the proposed rule change, including 
whether it 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. 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-00-25 and should be submitted by January 5, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\165\
---------------------------------------------------------------------------

    \165\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.

Appendix A--Rules of PCX Equities, Inc.

Rule 1

Definitions

    Rule 1.1 Whenever and wherever used herein, unless the context 
requires otherwise, the following terms shall be deemed to have the 
meanings indicated:

Arca Book

    (a) The term ``Arca Book'' shall refer to the Archipelago 
Exchange's electronic file of orders, which contains all the User's 
orders in each of the Directed Order, Display Order, Working Order 
and Tracking Order Processes.

Affiliate

    (b)[(a)] An ``affiliate'' of, or person ``affiliated[''] with'' 
a specific person, is a person that directly, or indirectly through 
one or more intermediaries, controls or is controlled by, or is 
under common control with, the person specified.

Allied Person

    (c)[(b)]The term ``Allied Person'' shall refer to an individual, 
who is:
    (1) an employee of an ETP [Firm or Equity ASAP] Holder who 
controls such firm, or
    (2) an employee of an ETP [Firm or Equity ASAP] Holder 
corporation who is a director or a principal executive officer of 
such corporation, or
    (3) an employee of an ETP [Firm or Equity ASAP] Holder limited 
liability company who is a manager or a principal executive officer 
of such limited liability company, or
    (4) a general partner in an ETP [Firm or Equity ASAP] Holder 
partnership; and who has been approved by the Corporation as an 
Allied Person.

Approved Person

    (d)[(c)]The term ``Approved Person'' shall refer to a person who 
is not an ETP Holder, nor an employee or an Allied Person of an [ETP 
Firm or Equity ASAP] Holder, and who:
    (1) is a director of an ETP [Firm or Equity ASAP] Holder, or
    (2) controls an ETP [Firm or Equity ASAP] Holder, or
    (3) beneficially owns, directly or indirectly, 5% or more of the 
outstanding equity securities of an ETP [Firm or Equity ASAP] 
Holder, or
    (4) has contributed 5% or more of the partnership capital, and 
who has been approved by the Corporation as an Approved Person.

Archipelago Exchange

    (e) The term ``Archipelago Exchange'' shall mean the electronic 
securities communications and trading facility designated by the 
Board of Directors through which orders of Users are consolidated 
for execution and/or display.

Associated Person

    (f)[(d)]The term ``Associated Person'' shall refer to a person 
who is a partner, officer, director, member of a limited liability 
company, trustee of a business trust, employee of an ETP [Firm or 
Equity ASAP] Holder or any person directly or indirectly 
controlling, controlled by or under common control with an ETP [Firm 
or Equity ASAP] Holder.

Authorized Trader

    (g) The term ``Authorized Trader'' or ``AT'' shall mean a person 
who may submit orders to the Corporation's Trading Facilities on 
behalf of his or her ETP Holder or Sponsored Participant.

BBO

    (h) The term ``BBO'' shall refer to the best bid or offer on the 
Archipelago Exchange.

Control

    (i))[(e)]--No change.

Core Trading Hours

    (j) The term ``Core Trading Hours'' shall mean the hours of 6:30 
am through 1:00 pm (Pacific Time) or such other hours as may be 
determined by the Corporation from time to time.

Corporation

    (k)[(f)] The term ``Corporation'' shall mean PCX Equities, Inc., 
as described in the PCX Equities, Inc.'s [Corporation's] Certificate 
of Incorporation and [the PCX Equities, Inc.] Bylaws.

Eligible Security

    (l) The term ``Eligible Security'' shall mean any equity 
security (i) either listed on the

[[Page 78838]]

Corporation or traded on the Corporation pursuant to a grant of 
unlisted trading privileges under Section 12(f) of the Exchange Act 
and (ii) specified by the Corporation to be traded on the 
Archipelago Exchange, PCXE Application or other facility, as the 
case may be.

[Floor Trader]

    [(g)--Deleted.]

[Equity ASAP]

    [(i)--Deleted.]

[Equity ASAP Holder]

    [(j)--Deleted.]

ETP

    (m)[(k)]--No change.

ETP Holder

    (n)[(1)] The term ``ETP Holder'' shall refer to a [natural 
person, in good standing, who] sole proprietorship, partnership, 
corporation, limited liability company or other organization in good 
standing that has been issued an ETP[, or has been named as a 
Nominee]. An ETP Holder must be a registered broker or dealer 
pursuant to Section 15 of the Securities Exchange Act of 1934[, or a 
nominee or an associated person of a registered broker or dealer 
that has been approved by the Corporation to conduct business on the 
Corporation's trading facilities]. An ETP Holder shall agree to be 
bound by the Certificate of Incorporation, Bylaws and Rules of the 
Corporation, and by all applicable rules and regulations of the 
Securities and Exchange Commission.
    An ETP Holder shall not have ownership or distribution rights in 
the Corporation. An ETP Holder will have limited voting rights to 
nominate two Directors [members] to the Corporation's Board of 
Directors and one Governor  [member] to the Board of Governors of 
the PCX Parent. An ETP Holder will have status as a ``member'' of 
the PCX Parent as that term is defined in Section 3 of the 
Securities Exchange Act of 1934, as amended.

[ETP Firm]

    [(m)--Deleted.]

General Authorized Trader

    (o) The term ``General Authorized Trader'' or ``GAT'' shall mean 
an authorized trader who performs only non-market making activities 
on behalf of an ETP Holder.

Good Standing

    (p)[(h)] The term ``good standing'' shall refer to an ETP 
Holder[, Equity ASAP Holder or ETP Firm] who is not in violation of 
any of its agreements with the Corporation or any of the provisions 
of the Rules or Bylaws of the Corporation, and who has maintained 
all of the conditions for approval of the ETP.

Imbalance

    (q) For the purposes of the Opening Auction and the Market Order 
Auction, as the case may be, the term ``Imbalance'' shall mean the 
number of buy or sell orders that can not be matched with other 
orders at the Indicative Match Price at any given time.

Indicative Match Price

    (r) For the purposes of the Opening Auction or the Market Order 
Auction, as the case may be, the term ``Indicative Match Price'' 
shall mean for each security (1) the price at which the maximum 
volume of orders are executable; or (2) if there are two or more 
prices at which the maximum volume of orders are executable, the 
price that is closest to the closing price of the previous trading 
day's normal market hours, as determined by the Consolidated Tape.

Limited Price Order

    (s) The term ``Limited Price Order'' shall mean any order with a 
specified price or prices (e.g., limit orders and Working Orders), 
other than Stop Orders.

Marketable

    (t) The term ``Marketable'' shall mean, for a Limited Price 
Order, the price matches or crosses the NBBO on the other side of 
the market. Market orders are always considered marketable.

Market Maker

    (u) The term ``Market Maker'' shall refer to an ETP Holder that 
acts as a Market Maker pursuant to Rule 7.

Market Maker Authorized Trader

    (v) The term ``Market Maker Authorized Trader'' or ``MMAT'' 
shall mean an authorized trader who performs market making 
activities pursuant to Rule 7 on behalf of a Market Maker.

Market Participant

    (w) For the purposes of Rule 7, the term ``Market Participant'' 
shall include electronic communications networks (``ECN''), dealer-
specialists registered with a national securities exchange, and 
market makers registered with a national securities association.

NBBO

    (x) The term ``NBBO'' shall refer to the national best bid or 
offer.

[Nominee]

    [(n)--Deleted.]

[Non-Resident Organization]

    [(o)--Deleted.]

Notice of Consent

    (y) The term ``Notice of Consent'' shall mean a written 
statement provided to the Corporation by a Sponsoring ETP Holder by 
which the Sponsoring ETP Holder acknowledges responsibility for the 
orders, executions and actions of its Sponsored Participant(s).

NOW Recipient

    (z) The term ``NOW Recipient'' shall mean any exchange, ECN or 
other broker-dealer (1) with which the Archipelago Exchange 
maintains an electronic linkage, which includes ITS, and (2) which 
provides instantaneous responses to NOW Orders routed from the 
Archipelago Exchange. The Corporation shall designate from time to 
time those exchanges, ECNs or other broker-dealers that qualify as 
NOW Recipients.

Odd Lot Dealer

    (aa) The term ``Odd Lot Dealer'' shall refer to a Market Maker 
that is registered as an Odd Lot Dealer as described in Rule 7.25.

Parent

    (bb) [(p)]--A ``parent'' of a specified person or organization 
is an affiliate controlling such person or organization directly[,] 
or indirectly through one or more intermediaries.

Participant

    (cc) The term ``Participant'' shall mean any ETP Holder, Allied 
Person, partner, approved person, stockholder associate, registered 
employee or other full-fime employee of an ETP Holder.

PCX Parent

    (dd) [(q)] The term ``PCX Parent'' shall refer to the Pacific 
Exchange, Inc., a Delaware corporation and national securities 
exchange as the term is defined in [by] Section 6 of the Securities 
Exchange Act of 1934, as amended. The Pacific Exchange, Inc. is the 
sole shareholder of the Corporation.

Person

    (ee) [(r)]--No change.

Registered Employee

    (ff) The term ``Registered Employee'' shall mean any person 
soliciting or conducting business in securities on behalf of an ETP 
Holder.

Routing Agreement

    (gg) The term ``Routing Agreement'' shall mean the form of 
Agreement between an ETP Holder and the broker-dealer affiliate of 
Archipelago Exchange, L.L.C., under which the broker-dealer 
affiliate of Archipelago Exchange, L.L.C., agrees to act as agent 
for routing orders of the ETP Holder and the ETP Holder's Sponsored 
Participants entered into the Archipelago Exchange to other market 
centers or broker-dealers for execution, whenever such routing is 
required.

Security

    (hh) The terms ``security'' and ``securities'' mean any security 
as defined in Rule 3(a)(10) under the Securities Exchange Act of 
1934.

Self-Regulatory Organization (``SRO'')

    (ii) [(s)]--No change.

Sponsored Participant

    (jj) The term ``Sponsored Participant'' shall mean a person 
which has entered into a sponsorship arrangement with a Sponsoring 
ETP Holder pursuant to Rule 7.29.

Sponsoring ETP Holder

    (kk) The term ``Sponsoring ETP Holder'' shall mean a broker-
dealer that has been issued an ETP by the Corporation who has been 
designated by a Sponsored Participant to execute, clear and settle 
transactions resulting from the Archipelago Exchange. The Sponsoring 
ETP Holder shall be either (i) a clearing firm with membership in a 
clearing agency registered with the Commission that maintains 
facilities through which transactions may be cleared or (ii) a 
correspondent firm with a clearing arrangement with any such 
clearing firm.

[[Page 78839]]

Sponsorship Provisions

    (ll) The term ``Sponsorship Provisions'' shall mean the 
provisions sent forth in Rule 7.29(b)(2). For a Sponsored 
Participant to obtain authorized access to the Archipelago Exchange, 
the Sponsored Participant and its Sponsoring ETP Holder must enter 
into an agreement which incorporates the Sponsorship Provisions.

Stockholder Associate

    (mm) The term ``Stockholder Associate'' means a person who is 
the employee of an ETP Holder, who is actively engaged in its 
business and devotes the major portion of his or her time thereto, 
who is not an ETP Holder or Allied Person, and who, as a holder of 
equity securities, has been approved by the Corporation as a 
stockholder associate.

Trading Facilities

    (nn) [(t)] The term ``Trading Facilities'' or ``Facilities'' 
shall refer to [the Corporation's Los Angeles and San Francisco 
trading floors, office space] any and all electronic or automatic 
trading systems provided by the Corporation to ETP Holders [and ETP 
Firms in connection with their floor trading activities, and any and 
all electronic or automatic systems access programs provided by the 
Corporation to ETP Holders, ETP Firms and Equity ASAP Holders].

User

    (oo) The term ``User'' shall mean any ETP Holder or Sponsored 
Participant who is authorized to obtain access to the Archipelago 
Exchange pursuant to Rule 7.29.

User Agreement

    (pp) The term ``User Agreement'' shall mean an appropriate 
subscription agreement entered into by the User with Archipelago 
Exchange, L.L.C.

Wholly Owned Subsidiary

    (qq) [(u)] The term ``wholly owned subsidiary'' shall mean[s) a 
subsidiary substantially all of whose outstanding voting securities 
are owned by its parent and/or the parent's other wholly owned 
subsidiaries.

Rule 2

Equity Trading Permits [and Equity ASAPs]

Securities Business

    Rule 2.1(a) Every ETP Holder[, ETP Firm and Equity ASAP Holder] 
shall have as its principal purpose the conduct of a securities 
business.
    (b) An ETP Holder[, ETP Firm and Equity ASAP Holder] shall be 
deemed to have such a purpose if and so long as[:]
    [(1)] the ETP Holder[, ETP Firm or Equity ASAP Holder, as the 
case may be,] has qualified and acts in respect of its business in 
an approved capacity pursuant to the Certificate of Incorporation, 
Bylaws, Rules and procedures of the Corporation; and all 
transactions are in compliance with Section 11(a) of the Securities 
Exchange Act of 1934 as amended and the Rules and regulations 
adopted thereunder[; or]
    [(2) the ETP Holder is a general partner, executive officer or 
nominee of an ETP Firm who has conferred ETP trading privileges upon 
that ETP Firm].
    (c) No ETP Holder[, ETP Firm or Equity ASAP Holder] shall 
utilize any scheme, device, arrangement, agreement or understanding 
designed to circumvent or avoid, by reciprocal means or in any other 
manner, the provisions of this Rule 2.1.

Qualifications [and Application of Individual Applicants] of Applicants

    [Rule 2.2--Deleted.]

[Qualifications of Firm Applicants]

    Rule [2.3.] 2.2
    [(a)] An ETP [or Equity ASAP] may be held by an entity which is 
a registered broker or dealer pursuant to Section 15 of the 
Securities Exchange Act of 1934, as amended, including sole 
proprietors, partnerships, limited liability partnerships, 
corporations, and limited liability companies. A corporation, 
limited liability company, or limited liability partnership must be 
organized under the laws of one of the states of the United States 
or under other laws as the Corporation's Board of Directors shall 
approve.
    [(b)-(d)--Deleted.]

Application Procedures

    Rule [2.4.] 2.3
    (a) Every [individual] person applying to become an ETP Holder[, 
every individual applying to become the Nominee of an ETP Firm, 
every entity upon whom an ETP Holder will confer trading privileges, 
and every entity applying to become an Equity ASAP Holder] shall 
complete an application on a form prescribed by the Corporation and 
shall file it with the Corporation. The application shall be filed 
with such application fees and such documents as may be required by 
the Corporation. Application fees are not transferable and not 
refundable.
    (b) Within a reasonable period of time following receipt of an 
application for an ETP [or Equity ASAP], the name of the applicant[, 
and in the case of an entity, the individual in whose name the 
permit will be held,] shall be distributed to all ETP Holders and 
[Equity ASAP Holders and] shall be posted by the Corporation by 
publishing the name of each applicant in the Corporation's Weekly 
Bulletin for at least ten (10) calendar days prior to the approval 
or rejection of the application by the Corporation.
    (c) Every [individual] applicant and[, in the case of applicant 
entities,] all persons associated with the [entity,] applicant may 
be investigated by the Corporation. The applicant shall file with 
the Corporation such additional documents as may be requested by the 
Corporation.
    (d) Upon completion of the application process, the Corporation 
shall consider and then approve or reject the application, unless 
there is just cause for delay. [Individual] Sole proprietor 
applicants and persons associated with applicant entities may be 
required to appear in person before the Corporation. The Corporation 
may also require any ETP Holder[, Equity ASAP Holder] or person 
associated with an ETP [Firm or Equity ASAP] Holder who may possess 
information relevant to the applicant's suitability for holding an 
ETP [or Equity ASAP] to provide information or testimony.
    (e) The Corporation shall approve an application if it finds 
that the applicant meets all of the qualifications for holding an 
ETP [or Equity ASAP]. The Corporation shall reject an application if 
it does not make such a finding or if it finds that, if the 
application were approved, the permit holder would be subject to 
suspension or expulsion under the provisions of the Bylaws, Rules or 
procedures of the Corporation or the rules, regulations and 
procedures promulgated under the Securities Exchange Act of 1934, as 
amended.
    (f)--No change.
    (g) In the event that an application is rejected by the 
Corporation, the applicant shall have an opportunity to be heard 
upon the specific grounds for the rejection, in accordance with the 
provisions of Rule 10. An applicant denied an ETP [or Equity ASAP] 
may challenge the denial by filing with the Corporate Secretary, a 
petition for review of the denial by the Corporation's Board Appeals 
Committee. Such petition shall be filed within thirty (30) calendar 
days of the date upon which the Corporation's decision was mailed to 
the applicant and shall be filed in accordance with the provisions 
of Rule [10.14] 10.13.

Denial of or Conditions to ETPs [or Equity ASAPs]

    Rule [2.5.] 2.4(a) The Corporation may deny (or may condition) 
trading privileges under an ETP or [Equity ASAP or] may bar a 
natural person from becoming associated (or may condition an 
association) with an ETP [Firm or Equity ASAP] Holder for the same 
reasons that the Securities and Exchange Commission may deny or 
revoke a broker or dealer registration and for those reasons 
required or allowed under the Securities Exchange Act of 1934, as 
amended.
    (b) The Corporation may deny or may condition trading privileges 
under an ETP [or Equity ASAP], or may prevent a natural person from 
becoming associated (or may condition an association) with an ETP 
[Firm or Equity ASAP] Holder when the applicant directly or 
indirectly:
    (1) is unable to satisfactorily demonstrate its present capacity 
to adhere to all applicable Corporation and Securities and Exchange 
Commission policies, [Rules] rules and regulations, including, 
without limitation, those concerning record-keeping, reporting, 
finance and trading procedures;
    (2) has previously violated, and there is a reasonable 
likelihood such applicant will again engage in acts or practices 
violative of, any applicable Corporation or Securities and Exchange 
Commission policies, [Rules] rules and regulations, including, 
without limitation, those concerning record-keeping, reporting, 
finance and trading procedures or those [Rules] rules of other self-
regulatory organizations of which such applicant is or was a 
member[:]
    (3)-(5)--No change.
    (6) owes an undisputed debt to an ETP Holder[, ETP Firm or 
Equity ASAP Holder] arising out of the securities business, in which 
case the Corporation may take such action as it deems appropriate, 
including, without limitation, denying the application or 
conditioning the issuance of the ETP [or Equity ASAP] upon the 
execution of an agreement regarding repayment of the debt;

[[Page 78840]]

    (7) allegedly owes a debt to an ETP Holder[, ETP Firm or Equity 
ASAP Holder] arising out of the securities business, in which case 
the Corporation may take such action as it deems appropriate, 
including, without limitation, denying the application or 
conditioning the issuance of the ETP [or Equity ASAP] upon the debt 
being submitted to arbitration pursuant to Rule 12 at the request of 
the ETP [Holder, ETP Firm or Equity ASAP] Holder to whom the debt is 
allegedly owed;
    (8)-(10)--No change.

Series 7 Requirement [for Off-Floor Traders]

    (A) Traders of ETP [Firms and Equity ASAP] Holders for which the 
Corporation is the Designated Examining Authority (``DEA'') must 
successfully complete the General Securities Registered 
Representative Examination (Test Series 7), if the primary business 
of the ETP [Firm or Equity ASAP] Holder involves the trading of 
securities that is unrelated to the performance of the functions of 
a registered [specialist or registered floor broker] Market Maker. 
Unless required to complete the Series 7 under Rule 7.21(b)(2), the 
[The] following are exempt from the requirement to successfully 
complete the Series 7 Examination: ETP Holders who are performing 
the function of a registered [specialist or registered floor broker] 
Market Maker (pursuant to Rule [7.22(a))] 7).
    For purposes of this Rule:
    (i) The term ``trader'' means a person (a) who is directly or 
indirectly compensated by an ETP [Firm or Equity ASAP] Holder, or 
who is any other associated person of an ETP [Firm or Equity ASAP] 
Holder and (b) who trades, makes trading decisions with respect to, 
or otherwise engages in the proprietary or agency trading of 
securities; and
    (ii) The term ``primary business'' means greater than 50% of the 
ETP [Firm's or Equity ASAP] Holder's business.
    (B) Each ETP [Firm and Equity ASAP] Holder for which the 
Corporation is the DEA must complete, on an annual basis, and on a 
form prescribed by the Corporation, a written attestation as to 
whether the ETP [Firm's or Equity ASAP] Holder's primary business is 
conducted in the performance of the function of a registered 
[specialist or a registered floor broker] Market Maker (pursuant to 
Rule [7.22(a))] 7).
    (C) The requirement to complete the Series 7 Examination will 
apply to current traders of ETP [Firms and to Equity ASAP] Holders 
that meet the criteria of subsection (A), above, as well as to 
future traders of ETP [Firms or Equity ASAP] Holders that meet the 
criteria of subsection (A), above, at a later date. Traders of ETP 
[Firms or Equity ASAP] Holders that meet the criteria of subsection 
(A), above, at the time of SEC approval of this Rule, must 
successfully complete the Series 7 Examination within six months of 
notification by the Corporation.
    (11)-(13)--No change.
    (c) The Corporation may waive or modify a required examination 
for any applicant if, within two years of the date such applicant 
applied to the Corporation for an ETP [or Equity ASAP], such 
applicant has successfully completed a comparable examination 
administered by a self-regulatory organization or the Securities and 
Exchange Commission.
    (d) The Corporation shall regard the failure by any applicant to 
carry out any contract or honor any financial commitment with an ETP 
Holder[, ETP Firm or Equity ASAP Holder] as a violation of just and 
equitable principles of trade, and an indication of a broker or 
dealer applicant's inability to meet such standards of financial 
responsibility as may be set by the Corporation.
    (e) No change.
    (f) The Corporation's Business Conduct Committee may take action 
against an ETP Holder[, ETP Firm or Equity ASAP Holder] under Rule 
10 when any of the above reasons for denying or conditioning the 
issuance of an ETP [or Equity ASAP, as the case may be,] come into 
existence after an application has been approved and an ETP [or 
Equity ASAP] has been issued.

Publication of Approved ETP [and Equity ASAP] Applications

    Rule [2.6] 2.5 With respect to each ETP [and Equity ASAP] that 
is issued, the Corporation shall promptly distribute a notice 
thereof to all ETP Holders[, ETP Firms or Equity ASAP Holders] by 
publishing the name of each new ETP Holder[, ETP Firm and Equity 
ASAP Holder] in the Corporation's Weekly Bulletin.

Requirements of Holding an ETP [or Equity ASAP]

Requirements Applicable Generally

Revocable Privilege

    Rule [2.7] 2.6. The issuance of an ETP [or an Equity ASAP] 
constitutes only a revocable privilege and confers on its holder no 
right or interest of any nature to continue as an ETP Holder[, ETP 
Firm or Equity ASAP Holder, as the case may be].

No Liability for Using Trading Facilities

    Rule [2.8] 2.7. The Corporation shall not be liable for any 
damages sustained by an ETP Holder[, ETP Firm or Equity ASAP Holder] 
growing out of the use or [employment] enjoyment by such ETP 
[Holder, ETP Firm or Equity ASAP] Holder of the facilities afforded 
by the Corporation in the conduct of [their] its business. Each ETP 
Holder[, ETP Firm and Equity ASAP Holder] expressly [agree] agrees, 
in consideration of the issuance of the ETP [or Equity ASAP, as the 
case may be], to release and discharge the Corporation, its 
officers, directors, employees and agents, of and from claims or 
damages arising from their acceptance and use of such ETP [or Equity 
ASAP] and their agreement to be bound by the Certificate of 
Incorporation, Bylaws and Rules of the Corporation.

Corporation Not Bound By ETP Holder[, ETP Firm or Equity ASAP Holder] 
Agreements

    Rule [2.9] 2.8. Nothing contained in any partnership agreement, 
limited partnership agreement, articles of incorporation, 
resolutions, by-laws or any other organizational documents, or 
amendment thereto, of an ETP [Firm or Equity ASAP] Holder, not any 
other agreements between any ETP [Holder, ETP Firm and/or Equity 
ASAP] Holder and a third party, or any amendment thereto, even 
though submitted to or filed with the Corporation, shall obligate or 
be binding upon the Corporation.

Only ETP [Firms and Equity ASAP Holders To Trade Under Firm Name] 
Holder Organizations May Carry Customer Accounts

    [Rule 2.10.] Rule 2.9. [Only Equity ASAP] Only ETP Holders [and 
ETP Firms] which are partnerships, limited liability partnerships, 
corporations or limited liability companies shall carry accounts for 
customers or conduct business under a firm name[, except that if by 
death or otherwise, an ETP Firm is reduced to the ETP Holder, such 
ETP Firm may continue business in the firm name for such a period 
only as may be allowed by the Corporation].

Sole Proprietors [and Individual ETP Holders]

    [Rule 2.11] Rule 2.10(a) A sole proprietor ETP Holder may not 
carry public customer accounts.
    [(b)-(c)--Deleted.]
    [(d)](b) Sole proprietor ETP Holders shall comply with such 
additional requirements as the Corporation may from time to time 
prescribe.

ETP [Firms and Equity ASAP Holders] Holder Organizations

    [Rule 2.12] Rule 2.11[(a)--Deleted.]
    [(b)] (a) Each ETP [Firm and Equity ASAP] Holder shall maintain 
at the Corporation at all times a record of the name and address of 
the individual duly authorized by such [Firm or] ETP Holder to 
receive and accept legal or other notices on its behalf.
    [(c)] (b) An ETP [Firm or Equity ASAP] Holder shall adopt such 
restrictions on the conduct of its affairs as may be prescribed by 
the Corporation, including, without limitation, restrictions to the 
payment of dividends and loans to officers, directors, stockholders, 
partners or members.
    Rule [2.13] 2.12. An ETP [Firm or Equity ASAP] Holder that 
intends to admit any person to partnership, or to elect or appoint 
any person as an officer or director, or to enter into a partnership 
agreement, or to form a corporation or limited liability company or 
other entity, or to alter the terms of an existing partnership 
agreement or articles of incorporation or limited liability company 
agreement or other similar operating agreement shall notify the 
Corporation in writing of such proposed admission, arrangement, or 
alteration before said becomes effective and shall submit such 
papers and information and comply with such requirements in 
connection therewith as the Corporation may prescribe.
    Rule [2.14] 2.13
    (a) Allied Persons and Approved Persons, as defined in Rule 1, 
shall be subject to approval by the Corporation. An ETP [Firm or 
Equity ASAP] Holder which proposes to admit an Allied Person or an 
Approved Person shall notify the Corporation in writing, shall pay 
any applicable fees and shall submit such information as may be 
reasonably required by the Corporation.
    (b) In order to maintain its trading privileges, each ETP [Firm 
and Equity ASAP] Holder shall obtain approval from the Corporation 
for all persons required to be approved, and each such ETP [Firm and

[[Page 78841]]

Equity ASAP] Holder shall maintain continuous compliance with all 
standards prescribed by the Bylaws and Rules of the Corporation.
    (c) Each ETP [Firm and Equity ASAP] Holder shall promptly give 
the Corporation written notice on such form as may be required by 
the Corporation of the death, retirement, or other termination of 
any ETP Holder, [Equity ASAP Holder,] Allied Person, Approved Person 
and of the dissolution of the ETP [Firm or Equity ASAP] Holder.
    (d) Each ETP [Firm and Equity ASAP] Holder shall designate 
``principal executive officers'' of such corporation who must[, in 
the case of ETP Firms,] be [ETP Holders or] Allied Persons, and 
who[, in either case,] must exercise supervision and control over 
the various areas of the business of such [Firm or] ETP Holder in 
such areas as the Rules of the Corporation may prescribe.
    (e) Each ETP [Firm and Equity ASAP] Holder shall include in its 
name an appropriate identifier of its corporate or business 
association status, in English (e.g., Incorporated, Corporation, 
Limited Liability Company, Limited Liability Partnership, or an 
appropriate abbreviation thereof).
    (f) The Corporation may require each applicant becoming a 
general partner, officer, voting stockholder, limited liability 
company member, or director of any ETP [Firm or Equity ASAP] Holder 
to pass an examination to demonstrate that they have adequate 
experience and knowledge of the securities business before 
undertaking any active duties with the firm. Compliance with this 
requirement may be waived if the principal is a member of an ETP 
[Firm or Equity ASAP] Holder belonging to another national 
securities exchange having comparable requirements.
    (g) Each ETP [Firm] Holder shall be liable for all [of the] 
liabilities to the Corporation of [the ETP Holders, as the case may 
be, conferring his or her on their ETP trading privileges on the 
firm] authorized traders, which shall include, without limitation, 
the payment of all [Corporation] fees and charges as well as meeting 
all obligations accruing in the course of [the firm's (or its 
respective ETP Holders')] an ETP Holder's or AT's business with the 
Corporation.
    (h) Each [ETP Holder, Equity ASAP Holder,] Approved Person, 
Allied Person, Affiliate, and Associated Person shall be liable to 
the same discipline and penalties for the acts and omissions of his 
or her ETP [Firm or Equity ASAP] Holder[, as the case may be,] as 
for their own acts.
    (i) Claims of [ETP Holders, Equity ASAP Holders,] Affiliates, 
Allied Persons, directors, officers, and Associated Persons of an 
ETP [Firm or Equity ASAP] Holder shall be subordinate in right of 
payment to payment or provision for payment of all claims of 
customers of such ETP Holder[, ETP Firm or Equity ASAP Holder].
    (j) Each ETP [Firm and Equity ASAP] Holder shall submit to the 
Corporation, at such times as the Corporation may require, an 
affidavit listing, to the best of its knowledge and belief, the name 
of each party directly or indirectly beneficially owning 1% or more 
of its outstanding voting stock and showing the percentage of such 
ownership.
    (k) No parent or person controlling any parent of an ETP [Firm 
or Equity ASAP] Holder may engage in any transaction or action for 
the purpose of circumventing any Rule of the Corporation governing 
the activities of an ETP [Firm or Equity ASAP Holder, as the case 
may be.] Holder.
    (l) ETP [Firms and Equity ASAP] Holders shall comply wit such 
additional requirements as the Corporation may from time to time 
prescribe.
    Rule [2.15] 2.14.
    (a) Each ETP [Firm and Equity ASAP] Holder that is a partnership 
(whether general or limited) and which has only one general partner 
shall provide in its partnership agreement that:
    (1)-(2)--No change.
    (b) Upon the death or withdrawal of any partner, if the 
partnership business is continued by the surviving partners, the 
continuing partnership will not be recognized as an ETP [Firm or 
Equity ASAP] Holder[, as the case may be,] if the unsubordinated 
claim of the deceased or withdrawing partner to a return of such 
deceased or withdrawing partner's capital contribution would result 
in a net capital impairment of the continuing partnership. The 
continuing partnership will ordinarily be recognized as an ETP [Firm 
or Equity ASAP] Holder[, as the case may be,] during the period of 
subordination of such claim if subordination provisions 
substantially as follows are included in the partnership agreement:
    Upon the death of a withdrawal of any partner, if the surviving 
partners desire to continue to the partnership business, the capital 
contribution of such deceased or withdrawing partner shall remain at 
the risk of the business and shall be considered capital of such 
continuing firm for a period of fifteen (15) calendar days to the 
extent necessary to comply with the net capital requirements of the 
Corporation. Any claim of the withdrawing partner or of the personal 
representative of the deceased partner to the repayment of such 
deceased or withdrawing partner's capital contribution during such 
period shall be subordinated to the payment in full of such claims 
of all present and future creditors of the continuing partnership 
arising out of any matters occurring before the end of such period.

[Terms and Conditions Relating to Equity ASAPs]

    [Rule 2.16.--Deleted]

Responsibilities of Non-resident Firms

    Rule [2.17.] 2.15(a) An ETP [Firm or Equity ASAP] Holder that 
does not maintain an office in the United States responsible for 
preparing and maintaining financial and other reports required to be 
filed with the Securities and Exchange Commission and the 
Corporation must:
    (1)--No change.
    (2) Reimburse the Corporation for any expenses incurred in 
connection with examinations of the ETP Holder[, ETP Firm or Equity 
ASAP] Holder to the extent that such expenses exceed the cost of 
examining an ETP [Holder, ETP Firm or Equity ASAP] Holder located 
within the continental United States in the geographic location most 
distant from the principal office of the Corporation or, in such 
other amount as the Corporation may deem to be an equitable 
allocation of such expenses,
    (3)--No change.
    (4) Utilize, either directly or indirectly, the services of a 
broker/dealer registered with the Securities and Exchange 
Commission, a bank or a clearing agency registered with the 
Securities and Exchange Commission located in the United States in 
clearing all transactions involving persons affiliated with the ETP 
Holder [, ETP Firm or Equity ASAP Holder,] except where both parties 
to a transaction agree otherwise.

Amendments to ETP [Firm and Equity ASAP] Holder Documents

    Rule [2.18.] 2.16(a) All formation documents for ETP [Firms and 
Equity ASAP] Holders, such as articles of incorporation, by-laws, 
partnership agreements, limited liability company agreements, and 
all amendments thereto, now in effect or adopted in the future, 
shall be filed with the Corporation and shall be subject to approval 
by the Corporation.
    (b) Each ETP [Holder, ETP Firm and Equity ASAP] Holder must 
submit to the Corporation any amendment to any document submitted as 
part of their application, including but not limited to amendments 
to documents required by Rule[ 4] 2.3, amendments to the [permit 
holder's] ETP Holder's Form BD, and changes to the [permit holder's] 
ETP Holder's home or business address, within fifteen (15) business 
days of such amendment or change.

ETP Charges

    Rule [2.19.] 2.17(a) Securities and Exchange Commission 
Registration Fee: Section 31 of the Securities Exchange Act of 1934 
imposes upon every national securities exchange the payment of a fee 
of 1/300th of 1 percentum of the aggregate dollar amount of the 
sales of securities transacted on the exchange, subject to some 
limitations. There shall be paid to the Corporation by each ETP 
Holder[, ETP Firm or Equity ASAP Holder] in such manner and at such 
times as the Corporation shall direct, Section 31 fees equal to the 
sum of one cent for each $300 or fraction thereof of the aggregate 
dollar amount of the sales of securities transacted by it through 
the Corporation, except in respect of transactions in securities 
which are direct obligations of or guaranteed as to principal or 
interest by the Untied States, or such securities issued, or 
obligations guaranteed by corporations in which the United States 
has a direct or indirect interest as may be designated for exemption 
therefrom by the Secretary of the Treasury. Such sum shall be paid 
by the selling ETP Holder[, ETP Firm or Equity ASAP Holder] as 
appearing on the comparison ticket of each transaction effected. The 
selling ETP [Holder, ETP Firm or Equity ASAP] Holder shall charge 
and collect such sum from the persons for whom he, she or it was 
acting in making the transaction. [Specialists] Market Makers shall 
pay such sum of both odd lots and round lots that they sell.
    (b) Other Charges: In addition to transaction fees and the 
Securities and exchange Commission registration fee, the

[[Page 78842]]

Corporation may from the time fix and impose other charges or fees 
to be paid by ETP Holders[, ETP Firms and Equity ASAP Holders] for 
the use of equipment or facilities or for services or privileges 
granted.

Exemption from Registration Requirements

    Rule [2.20.] 2.18. An ETP [Firm or Equity ASAP] Holder shall be 
exempt from such registration requirements as the Corporation may 
designate if it is a member organization of another self-regulatory 
organization, which is the appointed Designated Examining Authority 
(``DEA'') for such organization by the Securities and Exchange 
Commission.

Termination of [Trading Privileges] ETP

    [Rule 2.21] Rule 2.19(a) [Trading privileges conferred by an] An 
ETP [or Equity ASAP] will terminate upon the occurrence of any one 
of the following conditions:
    (1) the expulsion of the ETP Holder[, ETP Firm or Equity ASAP 
Holder] from the Corporation's Trading Facilities;
    (2) the suspension of the ETP Holder[,] where such ETP [Firm or 
Equity ASAP] Holder [where such Holder or Firm] failed to be 
reinstated at the expiration of the period of suspension, including 
any extension of such period which may have been granted by the 
Corporation;
    (3) the formal or informal dissolution or winding up of an ETP 
[Firm or Equity ASAP] Holder;
    (4)-(5)--No change.
    (b) Obligations of Terminating ETP Holders[, ETP Firms and 
Equity ASAP Holders]: Every ETP [Firm, and Equity ASAP] Holder, and 
any successor-in-interest thereto, and each ETP [Holder and Equity 
ASAP] Holder whose trading privileges are terminated due to 
expulsion, suspension without reinstatement, death, declaration of 
incompetency, dissolution, winding up, or other cessation of 
business, must be current in all filings and payments of dues, fees 
and charges relating to that ETP [or Equity ASAP, as the case may 
be], including, without limitation, filing fees and charges required 
by the Securities and Exchange Commission and the Securities 
Investor Protection Corporation. if any ETP Holder, [ETP Firm, or 
Equity ASAP Holder,] or any successor-in-interest thereto, fails to 
make all such filings, or to pay all such dues, fees and charges, 
the Secretary of the Corporation shall retain such jurisdiction over 
such former ETP Holder[, ETP Firm or Equity ASAP] Holder to require 
such filings and collect such outstanding dues fines and charges 
until such time as they have been filed and/or paid.
    [(c)--Deleted.]

Limited Transferability

    Rule [2.22] 2.20(a) Transfer by Purchase, Sale or Lease 
Prohibited. ETPs [and Equity ASAPs] may not be purchased (other than 
from the Corporation), sold or leased. Any purported purchase (other 
than from the Corporation), sale or lease of an ETP [or Equity ASAP] 
shall be void abe inition within further action by the Corporation.
    (b) Private Transfer Void: An ETP [Holder, ETP Firm or Equity 
ASAP] Holder which attempts to transfer an ETP [or Equity ASAP] by 
private sale or lease, or otherwise, may be adjudged guilty of 
conduct detrimental to the interest and welfare of the Corporation, 
and any purported transfer shall be void ab initio without further 
action by the Corporation and will confer no rights upon the 
purported transferee.
    [(c)--Deleted.]

Employees of ETP [Firms and Equity ASAP] Holders Registration

    Rule [2.23] 2.21(a) Every employee, including any branch office 
[managers] manager, of an ETP [Firm or Equity ASAP] Holder who is 
compensated directly or indirectly for the solicitation or handling 
of business in securities, including trading in securities for the 
account of the organization, whether such securities are those dealt 
in on the Corporation or those dealt in over-the-counter, must be 
registered with an approved by the Corporation.
    The Corporation may waive compliance with the requirements of 
Rule [2.23(a)] 2.21(a) in the event the ETP [Firm or Equity ASAP] 
Holder is also a member organization of another national securities 
exchange having comparable requirements.
    (b)-(c)--No change.
    (d) A registered employee may not be engaged in any other 
business or be employed by another employer in any capacity or 
receive compensation, without the prior written and continuing 
approval of his or her ETP Holder[, ETP Firm or Equity ASAP Holder, 
as the case may be,] and such registered employee shall devote a 
substantial portion of the business day to the activities of his or 
her [Firm or] ETP Holder.
    (e) No ETP [Holder, ETP Firm or Equity ASAP] Holder may employee 
any employee of the Corporation during the hours of regular 
employment by the Corporation. No ETP [Holder, ETP Firm or Equity 
ASAP] Holder may employ any employee of the Corporation outside the 
hours of regular employment by the Corporation without having 
obtained the prior, written approval therefore of the Corporation 
and registering therewith the name of said employee, the nature of 
the services rendered and the amount of said compensation.
    (f) No ETP [Holder, ETP Firm or Equity ASAP] Holder shall give 
any compensation or gratuity in any one calendar year in excess of 
$100 to any employee of any other ETP Holder, [ETP Firm or Equity 
ASAP Holder,] to ro any employee of a broker or dealer, bank or 
institution that is not an ETP Holder, [ETP Firm or Equity ASAP 
Holder,] without the prior consent of the employee's employer.
    (g) No ETP [Holder, ETP Firm or Equity ASAP] Holder shall give 
any compensation to any officer, director, employee or other agent 
of the Corporation without the prior written consent of the 
Corporation. No ETP [Holder, ETP Firm or Equity ASAP] Holder shall 
give any gratuity or gift in any one calendar year in excess of $100 
to any officer, director, employee or other agent of the Corporation 
without the prior written consent of the Corporation. All requests 
for such consent should contain the following information.
    (1)-(5)--No change.
    (h) Termination of the employment of a registered employee shall 
be reported to the Corporation, and the Corporation shall be 
notified in writing of the specific grounds for termination 
immediately when the employment of any persion is terminated by an 
ETP Holder[, ETP Firm or Equity ASAP Holder] under circumstances 
involving misconduct, fraud or unethical practices.

[Trading Floor Employees of ETP Firms]

    [Rule 2.24--Deleted.]

Managatory Decimal Pricing Testing

    Rule [2.25] 2.22(a)[(1)]. Point-to-Point Testing. Each ETP 
Holder[, Equity ASAP Holder or ETP Firm] that has an electronic 
interface with the Corporation must participate in point-to-point 
testing with the Corporation of its computer systems designed to 
ascertain decimal pricing conversion compatibility of those computer 
systems, in a manner and frequency as prescribed by the Corporation. 
An ETP Holder[, Equity ASAP Holder or ETP Firm) that has its 
electronic interface through a service provider need not participate 
in point-to-point testing if, by a time designated by the 
Corporation.
    [(A)] (1) The service provider conducts successful tests with 
the Corporation on behalf of the firms it serves.
    [(B)] (2) The ETP Holder[, Equity ASAP Holder or ETP Firm] 
conducts successful point-to-point testing with the service provider 
and
    [(C)] (3) The Corporation agrees that further testing is not 
necessary.
    [(2)] (b) Industry Wide Testing.The Corporation may require 
certain of its ETP Holders[, Equity ASAP Holders or ETP Firms] to 
participate in industry wide testing of computer systems for decimal 
pricing conversion. The Corporation may require any ETP Holder[, 
Equity ASAP Holder or ETP Firm] who will participate in industry 
wide testing to also participate in any tests necessary to ensure 
preparedness to participate in industry wide testing.
    [(3)] (c) Reports. ETP Holders[, Equity ASAP Holders or ETP 
Firms] participating in point-to-point testing (whether between the 
firm and the Corporation, between the firm and its service provider, 
or between the ETP Holder's[, Equity ASAP Holder's or ETP Firm's] 
service provider and the Corporation) or industry wide testing must 
file reports with the Corporation concerning the required tests in 
the manner and frequency required by the Corporation.
    [(4)] (d) Documentation. ETP Holders[, Equity ASAP Holders or 
ETP Firms] must maintain adequate documentation of tests required by 
this Rule and the results of such testing for examination by the 
Corporation.

Commentary

    .01  This rule will expire automatically upon the full 
implementation fo decimal pricing.

Transition

    Rule 2.100. Any PCX member, as defined in the PCX Parent Rule 
1.1, or Equity ASAP Holder that wishes to continue to effect 
securities transactions without interruption of the Corporation's 
Trading Facilities must obtain an ETP prior to the first day the 
Archipelago Exchange becomes operational. If the PCX members or 
equity ASAP Holder fails to obtain an ETP prior to the first day

[[Page 78843]]

the Archipelago Exchange becomes operational, the PCX member or 
equity ASAP holder will not be permitted to effect securities 
transactions on the Corporation's Trading Facilities until such PCX 
member of Equity ASAP Holder obtains an ETP.

Rule 3

Organization and Administration

Part I--Committees of the Corporation

Overview

    Rule 3.1(a).--No change.

Equity Committees

    Rule 3.2.
    (a) General Provisions:
    (1)-(7)--No change.
    (8) Eligibility for and Appointment to Equities Committees. Any 
ETP [Holder and Equity ASAP] Holder of the Corporation in good 
standing or allied person of an ETP [Firm or Equity ASAP] Holder, or 
any person from the public is eligible for appointment or election 
to Equity Committees. Only one person affiliated with the same ETP 
[Firm or Equity ASAP] Holder shall be eligible for service on the 
same Equity Committee. Except as otherwise set forth in these Rules, 
the Chief Executive Officer of the Corporation shall appoint 
eligible ETP Holders [, Equity ASAP Holders] and persons from the 
public to the positions so allocated on Equity Committees for terms 
of one (1) year.
    (9) Alternate Members. The Chief Executive Officer of the 
Corporation may designate one or more ETP Holders, [Equity ASAP 
Holders,] an allied person of an ETP [Firm or Equity ASAP] Holder, 
and persons from the public as alternate members of any Equity 
Committee, who may replace any absent or disqualified member at any 
meeting of such committee.
    (10)-(11)--No change.
    (b) Equity Committees. As set forth below, the Board of 
Directors has delegated certain authority and functions to its 
committees. Action taken pursuant to delegated authority, however, 
is subject to review, ratification or rejection by the Board of 
Directors.
    (1) Business Conduct Committee.
    (A) Composition. In addition to any members of the public on the 
Business Conduct Committee, the Business Conduct Committee shall 
have [proportional representation of all (i) ETP Holders and ETP 
Firms and (ii) Equity ASAP Holders, with] a minimum of one ETP 
Holder or allied person of an ETP [Firm and one Equity ASAP] Holder 
[or allied person of an Equity ASAP Holder].
    (B) Functions and Authority. The Business Conduct Committee 
shall, in accordance with the Bylaws, Rules and procedures of the 
Corporation, have the following functions and authority:
    (i) Examine the business conduct and financial condition of ETP 
Holders [, ETP Firms, Equity ASAP Holders,] and associated persons;
    (ii)-(iii)--No change.
    (iv) Require the production of detailed financial reports of an 
ETP Holder[, ETP Firm, or ASAP Holder] and such other operational 
reports as it may deem relevant.
    (C) This Committee shall have authority, whenever it appears 
that an ETP [Firm, ETP Holder, or Equity ASAP] Holder is in 
violation of Rule 4, to direct a representative of such ETP [Firm, 
ETP Holder, or Equity ASAP] Holder to appear before the Committee 
for examination upon 48 hours notice, either orally or in writing. 
After such examination, the Committee shall have authority to 
suspend such ETP [Firm, ETP Holder, or Equity ASAP] Holder until the 
requirements of Rule 4 are fully met. Any such suspension directed 
by the Committee shall be subject to review by the Board. Such 
review shall not operate as a stay of the suspension unless 
specifically allowed by the Board. In the event of a reversal of the 
suspension imposed by the Committee, an ETP [Firm, ETP Holder, 
Equity ASAP] Holder or officer, partner, director, stockholder, or 
representative thereof shall be prohibited from instituting a 
lawsuit in any forum against the Corporation or the members of the 
Committee, based in whole or in part upon the suspension imposed by 
the Committee.
    (D)--No change.
    (2) Nominating Committee.
    (A) Composition. The Nominating Committee shall have seven 
members consisting of six ETP Holders [and/or Equity ASAP Holders] 
and one person from the public. [The six ETP Holders and/or Equity 
ASAP Holders on the Nominating Committee shall represent 
proportionally all (i) ETP Holders and ETP Firms and (ii) Equity 
ASAP Holders, with a minimum of one ETP Holder or allied person of 
an ETP Firm and one Equity ASAP Holder or allied person of an Equity 
ASAP Holder.]
    (B) Nomination, Appointment and Election.
    (i) Nomination. Sixty-five days prior to the expiration of the 
term of its members, the Nominating Committee shall publish a slate 
of six eligible nominees to fill the positions during the next 
annual term of the Nominating Committee. ETP [Holders and Equity 
ASAP] Holders in good standing may submit a petition to the 
Corporation in writing to nominate additional eligible candidates to 
fill [ETP/Equity ASAP] ETP positions during the next annual term, 
and upon written petition of at least 10 percent of ETP Holders [and 
Equity ASAP Holders, considered as one group,] in good standing on 
or before the forty-fifth day preceding the expiration of the 
existing term such person(s) shall also be nominated by the 
Nominating Committee.
    (ii)--No change.
    (iii) Election. In the event that ETP Holders [or Equity ASAP 
Holders], or allied persons of an ETP [firm or Equity ASAP] Holders, 
are nominated by the Nominating Committee pursuant to petition by 
the ETP Holders [and/or Equity ASAP Holders], and there are more 
than six nominees to fill the [ETP/Equity ASAP] ETP Holders 
positions on the Nominating Committee, the Nominating Committee 
shall submit the nominees to the ETP Holders [and the Equity ASAP 
Holders], collectively for election. Each ETP [Holder and Equity 
ASAP] Holder in good standing shall be permitted to vote for up to 
six nominees and the six nominees receiving the most votes shall 
fill the [ETP/Equity ASAP] ETP positions as members during the next 
annual term of the Nominating Committee. Tie votes shall be decided 
by the Board of Directors at its first meeting following the 
election.
    (iv) Acclamation of Slate. In the event there are only six 
nominees to fill the [ETP/Equity-ASAP] ETP positions on the 
Nominating Committee on or after the forty-fifth day prior to the 
expiration of the terms of the outgoing Nominating Committee, those 
six nominees shall be deemed elected to the next annual term of the 
Nominating Committee.
    (C) Representatives to the Board of Directors of the Corporation 
and the Board of Governors of the Pacific Exchange, Inc.
    (i) Nomination. Sixty-five days prior to the expiration of the 
term of its Directors, the Nominating Committee shall publish the 
names of two (2) ETP Holders, [Equity ASAP Holders,] or persons 
affiliated with such Holders (in any combination) as its nominees 
for the Board of Directors of the Corporation and one ETP Holder, 
[Equity ASAP Holder,] or allied [persons] person of an ETP [Firm or 
Equity ASAP] Holder, as nominee for the Board of Governors of the 
Pacific Exchange, Inc. The nominee for the Board of Governors may be 
a person nominated to the Board of Directors. ETP [Holders and 
Equity ASAP] Holders in good standing may submit a petition to the 
Corporation in writing to nominate additional eligible candidates to 
fill [ETP/Equity ASAP] ETP positions during the next term, and upon 
written petition of at least 10 percent of ETP Holders [and Equity 
ASAP Holders, considered as one group,] in good standing on or 
before the forty-fifth day preceding the expiration of the existing 
term such person(s) shall also be nominated by the Nominating 
Committee.
    (ii) Selection of Nominees. In the event that [ETP/Equity ASAP] 
ETP positions are nominated by the Nominating Committee pursuant to 
petition by the ETP Holders [and Equity ASAP Holders], and there are 
three or more nominees for the Board of Directors or two or more 
nominees for the Board of Governors, the Nominating Committee shall 
submit the contested nomination(s) to the ETP Holders [and Equity 
ASAP Holders, considered as one group,] for selection. Each ETP 
[Holder and Equity ASAP] Holder in good standing may select two 
nominees for contested seats on the Board of Directors and one 
nominee for contested seats on the Board of Governors. With respect 
to contested positions, the two nominees for the Board of Directors 
and the nominee for the Board of Governors selected by the most ETP 
Holders [and Equity ASAP Holders, considered as one group,] shall be 
submitted by the Nominating Committee to the Board of Directors of 
the Corporation or the Board of Governors of the Pacific Exchange, 
Inc., as the case may be. Similarly, the Nominating Committee shall 
submit uncontested nominees to the Board of Directors of the 
Corporation or the Board of Governors of the Pacific Exchange, Inc., 
as the case may be. Tie votes shall be decided by the respective 
Board at its first meeting following the election.
    (3)--No change.
    (c)--No change.

[[Page 78844]]

Board Committees

    Rule 3.3(a). Board Committees.
    (1) Board Appeals Committee.
    (A) Composition. The Board of Directors may appoint one or more 
Appeals Committees to conduct reviews of matters subject to the 
applicable provisions of Rule 3.2b(b)(1)(C), 5 or 10. The Board of 
Directors will determine the size of any Appeals Committee that it 
appoints. Each Appeals Committee will contain at least one public 
director and at least one director that is an ETP Holder[,] or 
allied person of an ETP [Firm, Equity ASAP] Holder [or allied person 
of an Equity ASAP Holder].
    (B)--No change.

Part II--Regulation

Self-Regulatory Responsibilities

    Rule 3.4. The Pacific Exchange, Inc. (``PCX Parent''), as a 
self-regulatory organization registered with the Securities and 
Exchange Commission pursuant to Section 6 of the Exchange Act, shall 
have ultimate responsibility in the administration and enforcement 
of rules governing the operation of its subsidiary, PCX Equities, 
Inc. (``Corporation''). Notwithstanding the delegation of authority 
to the subsidiary, as set forth below in Rule 3.5, the PCX Parent 
shall review and ratify any rule change adopted by the Board of 
Directors of the Corporation before such rule change becomes the 
final action.

Delegation of Authority

    Rule 3.5(a). Except as otherwise provided in the Bylaws, Rules 
and procedures of the Corporation, the Chief Regulatory Officer or 
such other designated officer of the Corporation shall have the 
following delegated authority.
    (1) To establish and interpret rules and regulations for ETP 
Holders[, Equity ASAP Holders, ETP Firms,] or associated persons 
including, but not limited to trading rules, fees, access to and use 
of system facilities, and arbitration procedures.
    (2) To determine regulatory and trading policies, including the 
development and adoption of necessary or appropriate rule changes, 
relating to the business conduct and trading activities of ETP 
Holders[, Equity ASAP Holders, ETP Firms,] and associated persons. 
This includes, but is not limited to, the following:
    (A) Arbitration of disputes between ETP Holders[, Equity ASAP 
Holders, ETP Firms,] or associated persons arising from transactions 
on the facility;
    (B) Financial responsibility;
    (C) Clearance and settlement of securities transactions and 
other financial responsibility and operational matters affecting ETP 
Holders[, Equity ASAP Holders, ETP Firms,] or associated persons in 
general; and
    (D) Qualification requirements for ETP Holders[, Equity ASAP 
Holders, ETP Firms,] and associated persons.
    (3)--No change.
    (4) To administer programs and systems for the surveillance and 
enforcement of rules governing the conduct and trading activities of 
ETP Holders[, Equity ASAP Holders, ETP Firms,] and associated 
persons.
    (5)--No change.
    (6) To examine and investigate ETP Holders[, Equity ASAP 
Holders, ETP Firms,] and associated persons to determine if they 
have violated the Rules and procedures of the Corporation, the 
federal securities laws, and other laws, rules, and regulations that 
the Corporation has the authority to administer, interpret, or 
enforce.
    (7) To place restrictions on the business activities of ETP 
Holders[, Equity ASAP Holders, ETP Firms,] and associated persons 
consistent with the public interest, the protection of investors, 
and the federal securities laws.
    (8)--No change.
    (9) To appoint [Trading Officials] staff, as necessary, that 
shall be responsible for the general supervision of the conduct and 
dealings of ETP Holders[, Equity ASAP Holders, ETP Firms,] and 
associated persons on the trading [facility] facilities. These 
duties include, but are not limited to, the following:
    (A) Arbitrate differences between ETP Holders[, Equity ASAP 
Holders, ETP Firms,] or associated persons arising from transactions 
on the trading [facility] facilities;
    (B) Supervise all connections or means of communication with the 
trading [facility] facilities, which may require the discontinuance 
of any such connection or means of communication that is deemed 
contrary to the welfare or interest of the Corporation;
    (C) Issue a [Floor Citation] citation when it appears that a 
Minor Rule Plan violation has occurred as specified in Rule 10;
    (D) Declare a ``fast [market'' or] market,'' invoke a trading 
halt in a security due to an influx of orders or other unusual 
market conditions or circumstances[. Take], or take such other 
actions as are deemed necessary in the interest of maintaining a 
fair and orderly market; and
    (E) Supervise and regulate the operation of ITS, or any other 
application of the system during active openings, heavy trading and 
unusual situations.
    (10) To administer or enforce policies and Rules of the 
Corporation [(including] (as well as federal and state regulations) 
governing the initial and continued listing or trading of securities 
on the Corporation.

Surveillance Agreements

    Rule 3.6.--No change.

Part III--Dues, Fees and Fines

Dues, Fees and Charges

    Rule 3.7. ETP Holders[, ETP Firms, and Equity ASAP Holders] of 
the Corporation, whether or not in good standing, shall pay to the 
Corporation such dues, fees and charges as the Board of Directors 
shall prescribe.

Liability for Payment

    Rule 3.8. An ETP Firm or Equity ASAP Holder] failing to pay any 
dues, fees, charges or fines to the Corporation for thirty days 
after the same shall become payable, may be suspended by the Board 
of Directors or the Chief Executive Officer of the Corporation in 
accordance with Rule 11.2.

Fines

    Rule 3.9.--No change.

Rule 4

Capital Requirements, Financial Reports, Margins

Section 1. Capital Requirements

Minimum Net Capital

    Rule 4.1[(a). To the extent applicable, every ETP Holder, ETP 
Firm and Equity ASAP Holder]. ETP Holders that are subject to Rule 
15c3 under the Securities Exchange Act of 1934 (``Exchange Act''), 
as amended, shall maintain a minimum net capital in accordance with 
the provisions of Rule 15c3-1 under the [Securities] Exchange Act 
[of 1934 (``Exchange Act''), as amended. For]. Each ETP [Holders and 
ETP Firms, this requirement is in addition to the requirements of 
Rule 4.2 (Specialist Post Capital). Each ETP Holder, ETP Firm and 
Equity ASAP] Holder shall promptly notify the Corporation and, 
pursuant to the provisions of Rule 17a-11 under the Exchange Act, 
the Securities and Exchange Commission if such ETP [Holder, ETP Firm 
or Equity ASAP] Holder's net capital does not equal or exceed the 
appropriate minimum required by Rule 15c3-1 or if notice is 
otherwise required by Rule 17a-11.
    [(b)-(c)--Deleted.]
    [(d)] Each [specialist firm] Market Maker shall report its net 
capital to the Corporation in a form and manner prescribed by the 
Corporation.

Commentary

    .01  ETP [Firms] Holders Who Do Not Carry Customers' Accounts
    An ETP Holder[, Equity ASAP Holder or ETP Firm] operating under 
paragraph (a)(2) of SEC Rule 15c3-1 shall file a written application 
with the Corporation for approval on a form prescribed by the 
Corporation.
    .02  Trading in Gold and Silver Bullion:
    (a) Where gold or silver bullion, which upon payment to the 
seller is within the ETP [Firm's] Holder's control in good 
deliverable form and covered by appropriate insurance, is purchased 
by customers under agreements wherein full payment is required and 
is made within seven business days after the date of purchase, or 
full payment is required and made within an extended or longer 
period of time as approved by the Corporation upon application, such 
purchases may be considered bona fide cash transactions which 
require no deduction from net worth in computing net capital. In all 
other purchases by customers of such gold or silver bullion, which 
liquidate to an equity, cash required, if any, to provide margin 
equal to 25% (10% if hedged by futures contracts in the same 
commodity) of the market value of the gold or silver bullion in each 
such customer's account in equity shall be deducted from net worth 
in computing net capital.
    (b) If upon payment to the seller, gold or silver bullion 
purchased by customers and paid for by them is not within the ETP 
[Firm's] Holder's control in good deliverable form and covered by 
appropriate insurance, the market value of such gold or silver 
bullion shall be deducted from net worth in computing net capital so 
long as the ETP [Firm] Holder is accountable therefore. If upon 
payment to the seller, gold or silver bullion purchased for a 
proprietary account

[[Page 78845]]

is not within the ETP [Firm's] Holder's control in good deliverable 
form and covered by appropriate insurance, such gold or silver 
bullion shall be considered to have no market value for purposes of 
net capital.
    (c) Definitions:
    (1) ``Within the ETP [Firm's] Holder's Control''
    Gold or silver in bullion form, identified by serial number or 
otherwise, and subject to immediate disposition at the direction of 
the [member firm] ETP Holder.
    Storage arrangements acceptable to insurance carriers will 
satisfy the Corporation provided the coverage complies with the 
``appropriate insurance'' requirement discussed below. While the 
Corporation will not specify acceptable bullion depositories to 
[ETPs] ETP Holders, certain custodial requirements must be satisfied 
whenever gold or silver bullion is stored in outside depositories. 
The ETP [Firm] Holder shall satisfy itself that the depository will 
maintain physical possession or control of the bullion stored for 
its customers free of any lien or claim on such bullion other than 
that arising out of, and limited to the extent of, any margin 
transaction or other unpaid for transaction. Records shall be 
maintained to separately identify customer pledged gold and silver 
bullion subject to lien from that customer bullion not pledged and 
fully paid for. The ETP [Firm] Holder shall include as part of a 
written agreement with the depository such other protections as may 
be deemed necessary. ETP [Firms] Holders considering the utilization 
of foreign depositories are cautioned to familiarize themselves with 
foreign laws on banking and bankruptcy to insure compliance with 
this paragraph, since these laws may differ significantly from those 
of the United States.
    (2)--No change.
    (3) ``Appropriate Insurance''
    All gold or silver under the control of an ETP [Firm] Holder, 
whether stored in a depository, in its own custody, in transit, or 
in any other location, within the ETP [Firm's] Holder's control, 
shall be covered by insurance of the ETP [Firm] Holder.
    ``Appropriate insurance'' is defined to mean inclusion of gold 
and silver bullion as covered property under a broker's blanket bond 
as required by Rule 2, subject to the following additional criteria 
which specifically apply to gold and silver bullion wherever stored:
    (A) That gold and silver stored meets the ETP [Firm's] Holder's 
insurance carrier's standards including specific identification so 
as to preclude non-coverage as an inventory loss;
    (B) that gold and silver bullion be insured at full market value 
when in transit;
    (C) that no dollar amount of gold and silver bullion stored in 
depository exceed the sum of the ETP [Firm's (a)] Holder's (i) 
insurance coverage and [(b)] (ii) excess net capital; and
    (D) that the value of any bullion stored in a depository and in 
transit in excess of the sum of [(iii)(a)] (C)(i) and [(b)] (ii) is 
charged to net capital. (The ETP [Firm] Holder may, should it wish, 
avoid this capital charge by acquiring separate insurance to fully 
cover bullion exceeding the amount in the broker's blanket bond.) 
ETP [Firms] Holders shall file with the Corporation copies of 
letters from its insurance underwriters setting forth the extent of 
its coverage for bullion stored in its depositories.
    (d) Further Customer Protections--To further ensure protection 
of customers of [member organizations, the Exchange] ETP Holders, 
the Corporation has established the following guidelines:
    (1) Disclosure to Customer
    The ETP [Firm] Holder shall fully disclose to its customer all 
relevant information pertaining to a transaction, including, but not 
limited to, names and locations of depositories, insurance coverage, 
charges incidental to storage, requirements and costs related to 
taking physical delivery of the bullion (e.g., possible need for 
assay), and applicable [Federal] federal, state or local laws or 
regulations (e.g., sales tax implications of the purchase). 
Communications to the public with regard to gold and silver shall 
state that SIPC coverage is not available. Due to the varying 
degrees of fineness, and the need for the customer to be informed as 
to the quality of bullion being purchased and its attendant 
variation in price, the fineness, weight, price per ounce, and any 
markup, commissions, fees, taxes or other costs shall be disclosed 
to the customer. Salesmen must convey to each customer the special 
risks and expenses involved in investing in gold and silver bullion. 
In particular, the customer must be given the opportunity to take 
delivery of the gold or silver and be informed whether or not the 
[member organization] ETP Holder will buy it back at a later date, 
and if so, on what basis.
    (2) Sale or Saleback of Gold and Silver
    All sales of gold and silver bullion shall be long, whether for 
customer or proprietary accounts.
    Under no circumstances shall [a member organization] an ETP 
Holder release the proceeds of sale of gold or silver to a customer 
unless the customer's gold or silver has been assayed by an 
acceptable assayer (as defined above) or is in a form acceptable to 
such assayer. Gold or silver which is to be sold should be within an 
ETP [Firm's] Holder's control before it is sold, but in no event 
later than two business days after the trade date. An ETP [Firm] 
Holder may, however, submit a plan for review by the Corporation, 
the effect of which would allow a customer longer than two days to 
deliver the bullion within the ETP [Firm's] Holder's control on a 
``buy-back'' transaction, where the customer is selling bullion 
originally purchased from that ETP [Firm] Holder.
    (3)--No change.
    (e) Cash Transactions--Purchases of gold or silver bullion in a 
customer's cash commodity account must be paid for as promptly as 
possible, but no later than the fifth business day after the date of 
purchase. A charge against capital will result if full payment has 
not been received by the seventh business day after purchase.
    Although the amendment allows ETP [Firms] Holders to request 
extensions of time for payments not received within seven business 
days, the Corporation does not anticipate granting any such 
extension except in rare cases.
    Extension requests should be submitted in letter form, giving 
the full particulars of the transaction, the customer's name and ID 
number, the reason for the request, and any other pertinent data. 
The letter should be signed by an authorized individual or officer. 
These extension requests will be handled separately from securities 
extensions, but will, as mentioned above, be restrictly granted.
    (f) Margin Transactions--Required margin shall be furnished 
within five business days after date of purchase or made within an 
extended or longer period of time as approved by the Corporation 
upon application.
    Extension requests on margin transactions will be subject to the 
same requirements applicable to cash transactions.
    (1) Initial Margin
    For the [purchase] purpose of effecting new transactions, the 
margin required shall be an amount equivalent to the requirements 
stated below, or such greater amounts as the Corporation may from 
time to time require, with an minimum equity in the account of at 
least $2,000, except that cash need not be deposited in excess of 
the cost of any new transaction.
    Withdrawals of cash or spot commodities may be made, provided 
that after such withdrawal the equity in the account is at least the 
greater of $2,000 or the amount required by the maintenance 
requirement stated below.
    (2) Maintenance
    Margin must be maintained in margin accounts of customers, 
including [members, Allied members, organization or nonmembers] ETP 
Holders, Allied Persons thereof and non-ETP Holders and shall be as 
follows:
    (A) 25% of the market value of gold or silver spot commodities 
``long'' in each customer's account, or
    (B) 10% of the market value of the gold and silver spot 
commodities if ``hedged by futures contracts'' in the same 
commodity. Gold or silver bullion which is carried on margin for 
customers must be within the control of the [member organization] 
ETP Holder, in good deliverable form and covered by appropriate 
insurance.
    (g) Records--ETP [Firms] Holders shall make, keep current and 
preserve books and records on spot commodities as are required for 
securities.
    (h) Conduct of Accounts--Rule 9 requires the diligent 
supervision of accounts. All information requirements or assessments 
applicable to other customers' accounts shall apply to customers 
effecting transactions in gold or silver bullion.
    ETP [Firms] Holders should give serious consideration to 
securing an adequate deposit before executing any customer orders 
for gold. This will serve to demonstrate the customer's ability to 
consummate the transaction as well as protecting the [member 
organization] ETP Holder from potential market fluctuations in the 
event of customer default. Upward variations in deposit may be 
advisable for new customers, or when the ETP [Firm] Holder 
anticipates unusual volatility in the price of gold.
    Currently, international settlement of spot gold transactions 
take place on the second

[[Page 78846]]

business day following the order. Accordingly, ETP [Firms] Holders 
will have to pay for or deliver gold on that second business day. In 
view of this fact, ETP [Firms] Holders are hereby put on notice that 
good business practice would in most instances, require substantial 
cash deposits in advance of all purchases of gold or silver.
    (i) Business Plan--An ETP [Firm] Holder shall file with the 
Corporation a detailed business plan for approval by the Corporation 
prior to effecting any transactions in gold or silver bullion. Such 
a plan shall comply with the standards enunciated herein, and the 
ETP [Firm] Holder may utilize the below checklist in drafting its 
business plan.
    (j) Gold and Silver Business Plan Checklist:
    (1) Structure and Nature
    (A) Will activities be processed through the ETP [Firm] Holder 
subsidiary, affiliate, holding company, or joint venture? Name the 
affiliate/subsidiary responsible for bullion business, if 
applicable.
    (B)--No change.
    (C) Will the organization position bullion for its own account 
and/or act as a [market maker] Market Maker?
    (D)-(F)--No change.
    (2) Legal Review
    (A)--No change.
    (B) Has the organization requested counsel to review the plan 
for compliance with other [Federal] federal, state or local 
applicable laws?
    (C)-(10)--No change.
    (3)-(10)--No change.
    [.03--Deleted.]

[Specialist Post Capital]

    [Rule 4.2--Deleted.]
    Rule 4.2. Reserved.

Corporate Affiliates and Subsidiaries

    Rule 4.3(a). An ETP [Firm or Equity ASAP] Holder shall not a 
corporate affiliate or subsidiary without the prior written approval 
of the Corporation. All affiliates or subsidiaries of an ETP [Firm 
or Equity ASAP] Holder shall be subject to compliance with the 
Bylaws, Rules and procedures of the Corporation, or other conditions 
as may be established by the Corporation. ETP Holders[, Equity ASAP 
Holders,] and Allied Persons of ETP [Firms or Equity ASAP] Holders 
shall be responsible for any fraud committed by a corporation 
affiliate or subsidiary organization or for any act or proceeding 
thereof contrary to just equitable principles of trade or 
detrimental to the interest or welfare of the Corporation.
    An ETP [Firm or Equity ASAP] Holder proposing to organize an 
affiliate or subsidiary corporation shall submit full details to the 
Corporation.
    [The above] Rule 4.3 shall apply to all ETP [Firms or Equity 
ASAP] Holders of the Corporation unless the ETP [Firm or Equity 
ASAP] Holder is subject to the jurisdiction of another national 
securities exchange or association designated by the Board of 
Directors as having comparable standards, or it is subject to the 
jurisdiction of another national securities exchange or association 
designated by the Securities and Exchange Commission as the primary 
regulatory body.

Changes in Stockholder Status

    Rule 4.3(b). Whenever a person owning 5% or more of any class of 
equity securities, directly or indirectly, of an ETP [Firm or an 
Equity ASAP] Holder ceases to be an ETP Holder, [Equity ASAP 
Holder,] Allied Person or Approved Person, the firm shall redeem or 
convert such securities to fixed income securities so that such 
security interest is less than 5%. Provided, however, that if such 
redemption or conversion would cause such ETP [Firm or Equity ASAP] 
Holder not to comply with the capital requirement of Rule 4, the ETP 
[Firm or Equity ASAP] Holder will so notify the Corporation and the 
assets which the person receives upon redemption of such securities, 
will be loaned by the person to the ETP [Firm or Equity ASAP] Holder 
as a loan subordinated to the claims of all customers and general 
creditors of the ETP [Firm or Equity ASAP] Holder, or the fixed 
income securities which the person receives upon conversion of such 
securities will be subordinated to the claims of all customers and 
general creditors of the ETP [Firm or Equity ASAP] Holder. Any such 
subordination shall be pursuant to an agreement approved by the 
Corporation.

Trading in Firm's Securities

    Rule 4.3(c). An ETP [Firm or Equity ASAP] Holder shall not trade 
in (except on an unsolicited basis) or make recommendations with 
respect to its own securities or those of its parents or affiliates 
(other than registered investment companies) and any parents or 
affiliates of an ETP [Firm or Equity ASAP] Holder shall not trade in 
(except on an unsolicited basis) or make recommendations with 
respect to its own securities or those of its affiliates, or those 
of the ETP [Firm or Equity ASAP] Holder (other than registered 
investment companies).

Change in Capitalization

    Rule 4.3(d). No ETP [Firm or Equity ASAP] Holder shall make any 
change in its capitalization without prior written approval of the 
Corporation.

Owners of 5% or More Equity Securities

    Rule 4.3(e). Every party who owns beneficially 5% or more of any 
class of equity security, either directly or indirectly, of the firm 
shall be an ETP [Firm or Equity ASAP] Holder,] Allied Person or 
Approved Person.

Conditions for Issuance of Freely Transferable Securities

    Rule 4.3(f). ETP [Firm or Equity ASAP] Holders which issue 
freely transferable securities must maintain a ratio of not more 
than 50 percent of property subordinated debt equity (including 
common and preferred stock) after giving the effect to any public 
financing, and ETP [Firm or Equity ASAP] Holders or parents thereof 
which issue freely transferable securities must:
    (1)--No change.
    (2) Have two years of operations by the ETP [Firm or Equity 
ASAP] Holder as a bona fide broker-dealer.
    (3)--No change.
    (4) Pay a filing fee for approval by the Corporation of the ETP 
[Firm's or Equity ASAP] Holder's issuance of freely transferable 
securities.
    Rule 4.3(g). Reserved.

Voting Agreement

    Rule 4.3(h). None of the stock of a corporate ETP [Firm or 
Equity ASAP] Holder shall at any time be held under or subject to 
any voting agreement whereby the voting of such stock is pooled or 
joined with the stock of any then ETP Holder, [ETP Firm Equity ASAP 
Holder,] Allied Person, stockholder associate or Approved Person 
unless approved by the Board of Directors.

Participation in ETP [Firms] Holders

    Rule 4.3(i). The Corporation hereby specifically approves the 
beneficial ownership of an interest in any other ETP [Firm or Equity 
ASAP] Holder by an ETP Holder, [Equity ASAP Holder,] Allied Person, 
or Approved Person of any ETP [Firm or Equity ASAP] Holder.
    (1)-(2)--No change.
    (3) In connection with his, her or its activity as a [market 
maker] Market Maker in such stock, in which event the ETP Holder[, 
ETP Firm or Equity ASAP Holder] or Allied Person, or Approved Person 
thereof shall be required to be registered with the Corporation as a 
[market maker] Market Maker in such stock.

Restrictions on ETP [and Equity ASAP] Holder Activities

    Rule 4.4 The Corporation may restrict the conduct of an ETP 
[Holder's, ETP Firm's or Equity ASAP] Holder's activities if at any 
time the ETP [Firm or Equity ASAP] Holder appears to be approaching 
financial difficulties or appears to be experiencing difficulties in 
its daily operations.
    (a) The Corporation may implement the provisions of Paragraph 
(b) of this Section if it determines the existence of one or more of 
the following conditions:
    (1) The ETP [Holder, ETP Firm or Equity ASAP] Holder fails to 
maintain net capital, above requirements of Rule 4, equivalent to 
the greater of (i) one-half of the losses of an ETP [Holder, ETP 
Firm or Equity ASAP] Holder in the twelve-month period immediately 
preceding the date of such computation, or (ii) the loss experienced 
by the ETP [Holder, ETP Firm or Equity ASAP] Holder in the six-month 
period immediately preceding such computation.
    In determining profit or loss, the ETP [Holder, ETP Firm or 
Equity ASAP] Holder shall mark its trading accounts to the market, 
and, its expenses shall reflect, among other things, all partners' 
drawings and salaries, and appropriate amounts for assets doubtful 
of collection.
    (2) The ETP [Holder, ETP Firm or Equity ASAP] Holder has 
subordinated capital which will mature within the next 180 days, and 
which, if not renewed, would cause (i) the ratio of aggregate 
indebtedness to net capital to exceed 12 to 1, or, in the case of an 
ETP [Holder, ETP Firm or Equity ASAP] Holder which is operating 
pursuant to paragraph (f) of SEC Rule 15c3-1 (Alternative Net 
Capital Requirement), net capital to be less than 6% of the 
aggregate debits; (ii) a reduction in excess of net capital below 
the standard set forth in subparagraph (1) of this Section, or (iii) 
a reduction in net capital below 120% of the minimum required net 
capital.

[[Page 78847]]

    (3) The ETP [Holder, ETP Firm or Equity ASAP] Holder has 
experienced a reduction in net capital of 15% in the preceding month 
or 30% in the three-month period immediately preceding such 
computation, other than as a result of increased capital haircuts on 
firm proprietary securities positions.
    (4) The ETP [Holder's, ETP Firm's or Equity ASAP] Holder's net 
capital is less than $1,000,000 and (i) its ratio of aggregate 
indebtedness to net capital equals or exceeds 8 to 1, or (ii) its 
net capital is less than 150% of the minimum required net capital.
    (5) The ETP [Holder's, ETP Firm's or Equity ASAP] Holder's net 
capital equals or exceeds $1,000,000 and (i) its ratio of aggregate 
indebtedness to net capital equals or exceeds 10 to 1, or (ii) its 
net capital is less than 120% of the minimum required net capital.
    (6) Notwithstanding the provisions of subparagraphs (4) and (5) 
above, if the ETP [Holder, ETP Firm or Equity ASAP] Holder is 
operating pursuant to Paragraph (f) of SEC Rule 15c3-1 (Alternative 
Net Capital Requirement), its net capital is less than the greater 
of $200,000 or 6% of its aggregate debits.
    (7) The ETP [Holder, ETP Firm or Equity ASAP] Holder has 
experienced a substantial change in the nature of the business 
conducted which, in the view of the Corporation, increases the 
potential risk of loss to customers[,] and ETP [Holders, ETP Firms 
and Equity ASAP] Holders.
    (8) The ETP [Holders, ETP Firms or Equity ASAP] Holder's books 
and records are not maintained in accordance with the provisions of 
SEC Rules 17a-3 and 17a-4.
    (9) The ETP [Holder, ETP Firm or Equity ASAP] Holder is unable 
to demonstrate compliance with applicable net capital requirements.
    (10) The ETP [Holder, ETP Firm or Equity ASAP] Holder has 
substantial unsecured loans, advances or other similar receivables 
relative to its net capital position. For purposes of this 
provision, 15% is considered substantial.
    (11) The ETP [Holders, ETP Firms or Equity ASAP] Holder's 
subordinated capital equals or exceeds 40% of its debt-equity total, 
as defined under paragraph (d) of SEC Rule 15c1-1.
    (12) The ETP [Holder, ETP Firm or Equity ASAP] Holder is subject 
to undue concentration charges on proprietary positions, the 
aggregate market value of which equals or exceeds 15% of the total 
market value of all proprietary positions.
    (13) The ETP [Holder, ETP Firm or Equity ASAP] Holder is unable 
to clear and settle transactions promptly.
    (14) The ETP [Holder, ETP Firm or Equity ASAP] Holder is not in 
compliance, or is unable to demonstrate compliance, with SEC Rule 
15c3-3 (Customer Protection-Reserves and Custody of Securities).
    (15) The ETP [Holder, ETP Firm or Equity ASAP] Holder is subject 
to the reporting provisions of SEC Rule 17a-11.
    (b) If the Corporation determines that any of the conditions 
listed under Paragraph (a) of this Section exist, or otherwise 
determines that the ETP [Holder, ETP Firm or Equity ASAP] Holder is 
guilty of (i) conduct inconsistent with just and equitable 
principles of trade, (ii) acts detrimental to the interest or 
welfare of the Corporation; or (iii) conduct contrary to an 
established practice of the Corporation, the Corporation may require 
that the ETP [Holder, ETP Firm or Equity ASAP] Holder take 
appropriate action by effecting one or more of the following or 
similar steps, until such time as the Corporation determines 
otherwise:
    (1)--No change.
    (2) Promptly effect delivery to customers of all fully paid 
securities in the ETP [Holder's, ETP Firm's or Equity ASAP] Holder's 
physical possession or control.
    (3) Introduce all or a portion of its business to another ETP 
[Holder, ETP Firm or Equity ASAP] Holder on a fully disclosed basis.
    (4)-(7)--No change.
    (8) Undertake an immediate audit by an independent public 
accountant at the ETP [Holder's, ETP Firm's or Equity ASAP] Holder's 
expense.
    (9) Restrict the payment of salaries or other sums to partners, 
officers, directors, shareholders or affiliated persons of the ETP 
[Holder, ETP Firm or Equity ASAP] Holder.
    (10)-(12)--No change.
    (c) The provisions contained in this Section do not limit the 
Corporation's authority to use other standards or to impose other 
restrictions, or take other action deemed appropriate under the 
circumstances in the public interest and for the protection of ETP 
Holders[, Equity ASAP Holders, and ETP Firms].

Commentary

    .01.--No change.

Section 2. Financial Reports

Reports To Be Filed

    Rule 4.5 Unless the Corporation determines otherwise, every ETP 
Holder, [ETP Firm and Equity ASAP Holder,] except as otherwise 
provided in Rule 4.7, shall file with the Corporation the reports 
prescribed by this Section.

Monthly Reports

    Rule 4.5(a). Part I of SEC Form X-17A-5 shall be filed monthly 
by any ETP Holder[, ETP Firm or Equity ASAP Holder] which carries or 
clears accounts for customers. Such report shall be due by the tenth 
business day following the end of the month being reported upon.

Part II Quarterly Reports

    Rule 4.5(b). Two manually signed copies of Part II of SEC Form 
X-17A-5 shall be filed for each calendar quarter by any ETP Holder[, 
ETP Firm or Equity ASAP Holder] which carries or clears accounts for 
customers. Such report shall be due by the fifteenth calendar day 
following the end of the calendar quarter being reported upon.

Part IIA Quarterly Reports

    Rule 4.5(c). Two manually signed copies of Part IIA of SEC Form 
X-17A-5 shall be filed for each calendar quarter by any ETP Holder[, 
ETP Firm or Equity ASAP Holder] which does not carry or clear 
accounts for customers. Such report shall be due by the fifteenth 
calendar day following the end of the calendar quarter being 
reported upon.

Part II or Part IIA Filings on Other Than Calendar Quarters

    Rule 4.5(d). An ETP Holder[, ETP Firm or Equity ASAP Holder] 
shall file an additional Part II or Part IIA of SEC Form X-17A-5, as 
appropriate, within fifteen calendar days after the date selected 
for the annual audited financial statements of the ETP Holder, [ETP 
Firm or Equity ASAP Holder,] pursuant to the provisions of Rule 
4.10, where such date does not coincide with the end of a calendar 
quarter.

Periodic Reports

    Rule 4.5(e). Every ETP Holders[, Equity ASAP Holders, and ETP 
Firm] shall submit, as required by the Corporation periodic reports 
with respect to short positions in securities.

Commentary

    01.  Short Positions. ETP Holders[, Equity ASAP Holders, and ETP 
Firm] for which the Corporation is the designated examining 
authority (``DEA'') are required to report ``short'' positions, 
including odd lots, in each stock or warrant listed or traded on the 
Corporation, and in each other stock or warrant not listed or traded 
on the Corporation (and not otherwise reported to another self-
regulatory organization), using such automated format and methods as 
prescribed by the Corporation. Such reports must include customer 
and proprietary positions and must be made at such times and 
covering such time period as may be designated by the Corporation.
    Every ETP Holder[, Equity ASAP Holder, and ETP Firm] for which 
the Corporation is not the DEA must report ``short'' positions to 
the self-regulatory organization that is the DEA for such ETP 
Holder[, Equity ASAP Holder or ETP Firm] if such DEA has a 
requirement for such reports. If the DEA does not have such a 
reporting requirement, then such ETP Holder[, Equity ASAP Holder or 
ETP Firm] must comply with the provisions of this Rule 4.5(e).
    ETP [Holders, ETP Firms or Equity ASAP] Holders whose short 
positions have been properly reported to, and are carried by, a non-
ETP [or non-Equity ASAP] clearing organization will be in compliance 
with this Rule 4.5(e) if adequate arrangements have been made for 
such clearing organization to report such positions to the 
Corporation or to another self-regulatory organization.
    ``Short'' positions to be reported are those resulting from 
``short'' sales as defined in SEC Rule 3b-3, but excluding positions 
resulting from sales specified in clauses (1), (6), (7), (8), (9) 
and (10) of paragraph (e) of SEC Rule 10a-1. Also to be excluded are 
``short'' positions carried for other ETP Holders[, Equity ASAP 
Holders, and ETP Firms] reporting for themselves.
    Only one report should be made for each stock or warrant in 
which there is a short position. If more than one account has a 
short position in the same stock or warrant, the combined aggregate 
should be reported.
    The term ``designated examining authority'' means the self-
regulatory organization that has been assigned responsibility for 
examining an ETP Holder[, Equity ASAP Holder, or ETP Firm] for

[[Page 78848]]

compliance with applicable financial responsibility rules.
    .02  ETP Holders[, Equity ASAP Holders, and ETP Firms] for which 
the Corporation is the DEA need not report ``short'' positions to 
the Corporation as provided in Commentary .01 if such ETP Holder[, 
Equity ASAP Holder, or ETP Firm] has made arrangements, satisfactory 
to the Corporation, to report such positions to another self-
regulatory organization.

Accelerated Reporting

    Rule 4.6. Unless the Corporation determines otherwise, if any of 
the conditions described in this Section is applicable, an ETP 
Holder[, Equity ASAP Holder or ETP Firm] subject to the provisions 
of Rule 4.5 shall file with the Corporation on a monthly basis (or 
more frequently if the Corporation so determines) Part II or Part 
IIA of SEC Form X-17A-5, as appropriate, together with a schedule of 
proprietary securities and commodities, and related ``haircuts'', 
and any other supplementary schedules deemed appropriate by the 
Corporation. Such reports shall be due by the fifteenth calendar day 
following the end of the month during which this Section becomes 
applicable to [a] an ETP Holder[, Equity ASAP Holder, or ETP Firm,] 
and such accelerated reports shall continue to be filed each month 
thereafter (or more frequently is the Corporation so determines) 
until the ETP Holder[, Equity ASAP Holder, or ETP Firm] is otherwise 
advised by the Corporation[:].

SIPC Referral

    Rule 4.6(a). An ETP Holder[, Equity ASAP Holder or ETP Firm] 
subject to the referral provisions of Section 59a) of the Securities 
Investor Protection Act will be notified by the Corporation to file 
accelerated reports.

Financial or Operational Condition

    Rule 4.6(b). An ETP Holder[, Equity ASAP Holder, or ETP Firm] 
that has exceeded or is exceeding the financial or operational 
parameters set forth in Rule 4.4 shall file without further notice 
the reports required by this Section.

General Conditions

    Rule 4.6(c). The Corporation requires the filing of accelerated 
reports for reasons relating to (i) the financial or operational 
condition of the ETP Holder[, Equity ASAP Holder, or ETP Firm] 
(notwithstanding the provisions of paragraph (b) of this Section), 
(ii) the condition of the securities markets, or (iii) the condition 
of the securities industry, in which events the Corporation will 
notify the ETP Holder[, Equity ASAP Holder, or ETP Firm] to file 
accelerated reports.

Exemptions

    Rule 4.7(a). An ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall be exempt from the filing requirements prescribed by Rules 4.5 
and 4.6 under the following conditions:
    [(1)] Any ETP Holder[, Equity ASAP Holder or ETP Firm] which is 
a member of another self-regulatory organization which has been 
designated the examining authority for such ETP Holder[, Equity ASAP 
Holder or ETP Firm] by the Securities and Exchange Commission.
    (b) An ETP Holder[, Equity ASAP Holder or ETP Firm] qualifying 
for an exemption pursuant to this Paragraph shall file with the 
Corporation a copy of Notice and Part II of SEC Form X-17A-5, 
including such supplementary schedules as may be required, pursuant 
to the provisions of Rule 17a-11 under the Securities Exchange Act 
of 1934, as amended, at such time and at such frequency as 
prescribed by such other designated examining authority or by any 
applicable rule.

Report Filed Upon Termination of Membership Interest

    Rule 4.8. If an ETP Holder[, Equity ASAP Holder or ETP Firm] 
holding any membership interest in a national securities exchange 
ceases to be a member in good standing of such exchange, such ETP 
Holder[, Equity ASAP Holder or ETP Firm] shall, within two business 
days after such event, file with the Securities and Exchange 
Commission and with the Corporation, Part II of Form X-17A-5, as of 
the date of such event, pursuant to the provisions of Paragraph (b) 
of Rule 17a-5 under the Securities Exchange Act of 1934, as amended.

Customer Statements

    Rule 4.9. Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall furnish to its customers, principal stockholders and 
subordinated lenders, and shall file with the Securities and 
Exchange Commission, the Corporation, and any other self-regulatory 
organizations of which it is a member, certain financial statements 
in accordance with the provisions of Paragraph (c) of Rule 17a-5 
under the Securities Exchange Act of 1934, as amended.

Annual Filing of Audited Financial Statements

    Rule 4.10. Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall file annually a report which shall be audited by an 
independent public accountant in accordance with the provisions of 
paragraphs (d) through (n) of Rule 17a-5 under the Securities 
Exchange Act of 1934, as amended.

Financial Reports

    Rule 4.11(a). Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
which is not a member of another national securities exchange or 
registered national securities association which is the Designated 
Examining Authority for that ETP Holder[, Equity ASAP Holder or ETP 
Firm] shall file with the Corporation answers to Financial 
Questionnaires, Reports of Income and Expenses and additional 
financial information in the type, form, manner and time prescribed 
by the Corporation.
    Rule 4.11(b).
    (1) Each ETP Holder[, Equity ASAP Holder, or ETP Firm] shall 
file with the Corporation a Report of Financial Condition on SEC 
Form X-17A-5 as required by Securities and Exchange Commission Rules 
17a-5 and 17a-10. Any ETP Holder[, Equity ASAP Holder or ETP Firm] 
who fails to file such Report of Financial Condition in a timely 
manner shall be subject to late filing charges as follows:

------------------------------------------------------------------------
                                                              Amount of
                    Number of Days Late                         Charge
------------------------------------------------------------------------
1-30.......................................................       $20.00
31-60......................................................       400.00
61-90......................................................       800.00
------------------------------------------------------------------------

    Repeated or aggravated failure to file such Report of Financial 
Condition or failure to file such report for more than ninety (90) 
days will be referred to the Business Conduct Committee for 
appropriate disciplinary action.
    (2) Each ETP Holder[, Equity ASAP Holder or ETP Firm] for which 
the Corporation is the designated collection agent must file with 
the Corporation such forms and assessments as are required pursuant 
to the Securities Investor Protection Act of 1970. Any ETP Holder[, 
Equity ASAP Holder or ETP Firm] that fails to file such form or 
assessment in a timely manner will be subject to a late filing 
charge as follows:

------------------------------------------------------------------------
                                                              Amount of
                    Number of days late                         charge
------------------------------------------------------------------------
1-30.......................................................      $100.00
31-60......................................................       200.00
61-90......................................................       300.00
------------------------------------------------------------------------

    Provided however:
    (A) if an ETP Holder[, Equity ASAP Holder or ETP Firm] files its 
SIPC form and assessment after its receipt of SIPC's final late 
notice, but files within five business days after its receipt of 
SIPC's final late notice, such ETP Holder[, Equity ASAP Holder or 
ETP Firm] will be subject to a fine pursuant to Rule 10.12(i)(2); 
and
    (B) if an ETP [Firm] Holder fails to file its SIPC form and 
assessment within five business days after its receipt of SIPC's 
final late notice, such ETP [Firm] Holder will be subject to formal 
disciplinary action pursuant to Rule 10.4.

Commentary

    .01  An ETP Holder[, Equity ASAP Holder or ETP Firm] that files 
its SIPC form and assessment more than 90 days late but before its 
receipt of SIPC's final late notice will be subject to a late charge 
of $800.
    .02--No change.

Financial Responsibility and Operational Condition

    Rule 4.11(c). The Corporation shall have the authority to 
examine the financial responsibility and/or operational conditions 
of any ETP Holder[, Equity ASAP Holder, or ETP Firm]. In conducting 
such examinations, the Corporation may require an ETP Holder[, 
Equity ASAP Holder, or ETP Firm] to furnish requested information. 
If the Corporation deems it necessary, ETP Holders[, Equity ASAP 
Holders or ETP Firms] shall make available their books and records 
as well as provide sworn or unsworn testimony. All examinations 
shall be conducted in a manner consistent with the rules and 
regulations governing the duty of the Corporation.

Underwriting Commitments

    Rule 4.12. Each ETP Holder[, Equity ASAP Holder or ETP Firm,] 
for which the Corporation is the designated examining

[[Page 78849]]

authority, which enters into a security underwriting commitment, 
either with respect to an original or a secondary distribution of 
securities, whether or not admitted to dealing on the Corporation, 
shall notify the Corporation thereof in such manner as the 
Corporation shall prescribe.

Lawsuits

    Rule 4.13. Each ETP Holder[, Equity ASAP Holder or ETP Firm] for 
which the Corporation is the designated examining authority, shall 
give written notice to the Corporation regarding all lawsuits 
involving such ETP Holder[, Equity ASAP Holder or ETP Firm] or any 
participant therein, including a description of the nature and 
principal allegations of such lawsuits, and a statement of the 
amount of damages claimed therein. Similar notice shall be given to 
the Corporation regarding any claims or contingent liabilities that 
appear likely to result in litigation.

Section 3. Margins

Daily Margin Record

    Rule 4.14(a). Each ETP Holder[, Equity ASAP Holder, or ETP Firm] 
registered on the Corporation, carrying margin accounts for 
customers shall make and maintain a record of every case in which 
initial or additional margin must be obtained in a customer's 
account because of transactions effected in such account. This 
record shall show for each account the date of the transaction, the 
customer's name, the amount of margin required and the time when and 
manner in which such margin is furnished or obtained. This record 
shall be in a form acceptable to the Corporation and contain such 
additional information as the Corporation may from time to time 
prescribe. This record shall be preserved for at least twelve 
months.

Margin by Liquidation

    Rule 4.14(b). No ETP Holder[, Equity ASAP Holder, or ETP Firm] 
registered on the Corporation shall permit a customer to make a 
practice of effecting transactions requiring initial or additional 
margin pursuant to rules of the Corporation or regulations of the 
Board of Governors of the Federal Reserve System and then furnishing 
such margin by the liquidation of the same or other commitments; 
except that the provisions of this section shall not apply to any 
account maintained for another broker or dealer in which are carried 
only the commitments of the customers of such other broker or dealer 
exclusive of his partners, provided such other broker or dealer (i) 
is an ETP Holder[, or Equity ASAP Holder] of the Corporation[, or an 
ETP Firm registered thereon]; or (ii) has agreed in good faith with 
the ETP Holder[, Equity ASAP Holder, or ETP Firm] carrying the 
account that [he] it will maintain a record equivalent to that 
referred to in Rule 4.14(a); or (iii) is not subject to the 
regulations of the Board of Governors of the Federal Reserve System.

Members Other Exchanges

    Rule 4.14(c). An ETP Holder[, Equity ASAP Holder, or ETP Firm] 
registered as a member on another national securities exchange or 
association which has comparable standards and which has been 
designated by the Securities and Exchange Commission as the primary 
regulator is exempt from the provisions of this [rule] Rule, unless 
otherwise stated.

Customer Defined

    Rule 4.14(d). For the purpose of this [rule] Rule, the term 
customer shall include any person or entity for whom securities are 
purchased or sold or to whom securities are sold or from whom 
securities are purchased whether on a regular way, when issued, 
delayed or future delivery basis. It will also include any person or 
entity for whom securities are held or carried. The term will not 
include a broker or dealer from whom a security has been purchased 
or to whom a security has been sold for the account of the ETP 
Holder[, Equity ASAP Holder or ETP Firm] or its customers.

Initial Margin

    Rule 4.14(e)--No change.

Margin Requirements

    Rule 4.15(a). For the purpose of effecting new securities 
transactions and commitments, the margin required shall be an amount 
equivalent to the requirements of paragraph (b) of this section, or 
such greater amount as the Corporation may from time to time require 
for specific securities, with a minimum equity in the account of at 
least $2,000, except that cash need not be deposited in excess of 
the cost of any security purchased. The foregoing minimum equity and 
cost of purchase provisions shall not apply to ``when distributed'' 
securities in cash accounts and the exercise of rights to subscribe.
    Withdrawals of cash or securities may be made from any account, 
provided that after such withdrawal the equity in the account is at 
least the greater of $2,000 or the amount required by the 
maintenance requirement of this [rule] Rule.

Maintenance Margin Rule

    Rule 4.15(b). The margin which must be maintained in margin 
accounts of customers, whether ETP Holder, [Equity ASAP Holders, ETP 
Firms,] Allied Persons thereof or non-ETP [or non-Equity ASAP Firms] 
Holders, shall be as follows:
    (1)-(5)--No change.

Exceptions to Rule

    Rule 4.15(c). The foregoing requirements of this Rule are 
subject to the following exceptions:
    (1)--No change.
    (2) Exempted Securities.
    (A)-(B)--No change.
    (C) Cash Transactions With Customers--Special Provisions--When a 
customer purchases an issued ``exempted'' security from or through 
an ETP Holder, [Equity ASAP Holder, or ETP Firm,] in a cash account, 
full payment shall be made promptly. If, however, delivery or 
payment therefore is not made promptly after the trade date, a 
deposit shall be required as if it were a margin transaction, unless 
it is a transaction with a bank, trust company, insurance company, 
investment trust or charitable or nonprofit educational institution.
    In connection with any net position resulting from any 
transaction in issued ``exempted'' securities made for an ETP 
Holder[, Equity ASAP Holder or ETP Firm,] or a non-ETP [or non-
Equity ASAP] broker-dealer, or made for or with a bank, trust 
company, insurance company, investment trust or charitable or non-
profit educational institution, no margin need be required and such 
net position need not be marked to market. However, where such net 
position is not marked to the market, an amount equal to the loss at 
the market in such position shall be considered as cash required to 
provide margin in the computation of the net capital of the ETP 
Holder[, Equity ASAP Holder or ETP Firm] under the Corporation's 
capital requirements.
    (3) Joint Accounts in Which the Carrying Firm or a Partner or 
Stockholder Therein Has an Interest--in the case of a joint account 
carried by a firm, in which such firm, or any partner, ETP [Holder, 
Equity ASAP] Holder, Allied Person or stockholder (other than a 
holder of freely transferable stock only) of such ETP [Firm] Holder 
participate with others, the interest of each participant other than 
the carrying ETP [Firm] Holder shall be margined by each such 
participant pursuant to the provisions of this [rule] Rule as if 
such interest were in a separate account.
    (4)--No change.
    (5) [Specialists' and] Market Maker[`s] Accounts
    (A) The account of an ETP Holder[, Equity ASAP Holder or ETP 
Firm] in which are effected only transactions in securities in which 
he is [registered and acts as a specialist] a Market Maker may be 
carried upon a margin basis which is satisfactory to the 
[specialist] Market Maker and the ETP Holder[, Equity ASAP Holder or 
ETP Firm]. The amount of any deficiency between the margin deposited 
by the [specialist] Market Maker and the haircut requirements of SEC 
Rule 15c3-1 shall be considered as a debit item in the computation 
of the net capital of ETP [Holder, Equity ASAP Holder or ETP Firm] 
Holders under the Corporation's capital requirements.
    (A) In the case of joint accounts carried by an ETP Holder[, 
Equity ASAP Holder or ETP Firm for specialists] for Market Makers, 
in which the ETP Holder[, Equity ASAP Holder or ETP Firm] 
participates, the margin deposited by the other participants may be 
in any amount which is mutually satisfactory. The amount of any 
deficiency between the amount deposited by the other participant, or 
participants, based upon their proportionate share of the haircut 
requirements of SEC Rule 15c3-1, shall be considered as a debit item 
in the computation of the net capital of ETP [Holder, Equity ASAP 
Holder or ETP Firm] Holders under the Corporation's capital 
requirements.
    (6) Broker/Dealer Accounts
    (A) An ETP Holder[, Equity ASAP Holder or ETP Firm] may carry 
the proprietary account of another broker-dealer that is registered 
with the Securities and Exchange Commission, upon a margin basis 
that is satisfactory to both parties, provided the requirements of 
Regulation T of the Board of Governors of the Federal Reserve System 
are adhered to and the account is not carried in a deficit equity 
condition. The amount of any deficiency between the equity 
maintained in

[[Page 78850]]

the account and the haircut requirements of SEC Rule 15c3-1 shall be 
deducted in computing the Net Capital of the ETP Holder[, Equity 
ASAP Holder or ETP Firm] under the Corporation's Capital 
Requirements.
    (B) Joint Back Offices Arrangements. An arrangement may be 
established between two or more registered broker-dealers pursuant 
to Regulation T, Section 220.11 to form a joint back office 
(``JBO'') arrangement for carrying and clearing, or carrying 
accounts of participating broker-dealers. ETP Holders[, Equity ASAP 
Holders or ETP Firms] must provide written notification to the 
Corporation prior to establishing a JBO.
    (i) A carrying and clearing, or clearing ETP Holder[, Equity 
ASAP Holder or ETP Firm] must:
    (a) maintain a minimum Tentative Net Capital of $25 million as 
computed pursuant to SEC Rule 15c3-1, except that an ETP Holder[, 
Equity ASAP Holder or ETP Firm] whose primary business consists of 
the clearance of options market-maker accounts, may carry JBO 
accounts provided that it does not allow its Net Capital, as 
computed pursuant to SEC Rule 15c3-1, to fall below $7 million for a 
period in excess of three consecutive business days. In addition, 
the ETP Holder[, Equity ASAP Holder or ETP Firm] must include in its 
ratio of gross options market maker deductions to Net Capital 
required by the provisions of SEC Rule 15c3-1, gross deductions for 
JBO participant accounts. Clearance of options market maker accounts 
shall be deemed to be a broker-dealer's primary business if a 
minimum of 60% of the aggregate deductions in the above ration are 
options market maker deductions;
    (b) maintain a written risk analysis methodology for assessing 
the amount of credit extended to participating broker-dealers which 
shall be made available to the Corporation upon request; and
    (c) deduct from Net Capital haircut requirements pursuant to SEC 
Rule 15c3-1 in excess of the equity maintained in the amounts of 
participating broker-dealers.
    (ii) A participating broker-dealer must:
    (a) be a registered broker-dealer subject to the SEC's Net 
Capital Rule;
    (b) maintain an ownership interest in the carrying/clearing ETP 
Holder[, Equity ASAP Holder or ETP Firm] pursuant to Regulation T, 
Section 220.11; and
    (c) maintain a minimum liquidating equity of $1 million in the 
Joint Back Office arrangement exclusive of the ownership interest 
established in (b) above. When the minimum liquidating equity 
decreases below the $1 million requirement, the participant must 
deposit an amount sufficient to eliminate this deficiency within 5 
business days. If funds or securities sufficient to eliminate the 
deficiency are not received within 5 business days, the carrying 
organization must margin the account in accordance with the 
requirements prescribed for a customer in Regulation T.
    (d) If at any time a clearing ETP Holder[, Equity ASAP Holder or 
ETP Firm] operating pursuant to subsection 6(b)(1)(a) above 
determines that its tentative net capital or that its net capital, 
respectively, has fallen below the applicable requirements, such 
clearing ETP Holder[, Equity ASAP Holder or ETP Firm] must 
immediately notify the Corporation of such deficiency by telegraphic 
or facsimile notice; and such clearing ETP Holder[, Equity ASAP 
Holder or ETP Firm] will be subject to the prohibitions against 
withdrawal of equity capital set forth in SEC Rule 15c3-1(e) and to 
the prohibitions against reduction, prepayment, and repayment of 
subordination agreements set forth in paragraph (b)(1) of SEC Rule 
15c3-1, as if such broker or dealer's net capital were below the 
minimum standards specified by each of these paragraphs.

Other Provisions

    Rule 4.15(d). Determination of Value for Margin Purposes.
    (1) Active securities dealt in on a recognized exchange shall, 
for margin purposes, be valued at current market prices. Other 
securities shall be valued conservatively in the light of current 
market prices and the amount which might be realized upon 
liquidation. Substantial additional margin must be required in all 
cases where the securities carried are subject to unusually rapid or 
violent change sin value, or do not have an active market on a 
recognized exchange, or where the amount carried is such that it 
cannot be liquidated promptly.
    To qualify for margin value, securities shall be in negotiable 
form and, except for bearer securities, shall be registered in 
street name (firm name, or firm agent, or firm nominee or in process 
of being transferred to such) after constructive receipt thereof. A 
cash margin deficiency shall be treated as a debit item in the 
computation of [Net Capital] net capital.
    (2) Puts, Calls Other Options, Currency Warrants, Currency Index 
Warrants and Stock Index Warrants.
    (A)--No change.
    (B) The issuance, guarantee or sale (other than a ``long'' sale) 
for a customer of a put or a call shall be considered as a security 
transaction subject to Rule 4.15(a). The short sale for a customer 
of a currency warrant, currency index warrant or stock index warrant 
shall be considered as a security transaction subject to paragraph 
(a) of this Rule 4.15[(d)].
    (C)--No change.
    (D) The margin on any put, call, currency warrant, currency 
index warrant or stock index warrant issued, guaranteed or carried 
``short'' in a customer's account shall be:
    (i)--No change.
    (ii) In the case of puts and calls listed or traded on a 
registered national securities exchange or a registered securities 
association and issued by a registered clearing corporation which 
[represent] represents options on GNMA obligations in the principal 
amount of $100,000, 130% of the current market value of the option 
plus $1,500, except that the margin required need not exceed $5,000 
plus the current market value of the option.
    (iii)--No change.
    (E)--No change.
    (F) (1)-(3)--No change.
    (4)--No change.
    (G)--No change.
    (H) ``Long'' and ``Short'' Positions in Securities and Options. 
(1)-(4)--No change.
    (5) Bank Guarantee Letters--
    No margin need be required in respect of a put option contract 
carried in a ``short'' position where the customer has delivered to 
the ETP Holder[, Equity ASAP Holder or ETP Firm] with which such 
position is maintained a letter of guarantee issued by a bank 
approved to issue escrow receipts under Rule 610 of the Rules of the 
Options Clearing Corporation, in form satisfactory to the 
Corporation, which certifies that such bank holds on deposit for the 
account of the customer cash in the full amount of the aggregate 
exercise price of such put option contract, and that such amount 
will be paid to the ETP Holder[, Equity ASAP Holder or ETP Firm] 
against delivery of the underlying security covered by such put 
option contract.
    (6) No margin is required in respect of a warrant on a market 
index carried in a short position where the customer has delivered, 
promptly after the warrant has been sold short, to the ETP Holder[, 
Equity ASAP Holder or ETP Firm] with which such position is 
maintained, a Market Index Warrant Escrow Receipt in a form 
satisfactory to the Corporation, issued by a bank or trust company 
pursuant to specific authorization from the customer certifying that 
the issuer of the agreement holds for the account of the customer: 
(1) cash, (2) cash equivalents, (3) one or more qualified equity 
securities, or (4) a combination thereof; that such deposit has an 
aggregate market value, at the time the warrant has been sold short, 
or not less than 100% of the aggregate currency index value; and 
that the issuer will promptly pay the ETP Holder[, Equity ASAP 
Holder or ETP Firm] the exercise settlement amount in the event the 
account is assigned an exercise notice.
    (7)--No change.
    (I) When an ETP Holder[, Equity ASAP Holder or ETP Firm] issues 
or guarantees an option to receive or deliver securities for a 
customer, such option shall be margined as if it were a put or call.
    (J) Option Specialists, Market Makers and Traders. 
Notwithstanding the other provisions of this sub-section (d)(2), an 
ETP Holder[, Equity ASAP Holder or ETP Firm] may clear and carry the 
listed option transactions of one or more registered specialists, 
registered market makers or registered traders in options (which 
registered traders are deemed specialists for all purposes under the 
Securities Exchange Act of 1934 pursuant to the rules of a national 
securities exchange) (hereafter referred to as ``specialists(s)''), 
upon a ``Good Faith'' margin basis satisfactory to the concerned 
parties, provided the ``Good Faith'' margin requirement is not less 
that the Net Capital haircut deduction of the ETP Holder[, Equity 
ASAP Holder or ETP Firm] carrying the transaction pursuant to SEC 
Rule 15c3-1. In lieu of collecting the ``Good Faith'' margin 
requirement, a carrying ETP Holder[, Equity ASAP Holder or ETP Firm] 
may elect to deduct in computing its net capital the amount of any 
deficiency between the equity maintained in the account and the 
``Good Faith'' margin required.
    For purposes of the subsection (d)(2)(J), a permitted offset 
position means, in the case

[[Page 78851]]

of an option in which a specialist makes a market, a position in the 
underlying asset or other related assets, and in the case of other 
securities in which a specialist makes a market, a position in 
options overlying the securities in which a specialist makes a 
market. Accordingly, a specialist in options may establish, on a 
share-for-share basis, a long or short position in the securities 
underlying the options in which the specialist makes a market, and a 
specialist in securities other than options may purchase or write 
options overlying the securities in which the specialist makes a 
market, if the account holds the following permitted offset 
positions:
    (i)-(ii)--No change.
    (iii)--No change.
    (iv)-(vi)--No change.
    (vii) a specified portfolio type as referred to in SEC Rule 
15c3-1, including its appendices, or any applicable SEC staff 
interpretation or no-action position.
    Permitted offset transactions must be effected for market making 
purposes such as hedging, risk reduction, rebalancing of positions, 
liquidation, or accommodation of customer orders, or other similar 
market making purposes.
    For purposes of this paragraph (d)(2)(J), the term ``in or at 
the money'' means the current market price of the underlying 
security is not more than two standard exercise intervals below 
(with respect to a call option) or above (with respect to a put 
option) the exercise price of the option; [the term ``in the money'' 
means the current market price of the underlying asset or index is 
not below (with respect to a call option) or above (with respect to 
a put option) the exercise price of the option;] and, the term 
``overlying option'' means a put option purchased or a call option 
written against a long position in an underlying asset; or a call 
option purchased or a put option written against a short position in 
an underlying asset.
    Securities, including options, in such accounts shall be valued 
conservatively in the light of current market prices and the amount 
that might be realized upon liquidation. Substantial additional 
margin must be required or excess net capital maintained in all 
cases were the securities carried: (i) are subject to unusually 
rapid or violent [chances] changes in value including volatility in 
the expiration months of options, (ii) do not have an active market, 
or (iii) in one or more or all accounts, including proprietary 
accounts combined, are such that they cannot be liquidated promptly 
or represent undue concentration of risk in view of the carrying 
organization's net capital and its overall exposure to material 
loss.
    (K)--No change.
    (L) Exclusive designation--A customer may designate at the time 
an option order is entered which security position held in the 
account is to serve in lieu of the required margin, if such service 
is offered by the ETP Holder[, Equity ASAP Holder or ETP Firm]; or 
the customer may have a standing agreement with the ETP Holder[, 
Equity ASAP Holder or ETP Firm] as to the method to be used for 
determining on any given day which security position will be used in 
lieu of the margin to support an option transaction. Any security 
held in the account that serves in lieu of the required margin for a 
short put or short call shall be unavailable to support any other 
option transaction in the account.
    (M) Cash account transactions.--An ETP Holder[, Equity ASAP 
Holder or ETP Firm] may make option transactions in a customer's 
cash account, providing:
    (i)-(ii)--No change.
    (3) ``When Issued'' and ``When Distributed'' Securities--
    (A)--No change.
    (B) Cash Accounts
    In connection with any transactions or net position resulting 
from contracts for a ``when issued'' security in an account other 
than that of an ETP Holder, [Equity ASAP Holder or ETP Firm,] non-
ETP [or non-Equity ASAP] broker or dealer, bank, trust company, 
insurance company, investment trust, or charitable or non-profit 
educational institution, deposits shall be required equal to the 
margin required were such transaction or position in a margin 
account.
    In connection with any net position resulting from contracts for 
a ``when issued'' security made for or with a non-ETP [or non-Equity 
ASAP] broker or dealer, no margin need be required, but such net 
position must be marked to the market.
    In connection with any net position resulting from contracts for 
a ``when issued'' security made for an ETP Holder[, Equity ASAP 
Holder or ETP Firm] or for or with a bank, trust company, insurance 
company, investment trust, or charitable or non-profit educational 
institution, no margin need be required and such net position need 
not be marked to the market. However, where such net position is not 
marked to the market, an amount equal to the loss at the market in 
such position shall be considered as cash required to provide margin 
in the computation of the net capital of the ETP Holder[, Equity 
ASAP Holder or ETP Firm] under the Corporation's capital 
requirements.
    The provisions of this subparagraph shall not apply to any 
position resulting from contracts on a ``when issued'' basis in a 
security
    (i)-(ii)--No change.
    (4) Guaranteed Accounts--Any account guaranteed by another 
account may be consolidated with such other account and the required 
margin may be determined on the net position of both accounts, 
provided the guarantee is in writing and permits the ETP Holder[, 
Equity ASAP Holder or ETP Firm] carrying the account, without 
restriction, to use the money and securities in the guaranteeing 
account to carry the guaranteed account or to pay any deficit 
therein; and provided further that such guaranteeing account is not 
owned directly or indirectly by (a) a partner, ETP Holder, [Equity 
ASAP Holder, ETP Firm,] Allied Person thereof or any stockholder 
(other than a holder of freely transferable stock only) in the firm 
carrying such account or (b) an ETP Holder, [Equity ASAP Holder, ETP 
Firm,] a partner, Allied Person, or any stockholder (other than a 
holder of freely transferable stock only) therein having a definite 
arrangement for participating in the commissions earned on the 
guaranteed account. However, the guarantee of a limited partner or 
of a holder of non-voting stock, if based upon his resources other 
than his capital contribution to or other than his interest in an 
ETP Holder[, Equity ASAP Holder or ETP Firm,] is not affected by the 
foregoing prohibition, and such a guarantee may be taken into 
consideration in computing margin in the guaranteed account.
    (5)-(6)--No change.
    (7) Practice of Meeting Margin Calls by Liquidation Prohibited--
No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall permit a 
customer to make a practice of effecting transactions requiring 
margin and then either deferring the furnishing of margin beyond the 
time when such transactions would ordinarily be settled or cleared, 
or meeting such demand for margin by the liquidation of the same or 
other commitments in his account.
    (8) Free Riding in Cash Accounts Prohibited--No ETP Holder[, 
Equity ASAP Holder, or ETP Firm] shall permit a customer (other than 
a broker/dealer or bank, trust company, insurance company, 
investment trust, or charitable or non-profit educational 
institution) to make a practice, directly or indirectly, of 
effecting transactions in a cash account where the cost of 
securities purchased is met by the sale of the same securities. No 
ETP Holder[, Equity ASAP Holder or ETP Firm] shall permit such a 
customer to make a practice of selling securities which were 
purchased in a cash account at another broker-dealer and are not yet 
paid for. A customer shall not be deemed to be continuing this 
practice if for a period of 90 days (or less with the approval of 
the Corporation) no such transactions have taken place. An ETP 
Holder[, Equity ASAP Holder or ETP Firm] transferring an account 
which is under restraint to another broker-dealer shall inform the 
receiving broker-dealer of the restraint.
    (9) BOUNDs
    (A)-(F)--No change.
    (G)(i)--No change.
    (ii) When a BOUND and a LEAP with the same expiration and strike 
price are issued, guaranteed or carried ``short'' against an 
existing net ``long'' position in the security underlying the BOUND 
and LEAP, or in any security that meets the requirements of Rule 
[6.1(1)(23)] 6.1(a)(23) of the PCX Parent relating to covered 
options or in any security immediately exchangeable or convertible, 
other than warrants without restriction including the payment of 
money, into the security underlying the BOUND and LEAP, no margin 
need be required on either the BOUND or the LEAP provided (1) such 
net ``long'' position is adequately margined in accordance with this 
Rule and (2) the right to exchange or convert the net ``long'' 
position does not expire on or before the expiration date of the 
``short'' BOUND or LEAP.
    (iii)-(iv)--No change.
    (H) Notwithstanding the other provisions of this paragraph 
(d)(9), the account of a person in which are effected only 
transaction in which such person is registered and acts as a 
specialist or market maker on an exchange, and the account of a 
registered trader containing only transactions effected

[[Page 78852]]

by him in his capacity as a registered trader, may be cleared and 
carried on a margin basis which is satisfactory to the specialist, 
market maker or registered trader and the ETP Holder[, Equity ASAP 
Holder or ETP Firm] carrying the account.
    (I)--No change.

Commentary

    .01--No change.

Notice to Corporation

    Rule 4.16. An ETP Holder[, Equity ASAP Holder, or ETP Firm] 
commencing to carry margin accounts shall immediately notify the 
Corporation in writing.

Location of Records

    Rule 4.17. An ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall maintain at its main office the daily margin record required 
by Rule [4(a)] 4.14(a). An ETP Holder[, Equity ASAP Holder, or ETP 
Firm] maintaining margin records at two or more offices shall 
maintain such records at each office for inspection.

Determination of Margin

    Rule 4.18--No change.

Fidelity Bonds

    Rule 4.19(a). Each ETP Holder[, Equity ASAP Holder or ETP Firm] 
which transacts business with the public or clears transactions for 
other ETP Holders[, Equity ASAP Holders, or ETP Firms] shall carry 
fidelity bonds in such form and in such amounts as the Corporation 
may require covering the [individual] sole proprietor ETP [Holder, 
Equity-ASAP] Holder, or, in the case of an [Equity ASAP] ETP Holder 
[or ETP Firm] organization, its general partners or officers and its 
employees.
    (b) ETP Holders[, Equity ASAP Holders or ETP Firms] subject to 
this Rule are required to maintain basis and specific coverages in 
amounts not less than those prescribed in this Rule. Where 
applicable such coverage must also extend to limited partners as 
employees, and outside organizations providing electronic data 
processing services and the handling of U.S. Government securities 
in bearer form.
    (c) Each ETP Holder[, Equity ASAP Holder or ETP Firm] that 
introduces customers' accounts on a fully disclosed basis must 
maintain coverage as follows:
    (i) Minimum basis coverage for such ETP Holder[, Equity ASAP 
Holder or ETP Firm] whose net capital requirement under Rule 4:
    A.-B--No change.
    (ii) Specific coverage for such ETP Holders[, Equity ASAP 
Holders or ETP Firms] shall be as follows:
    A--No change.
    B. Fraudulent Trading (not required of ETP Holders, [Equity ASAP 
Holders,] those not associated with an ETP [Firm] Holder or 
partnerships having no employees)--the greater of $25,000 or 50% of 
the basis bond minimum requirement, up to $500,000.
    C.--No change.
    (d) Each ETP Holder[, Equity ASAP Holder on ETP Firm] which 
carries customers' accounts or clears transactions for other ETP 
Holders[, Equity-ASAP Holders, ETP Firms] must maintain coverage as 
follows:
    (i) Minimum basis coverage for such ETP Holder[, Equity ASAP 
Holder or ETP Firm] shall be based on their net capital requirement 
under Rule 4 as follows:

------------------------------------------------------------------------
                                                          Basis  minimum
          Net capital requirement under rule 4                coverage
------------------------------------------------------------------------
$25,000-$50,000.........................................        $200,000
$50,001-$100,000........................................         300,000
$100,001-$200,000.......................................         500,000
$200,001-$300,000.......................................         600,000
300,001-$500,000........................................         700,000
$500,001-$1,000,000.....................................         800,000
$1,000,001-$2,000,000...................................       1,000,000
$2,000,001-$3,000,000...................................       1,500,000
$3,000,001-$4,000,000...................................       2,000,000
$4,000,001-$6,000,000...................................       3,000,000
$6,000,001-$12,000,000..................................       4,000,000
$12,000,001 and higher..................................       5,000,000
------------------------------------------------------------------------

    (ii) Specific coverages for such ETP Holder[, Equity ASAP Holder 
or ETP Firm] shall be as follows:
    A.-C. No change.
    (iii) Misplacement, Fraudulent Trading, Check Forgery and 
Securities Forgery.
    A. Each ETP Holder[, Equity ASAP Holder or ETP Firm] shall be 
expected to review carefully any need for coverage greater than that 
provided by the required minimums. Where experience or the nature of 
the business warrants additional coverage, the Corporation expects 
the ETP Holder[, Equity ASAP or ETP Firm] to acquire it.
    B. ETP Holder[, Equity ASAP Holders, and ETP Firms] required to 
carry the above form(s) of insurance shall advise the Corporation in 
writing if such insurance is entirely or partially canceled.
    (e)--No change.

Rule 5

Listings

Section 1. General Provisions and Definitions

General Provisions and Definitions

    RULE 5.1(a)--No change.
    RULE 5.1(b). Definitions. The following terms used in Rules 5.2 
through 5.5 shall, unless otherwise indicated, have the meanings 
herein specified:
    (1)-(3)--No change.
    (4) The term ``listed''; and the phrase ``listed'' on the 
Corporation [means] mean a security that has been listed on the PCX 
Parent pursuant to Section 12(b) of the Securities Exchange Act of 
1934. Such security shall be listed pursuant to a formal application 
and request for such listing filed by the issuing company.
    (5)-(15)--No change.

Section 2. Applications to List

    RULE 5.2(a)-5.2(f)--No change.

Contingent Value Rights (``CVRs'')

    RULE 5.2(g)--No change.

Commentary

    .01  Prior to the commencement of trading of securities admitted 
to listing under this Rule 5.2(g), the Corporation will distribute a 
circular to its membership explaining the specific risks associated 
with CVRs and providing guidance regarding [member firm] ETP Holder 
compliance responsibilities when handling transactions in such 
securities.

Unit Investment Trusts (``UITs'')

    RULE 5.2(h)--No change.

Commentary

    .01  Customers must be provided with a prospectus and an 
explanation of any special characteristics and risks attendant to 
trading MIT interests. Before [a] an ETP Holder, [ETP Firm, or 
Equity ASAP Holder,] or an officer, partner, or employee of such [a] 
an ETP [Firm, or Equity ASAP] Holder, undertakes to recommend a 
transaction in the UIT interest or in the component securities, such 
officer, partner or employee should make a determination that such 
UIT interests, components or units are not unsuitable for such 
customer, and the person making the recommendation should have a 
reasonable basis for believing at the time of making the 
recommendation, that the customer has such knowledge and experience 
in financial matters that he may reasonably be expected to be 
capable of evaluating the risks and the special characteristics of 
the recommended transaction and is financially able to bear the 
risks of the recommended transaction and constituent interest.
    .02  An ETP Holder[, Equity ASAP Holder or ETP Firm] must 
provide a prospectus to an investor in connection with each 
transaction in a UIT interest, unless such ETP [Holder, ETP Firm, or 
Equity ASAP] Holder has in place a procedure by which to verify 
previous receipt of a current prospectus. The investor must receive 
such prospectus prior to or concurrently with the transaction 
confirmation.
    .03--No change.
    RULE 5.2(i)--No change.

Other Securities

    RULE 5.2(j)(1)--No change.

Commentary

    .01  Prior to commencement of trading of securities admitted to 
listing pursuant to this Rule 5.2(j)(1), the Corporation will 
evaluate the nature and complexity of the issue and, if appropriate, 
distribute a circular to the ETP Holders[, ETP Firms and Equity 
ASAP] Holders providing guidance regarding the [Firm or] Holder's 
compliance responsibilities when handling transactions in such 
securities.

Equity Linked Notes (``ELNs'')

    RULE 5.2(j)(2). In the case of ELNs, the following listing 
requirements must be met:
    (A) Issuer Listing Standards
    (i) The issuer of ELNs must be an entity that:
    (a) is listed on a national securities exchange or the Nasdaq 
National Market or is an affiliate of a company listed on a national 
securities exchange or the Nasdaq National Market; and
    (b)-- has a minimum net worth of $150 million.
    (ii)--No change.
    (B)-(D)--No change.
    (E) Prior to the commencement of trading of particular ELNs 
listing pursuant to this Rule, the Corporation will distribute a 
circular to ETP [Firms and Equity ASAP] Holders providing guidance 
regarding

[[Page 78853]]

compliance responsibilities (including suitability recommendations 
and account approval) when handling transactions in ELNs.
    RULE 5.2(j)(3)--No change.
    RULE 5.2(k)-(n)--No change.

Section 3. Corporate Governance and Disclosure Policies

    RULE 5.3(a)-(i)--No change.

Financial Reports and Related Notices

    RULE 5.3(i)(1). Companies applying for listing enter into 
agreements with the Corporation and become subject to its [Rules] 
rules, regulations and policies applicable to listed companies. 
Pursuant to the listing agreement with the Corporation and the Rules 
of the Securities and Exchange Commission under the Securities 
Exchange Act of 1934, each listed company is required to submit the 
following information:
    (i)-(ii)--No change.

Commentary

    .01-.04--No change.
    RULE 5.3(i)(2)--No change.

Procedure for Public Dissemination

    RULE 5.3(i)(3). A listed company is expected to make timely and 
adequate disclosure to its shareholders, the financial community, 
and investing public of any news or information that might 
reasonably be expected to materially affect the market for its 
securities. Furthermore, a company should also act promptly to 
dispel any unfounded rumors that result in unusual market activity 
or price variations.
    The following information will provide guidance to a listed 
company in making appropriate public disclosure and, therefore, 
ensure the maintenance of a fair and orderly marketplace to all 
participants:
    (1)-(ii)--No change.
    (iii) Relationships between Company Officials and Others
    (A)--No change.
    (B) [Specialists:] Market Makers
    [The Specialist is] Market Makers are obligated to contribute, 
insofar as reasonably practical, to the maintenance of a fair and 
orderly market pursuant to the Rules and procedures of the 
Corporation. In fulfilling this responsibility, it is desirable for 
the [Specialist] Market Makers to have appropriate liaison with one 
or more corporate officials. Such liaison, properly conducted, 
provides opportunity for communication in the event of particular 
questions or problems encountered by either the [Specialist] Market 
Makers or the company. Company officials should be informed of any 
unusual market problems if deemed appropriate and would be free to 
call the Securities Qualification Department or Surveillance 
Department [(not the Specialist)] for information if a question 
arises about the market in the security.
    There is a point beyond which it is improper for the company to 
go in providing information to [the Specialist] Market Makers. 
Therefore, for the company to give advance earnings, dividend, stock 
split, or merger information to a [Specialist] Market Maker or 
anyone else would be inappropriate. Alternatively, it is entirely 
appropriate for company officials to discuss matters such as the 
trend of business with [the Specialist] a Market Maker, much as they 
would with shareholders, security analysts, or anyone having a 
legitimate interest in the company. In this way, [the Specialist] a 
Market Maker may be better able to maintain a market beneficial to 
the company and its present and prospective shareholders.

Content and Preparation of Public Announcements

    RULE 5.3(i)(4)--No change.

Section 4. Suspension or Issuer Withdrawal from Listing

Suspension

    RULE 5.4(a)-(b)--No change.

Section 5. Maintenance Requirements and Delisting Procedures

    RULE 5.5(a)--No change.

Tier I Securities

Maintenance Requirements

Common Stock--Select Market Companies

    RULE 5.5(b). In the case of common stock, the following 
maintenance requirements must be met:
    (1)-(4)--No change.

Commentary

    .01--No change.
    .02  With regard to the share bid price requirements, as set 
forth in Rule 5.5(b), the Corporation may waive such requirements 
upon consideration of market conditions, the issuer's 
capitalization, the number of outstanding and publicly held shares, 
and any other factors the Corporation deems appropriate.
    RULE 5.5(c)-(1)--No change.

Delisting Procedures

    RULE 5.5(m). Whenever the Corporation determines that it is 
appropriate to either suspend dealings in and/or remove securities 
from listing pursuant to this Rule 5.5, except for other than 
routine reasons (e.g., redemptions, maturities, etc.), it will 
follow, insofar as practicable, the following procedures:
    (1)-(2)--No change.
    (3) Concurrent with the Corporation's decision to delist the 
issuer's security, the Corporation will prepare a press 
announcement, which will be disseminated to the [specialist] Market 
Makers and the investing public no later than the opening of trading 
the business day following the Corporation's decision (the 
Securities Qualification Department will also distribute [a floor 
bulletin] the information to the ETP [Holders, ETP Firms and Equity 
ASAP] Holders). Accordingly, the suspension of trading in the 
issuer's security will become effective at the opening of business 
on the day following the Corporation's decision.
    4-(6)--No change.
    (7) Any documents or other written material the issuer wishes to 
consider should be submitted to the appropriate office of the 
Corporation at least five (5) business days prior to the date of the 
hearing.
    (8)-(9)--No change.

Rule 6

Business Conduct

Adherence to Law

    Rule 6.1. The acceptance of any account, whether on a disclosed 
or undisclosed basis, by an ETP Holder[, Equity ASAP Holder or ETP 
Firm] shall at all times comply with fair and equitable principles 
of trade, the applicable regulations of the Securities and Exchange 
Commission and of the Federal Reserve Board, and the Bylaws and 
Rules of the Corporation.

Prohibited Acts

    Rule 6.2. Any ETP Holder[, Equity ASAP Holder, ETP Firm] or any 
[other] associated person thereof found guilty in accordance with 
the Rules and procedures of the Corporation of any of the following 
prohibited acts shall be subject to the imposition of penalties in 
accordance with the Rules of the Corporation.
    (a)--No change.
    (b) Conduct or proceeding inconsistent with just and equitable 
principles of trade, it being declared among other things, that the 
willful violation of any provision of the federal securities laws, 
the regulations of the Securities and Exchange Commission and of the 
Federal Reserve Board, and the Bylaws and Rules and procedures of 
the Corporation shall be considered conduct or proceedings 
inconsistent with just and equitable principles of trade.
    (c)--No change.
    (d) Willful failure to carry out any contract with another ETP 
Holder[, Equity ASAP Holder, or ETP Firm] of the Corporation.
    (e) Willful action deemed to be detrimental to the welfare of 
investors, creditors, ETP [Holders, ETP Firms, Equity ASAP] Holders 
or the Corporation.
    (f) Subjecting the Corporation or any Director or officer 
thereof to litigation seeking to restrain the lawful exercise of 
powers and duties under the Bylaws [and], Rules and procedures of 
the Corporation.

Prevention of the Misuse of Material, Nonpublic Information

    Rule 6.3. Every ETP Holder], Equity ASAP Holder or ETP Firm] 
must establish, maintain and enforce written policies and procedures 
reasonably designed, taking into consideration the nature of such 
ETP Holder's[, Equity ASAP Holder's or ETP Firm's] business, to 
prevent the misuse of material, non-public information by such ETP 
Holder[, Equity ASAP Holder or ETP Firm] or persons associated with 
such ETP Holder[, Equity ASAP Holder or ETP Firm]. ETP Holders for 
whom the Corporation is the Designated Examining Authority (``DEA'') 
that are required, pursuant to Rule [6.7] 4.5, to file SEC form X-
17A-5 with the Corporation on an annual or more frequent basis must 
file contemporaneously with the submission for the calendar year end 
ITSFEA compliance acknowledgments stating that the procedures 
mandated by this Rule have been established, enforced and 
maintained. Any ETP Holder[, Equity ASAP Holder or ETP Firm] or 
associated person who becomes aware of a possible misuse of 
material, non-public information must promptly notify the 
Corporation's Surveillance Department.

[[Page 78854]]

Commentary:

    .01--No change.
    .02  The terms ``associated person'' and ``person associated 
with an ETP Holder[, Equity ASAP Holder or ETP Firm]'' mean anyone 
who directly is engaged in the ETP Holder's[, Equity ASAP Holder's 
or ETP Firm's] trading-related activities, including general 
partners, officers, directors, managers (or any person occupying a 
similar status or performing similar functions), any person directly 
or indirectly controlling, controlled by, or under common control 
with an ETP Holder[, Equity ASAP Holder or ETP Firm] or any employee 
of the ETP Holder[, Equity ASAP Holder or ETP Firm].
    For the purposes of this Rule, the term ``employee'' includes 
every person who is compensated directly or indirectly by the ETP 
Holder[, Equity ASAP Holder or ETP Firm] for the solicitation or 
handling of business in securities, including individuals trading 
securities for the account of the ETP Holder[, Equity ASAP Holder or 
ETP Firm], whether such securities are dealt in on an exchange or 
are dealt over-the-counter.
    .03  Rule 6.3 provides that, at a minimum, each ETP Holder, 
[Equity ASAP Holder or ETP Firm] establish, maintain, and enforce 
the following policies and procedures:
    A. All associated persons must be advised in writing of the 
prohibition against the misuse of material, non-public information; 
and
    B. All associated persons of the ETP Holder[, Equity ASAP Holder 
or ETP Firm] must sign attestations affirming their awareness of, 
and agreement to abide by the aforementioned prohibitions. These 
signed attestations must be maintained for at least three years, the 
first two years in an easily accessible place; and
    C. Each ETP Holder[, Equity ASAP Holder or ETP Firm] must 
receive and retain copies of trade confirmations and monthly account 
statements for each account in which an associated person: has a 
direct or indirect financial interest or makes investment decisions. 
The activity in such brokerage accounts should be reviewed at least 
quarterly by the ETP Holder[, Equity ASAP Holder or ETP Firm] for 
the purpose of detecting the possible misuse of material, non-public 
information; and
    D. All associated persons must disclose to the ETP Holder[, 
Equity ASAP Holder or ETP Firm] whether they, or any person in whose 
account they have a direct or indirect financial interest, or make 
investment decisions, are an officer, director or 10% shareholder in 
a company whose shares are publicly traded. Any transaction in the 
stock (or option thereon) of such company shall be reviewed to 
determine whether the transaction may have involved a misuse of 
material non-public information.
    Maintenance of the foregoing policies and procedures will not, 
in all cases, satisfy the requirements and intent of Rule 6.3; the 
adequacy of each ETP Holder's[, Equity ASAP Holder's or ETP Firm's] 
policies and procedures will depend upon the nature of such ETP 
Holder's[, Equity ASAP Holder's or ETP Firm's] business.

Rumors

    Rule 6.4. No ETP Holder[, Equity ASAP Holder or ETP Firm] or any 
participant therein shall circulate, in any manner, rumors of a 
character which might affect market conditions on the Corporation; 
provided, however, that this rule shall not prohibit discussion of 
unsubstantiated information when its source and unsubstantiated 
nature are disclosed.

Manipulation

    Rule 6.5. No ETP Holder[, Equity ASAP Holder or ETP Firm] or any 
participant therein shall effect or induce the purchase or sale or 
otherwise effect transactions in any security for the purpose of 
creating or inducing a false, misleading or artificial appearance of 
activity in such security, or for the purpose of unduly or 
improperly influencing the market price of such security, or for the 
purpose of making a price which does not reflect the true state of 
the market in such security.

Front-Running of Block Transactions

    6.6. An ETP Holder[, Equity ASAP Holder or ETP Firm] or 
associated person obtaining information of an immediate pending 
transaction or a transaction executed but not yet reported on any 
national securities exchange or association involving 5,000 shares 
or more of a security including an equivalent number of option 
contracts admitted to dealings on the Pacific Exchange, Inc., or 
securities, underlying the options so admitted, shall not initiate 
or transmit an order in the security involved, or options relating 
to that security, [on] through the facilities of the Corporation for 
any account in which he or she or his or her organization are 
participants until after the transaction appears on the ticker or is 
otherwise disclosed, in the case of orders pertaining to equities, 
or until two minutes after such disclosure, in the case of orders 
pertaining to options. Exceptions will require prior approval from 
the Corporation.

[Limitations on Trading Because of Customers' Orders]

    [Rule 6.7--Deleted.]

[Discretionary Transactions]

    [Rule 6.8--Deleted.]

Excessive Trading

    Rule [6.9] 6.8. No ETP Holder[, Equity ASAP Holder, ETP Firm,] 
nor any participant therein shall effect [on] through the facilities 
of the Corporation purchases or sales for any account in which such 
ETP Holder[, Equity ASAP Holder, ETP Firm] or participant therein is 
directly or indirectly interested, which purchases or sales are 
excessive in view of the financial resources of such ETP Holder[, 
Equity ASAP Holder, ETP Firm] or participant therein or in view of 
the market for such security.

Commentary

    .01  An ETP Holder[, Equity ASAP Holder or ETP Firm] who issues 
a commitment to trade from the Corporation through ITS or any other 
Application of the System shall, as a consequence thereof, be deemed 
to be initiating a purchase or a sale of a security [on] through the 
facilities of the Corporation as referred to in this Rule.

Taking or Supplying Securities to Fill Customer's Order

    Rule [6.10] 6.9(a). No ETP Holder[, Equity ASAP Holder or ETP 
Firm] who has accepted for execution, personally or through the ETP 
[Firm or Equity ASAP] Holder or any participant therein, an order 
for the purchase of securities shall fill such order by selling such 
securities for any account in which the ETP Holder[, Equity ASAP 
Holder, ETP Firm] or any participant therein has a direct or 
indirect interest, or having so accepted an order for the sale of 
securities, shall fill such order by buying such securities for such 
an account, except as follows:
    (1) An ETP Holder[, Equity ASAP Holder or ETP Firm] who neglects 
to execute an order may be compelled to take for or supply from such 
ETP [Holder, Equity ASAP Holder or ETP Firm's] Holder's account [or] 
the securities named in the order;
    (2) An ETP Holder[, Equity ASAP Holder or ETP Firm,] acting for 
another ETP Holder, [Equity ASAP Holder or ETP Firm,] may take or 
supply the securities named in the order provided the price is 
justified by the condition of the market and provided that the ETP 
Holder[, Equity ASAP Holder or ETP Firm] who gave the order shall 
directly, or through a broker authorized to act for him or her, 
after prompt notification, accept the trade;
    (3) An ETP Holder, [Equity ASAP Holder or ETP Firm,] acting as a 
broker, is permitted to report to his or her principals a 
transaction as made with himself or herself when he or she has 
offsetting orders from two principals to buy and to sell and not to 
give up;
    (4) A [specialist] Market Maker in accordance with his or her 
duty to provide an orderly market in the securities in which he or 
she is registered may purchase or sell for principal account, such 
securities named in his or her firm's customer's order and record 
the transaction [on] through the facilities of the Corporation 
provided that:
    (i) the price is consistent with the market;
    (ii) full disclosure to his or her customer is made on the 
confirmation of the transaction in a manner that defines the 
interest of the ETP Holder[, Equity ASAP Holder or ETP Firm].
    (5) An ETP Holder[, Equity ASAP Holder or ETP Firm] may purchase 
or sell for principal account the securities named in his customer's 
order, and record the transaction [on] through the facilities of the 
Corporation provided that:
    (i) the price is consistent with the market;
    (ii) full disclosure of the interest of the ETP Holder[, Equity 
ASAP Holder or ETP Firm] is made to his customer on the confirmation 
of the transaction[,].

ETP Holders Holding Options

    Rule [6.11] 6.10(a). No ETP Holder [or ETP Firm while on the 
Floor] shall initiate the purchase or sale [on] through the 
facilities of the Corporation for his or her own account or for any 
account in which the ETP Holder [or ETP Firm] or any participant 
therein is directly or indirectly interested, of any security 
admitted to dealings [on] through the facilities of the Corporation 
in which he or she holds or has granted any put, call, straddle or 
option, or in which he or she has

[[Page 78855]]

knowledge that the ETP [Firm] Holder or any participant therein 
holds or has granted any put, call, straddle or option, unless such 
put, call, straddle, or option is issued by the Options Clearing 
Corporation and is immediately reported to the Corporation in 
accordance with such procedures as may be prescribed by the 
Corporation.

Commentary

    .01  An ETP Holder [or ETP Firm] who issues a commitment to 
trade from the facilities of the Corporation through ITS or any 
other Application of the System shall, as a consequence thereof, be 
deemed to be initiating a purchase or a sale or a security [on] 
through the facilities of the Corporation as referred to in this 
Rule.
    (b) Each ETP Holder [or ETP Firm] shall report to the 
Corporation such information as may be required with respect to any 
substantial option relating to securities admitted to dealings [on] 
through the facilities of the Corporation in which such ETP Holder 
[or ETP Firm] or any participant therein is directly or indirectly 
interested or of which such ETP Holder [or ETP Firm] or any 
participant therein has knowledge by reason of transactions executed 
by or through such ETP Holder [or ETP Firm]. The Corporation may 
disapprove of the connection of any ETP Holder [or ETP Firm] or any 
participant therein with any such option which it shall determine to 
be contrary to the best interest or welfare of the Corporation or to 
be likely to create prices which will not fairly reflect market 
values.

Disclosure of Financial Arrangements

    Rule [6.12] 6.11(a). An ETP Holder[, Equity ASAP Holder, or ETP 
Firm] who enters into a financial arrangement with any other person 
or entity shall disclose to the Corporation the identity of such 
person or entity and the terms of the arrangement. For the purposes 
of this rule, a financial arrangement is defined as:
    (1) the direct financing of an ETP Holder's[, ETP Firm's or 
Equity ASAP Holder's] dealings upon the Corporation; or
    (2)-(3)--No change.
    (b) ETP Holders[, Equity ASAP Holders and ETP Firms] with 
financial arrangements must submit to the Corporation notification 
of the initiation, modification or termination of such financial 
arrangements in a form, time and manner approved by the Corporation 
within ten (10) business days of the effective date of such 
arrangements or within such shorter period of time as the 
Corporation may require. Failure to disclose the terms of such 
financial arrangements to the Corporation may result in disciplinary 
action.

Joint Accounts

    Rule [6.13] 6.12(a). No ETP Holder [or ETP firm while on the 
Floor,] shall, without the prior approval of the Corporation, 
initiate the purchase or sale [on] through the facilities of the 
Corporation of any security admitted to dealings [on] through the 
facilities of the Corporation for any account in which the ETP 
Holder[, ETP Firm] or any participant therein is directly or 
indirectly interested with any person other than such ETP [Firm] 
Holder or participant therein.
    The provisions of this rule shall not apply to any purchase or 
sale (1) by any ETP Holder [or ETP Firm] for any joint account 
maintained solely for effecting bona fide domestic or foreign 
arbitrage transactions or (2) by a [specialist] Market Maker for any 
joint account in which he or she is expressly permitted to have an 
interest or participation by this Rule.

Commentary

    .01  An ETP Holder [or ETP Firm] who issues a commitment to 
trade [on] through the facilities of the Corporation through ITS or 
any other Application of the System shall, as a consequence thereof, 
be deemed to be initiating a purchase or a sale of a security [on] 
through the facilities of the Corporation as referred to in this 
Rule.
    (b) Reporting. No ETP Holder[, Equity ASAP Holder or ETP Firm,] 
nor any participant therein shall directly or indirectly hold any 
interest or participation in any substantial joint account for 
buying or selling any security [on] through the facilities of the 
Corporation, unless such joint account is reported to and not 
disapproved by the Corporation. Such reports, in form prescribed by 
the Corporation, shall be filed with the Corporation before any 
transaction is completed [on] through the facilities of the 
Corporation for such joint account.
    The Corporation shall require weekly reports, in a form 
prescribed by the Corporation, to be filed with it with respect to 
every substantial joint account for buying or selling any specific 
security on the Corporation and with respect to every joint account 
which actively trades in any security on the Corporation in which 
any ETP Holder[, Equity ASAP Holder, or ETP Firm] or participant 
therein holds any interest or participation or of which such ETP 
Holder[, Equity ASAP Holder or ETP Firm] or participant therein has 
knowledge by reason of transactions executed by or through such ETP 
Holder[, Equity ASAP Holder, ETP Firm] or participant therein; 
provided, however, that this paragraph shall not apply to joint 
accounts specifically permitted by this Rule.
    In the event the requirements hereof should be applicable to a 
security also dealt in on another national securities exchange 
having requirements substantially equivalent hereto and an ETP 
Holder[, Equity ASAP Holder or ETP Firm] is a member or member firm 
of such other exchange and complies with such requirements of such 
other exchange, then such ETP Holder[, Equity ASAP Holder or ETP 
Firm] need not comply with the reporting provisions hereof.

Disciplinary Action By Other Organizations

    Rule [6.14] 6.13. Every ETP Holder[, Equity ASAP Holder or ETP 
Firm] shall promptly notify the Corporation in writing of any 
disciplinary action, including the basis therefore, taken by any 
national securities exchange or association, clearing corporation, 
commodity futures market or government regulatory body against the 
ETP Holder[, Equity ASAP Holder or ETP Firm] or its associated 
persons, and shall similarly notify the Corporation of any 
disciplinary action taken by the ETP Holder[, Equity ASAP Holder or 
ETP Firm] itself against any of its associated persons involving 
suspension, termination, the withholding of commissions or 
imposition of fines in excess of $2,500.00, or any other significant 
limitation on activities.

Officers and Employees Restricted

    Rule [6.15] 6.14(a)--No change.
    (b) No salaried officer or employee of the Corporation or 
salaried officer or employee of any corporation in which the 
Corporation owns the majority of the corporate stock may purchase or 
sell for his own account or for the account of others any option 
contract which entitles the purchaser to purchase or sell any 
security described in paragraph (a) of Rule [6.15] 6.14.

Miscellaneous Prohibitions

    Rule [6.16] 6.15. No ETP Holder[, Equity ASAP Holder, ETP Firm] 
or any participant therein shall:
    (a)--No change.
    [(b)--Deleted.]
    [(c)] (b)--No change.
    [Rule 6.17--Deleted.]

Trading Ahead of Customer Limit Orders

    Rule 6.16(a) No ETP Holder may accept and hold an unexecuted 
limit order from its customer (whether its own customer or a 
customer of another ETP Holder) and continue to trade on the 
Corporation the subject security for its own account at prices that 
would satisfy the customer's limit order, without executing that 
limit order; provided, however, that an ETP Holder may negotiate 
specific terms and conditions applicable to the acceptance of limit 
orders only with respect to limit orders that are:
    (1) for institutional customer accounts, where such account is 
defined as the account of:
    (A) a bank, savings and loan association, insurance company, or 
registered investment company;
    (B) an investment adviser registered either with the Securities 
and Exchange Commission under Section 203 of the Investment Advisers 
Act of 1940 or with a state securities commission (or agency or 
office performing like functions); or
    (C) any other entity (whether a natural person, corporation, 
partnership, trust or otherwise) with total assets of at least 450 
million; or
    (2) 10,000 shares or more, unless such orders are less than 
$100,000 in value.
    (b) Paragraph (a) of this Rule shall not apply to a customer 
limit order if the limit order is marketable at the time it is 
received by the ETP Holder; provided, however, if the limit order 
was marketable when received and then becomes non-marketable, once 
the limit order becomes non-marketable, it becomes subject to the 
prohibitions of paragraph (a) of this Rule.
    (c) Nothing in this Rule requires ETP Holders to accept limit 
orders from customers.
    (d) For the purposes of this Rule, an ETP Holder that controls 
or is controlled by another ETP Holder shall be considered a single 
entity, absent appropriate information barriers, so that if a 
customer's limit order is accepted by one affiliate and forwarded to 
another affiliate for execution, the firms are considered a single 
entity.

[[Page 78856]]

Rule 7

Equities Trading

Section 1. [Definitions and] General Provisions

    [Rule 7.1--Deleted.]

Hours of Business

    Rule 7.1 [7.2]. Unless otherwise ruled by the Board of 
Directors, the Corporation shall be open for the transaction of 
business daily except on Saturdays and Sundays. The hours at which 
trading sessions shall open and close shall be established by the 
Board.
    Dealings upon the Corporation shall be limited to the hours 
during which the Corporation is open for the transaction of 
business. No ETP Holder[, Equity ASAP Holder or ETP Firm] shall make 
any bid, offer or transaction [on] through the facilities of the 
Corporation, or issue a commitment to trade through ITS [on] through 
the facilities of the Corporation before or after those hours, 
except that a Market Maker [specialist] may issue and receive pre-
opening notifications and pre-opening responses, pursuant to the 
provisions of the Plan relating to the Pre-Opening Application of 
the Systems, before the official opening of the Corporation and 
loans of securities may be made after those hours.

[Commentary:]

    [.01--Deleted.]

Holidays

    Rule 7.2[7.3].--No change.
    [Rule 7.4-7.5--Deleted.]

Commissions

    Rule 7.3[7.6] (a). Fixed Rates. Nothing contained in the Rules 
[rules] of the Corporation or its practices shall be construed to 
require or authorize its ETP Holders[, Equity ASAP Holders, ETP 
Firms,] or any associated person, to agree or arrange, directly or 
indirectly, for the charging of fixed rates of commission for 
transactions effected on, or effected by the use of, the facilities 
of the Corporation.
    (b) Acting as Broker. In all transactions in which an ETP 
Holder[, Equity ASAP Holder or ETP Firm] acts solely as a broker, 
the bills and confirmations rendered must so indicate, and all 
commissions charged, if any, shall be appropriately identified.
    (c) Acting as Principal. In all transactions in which an ETP 
Holder[, Equity ASAP Holder or ETP Firm] acts as principal or in 
which the ETP Holder[, Equity ASAP Holder ETP Firm] or any of its 
[nominees,] Allied Persons, partners, approved persons or 
stockholder associates have an interest as principal in any manner, 
the bills and confirmations rendered must so indicate.

Ex-Dividend or Ex-Right Dates

    Rule 7.4[7.7]. Transactions in stocks, traded ``regular'' shall 
be ``ex-dividend'' or ``ex-rights'' as the case may be, on the 
second business day preceding the record date fixed by the company 
or the date of the closing of transfer books, except when the Board 
of Directors rules otherwise. Should such record date or such 
closing of transfer books occur upon a day other than a business day 
this Rule [rule] shall apply for the third preceding business day.

[Section 2. Admission to and Conduct on the Trading Floor]

    [Rule 7.8--Deleted.]

[Section 3. Units of Trading, Bids, Offers and Quotations]

Trading Units

    Rule 7.5[7.9]. The unit of trading in stocks shall be 1 [100] 
share[s] and the unit of trading in bonds shall be $1,000 in par 
value thereof unless otherwise designated by the Corporation. For 
stocks, 100 shares shall constitute a ``round lot,'' any amount less 
than 100 shares shall constitute an ``odd lot,'' and any amount 
greater than 100 shares that is not a multiple of a round lot shall 
constitute a ``mixed lot.'' For bonds, a [A] designated unit of 
trading shall constitute a ``round lot[.]'' and any [Any] lesser 
amount shall constitute an ``odd lot.''

Trading Differentials

    Rule 7.6[7.10](a). The Corporation shall determine the trading 
differentials for equity securities traded on the Corporation.

Commentary

    .01--No change.
    .02  Notwithstanding Commentary .01, [an ETP Holder may trade on 
the Floor at increments of 1/32 or 1/64] the Corporation may allow 
trading at smaller increments in order to match bids and offers 
displayed by other markets for the purpose of preventing Intermarket 
Trading System trade-throughs.
    .03--No change.
    .04  The minimum price variation for orders generated from 
Profiles designated for the midpoint pricing service by the OptiMark 
System will be the variation of the midpoint price between the 
highest published bid and the lowest published offer displayed on 
the Consolidated Quotation System. Any executions resulting from 
processing Profiles designated for midpoint pricing will be priced 
and reported in increments as small as 1/64th or, upon conversion to 
decimals, one-half of the minimum price variation.
    .05  The minimum price variation (``MPV'') for equity securities 
traded on the Archipelago Exchange shall be 1/64 of $1.00 for those 
securities that are quoted in fractions and $0.01 for those equity 
securities that are quoted in decimals; provided, however, at all 
times the MPV shall be consistent with the Decimalization 
Implementation Plan.
    .06  The minimum price improvement increment (``MPII'') on the 
Archipelago Exchange shall be equal to $0.01 or 10% of the spread, 
whichever is more.
    (b) Bonds. Bids or offers in bonds shall not be made at a lesser 
variation than 1/8 of 1% of the principal amount, except that the 
Corporation may fix a lesser variation in specific issues.

Transmission of Bids or Offers

    Rule 7.7[7.11](a). The names of ETP Holders [or ETP Firms] 
bidding for or offering securities [on] 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 [on] 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.
    (b) Except as otherwise permitted by these Rules [stated in Rule 
7.12(b)], no ETP Holder [or ETP Firm] shall transmit [on] through 
the facilities of the Corporation any information regarding a bid, 
offer or other indication of an order to a non-holder of an ETP 
until such bid, offer or other indication of an order has been 
disclosed and permission to transmit such information has been 
obtained from the originating ETP Holder [or ETP Firm].
    [Rule 7.12--Deleted.]

Bid or Offer Deemed Regular Way

    Rule 7.8 [7.13]--No change.
    [Rule 7.14--Deleted.]

Execution Price Binding

    Rule 7.9 [7.15]. Notwithstanding Rules 7.10 and 7.11, the [The] 
price at which an order is executed shall be binding notwithstanding 
the fact that an erroneous report in respect thereto may have been 
rendered. [A report shall not be binding if an order was not 
actually executed but was in error reported to have been executed; 
however, an order which was executed, but in error reported as not 
executed, shall be binding. No ETP Holder, Equity ASAP Holder or ETP 
Firm shall assume or pay any part of the difference between the 
price at which an order is executed and the price at which it may 
have been erroneously reported.]

Cancellation of Revisions in Transactions

    Rule 7.10 7.16. A sale made in demonstrable error and canceled 
by both parties may be removed, if the parties do not object, 
subject to the approval of the Corporation [is subject to removal, 
if there is no objection.]

[Commentary:]

    [.01  Specialists and floor brokers are responsible for the 
satisfactory execution of orders accepted by them and] Disagreements 
[disagreements] with respect thereto shall be referred to the 
appropriate trading authority of the Corporation.
    A dispute arising on bids, offers or sales if not settled by 
agreements between the parties interested, shall be settled by the 
Corporation.

Clearly Erroneous Policy

    Rule 7.11(a). Definition. For the purposes of this Rule, the 
terms of a transaction executed on the Corporation are ``clearly 
erroneous'' when there is an obvious error in any term, such as 
price, number of shares or other unit of trading, or identification 
of the security.
    (b) Request for Corporation Review. An ETP Holder that receives 
an execution on an order that was submitted erroneously to the 
Corporation for its own or customer account may request that the 
Corporation review the transaction under this Rule. Such request for 
review shall be made via telephone and in writing via facsimile or 
e-mail. The telephone request should be submitted immediately and 
the written request should be submitted within fifteen (15) minutes 
of the time the trade in question was executed. Once the request has 
been received, an officer of the Corporation designated by the 
President shall

[[Page 78857]]

review the transaction under dispute and determine whether it is 
clearly erroneous, with a view toward maintaining a fair and orderly 
market and the protection of investors and the public interest. Each 
party to the transaction shall provide, on a timely basis, any 
supporting written information as may be reasonably requested by the 
designated officer to aid resolution of the matter.
    (c) Review Procedures. Unless both parties (or party, in the 
case of a cross) to the disputed transaction agree to withdraw the 
initial written request for review, the transaction under dispute 
shall be reviewed, and a determination shall be rendered by the 
designated Corporation officer. If the officer determines that the 
transaction is not clearly erroneous, the officer shall decline to 
take any action in connection with the completed trade. In the event 
that the officer determines that the transaction in dispute is 
clearly erroneous, the officer shall declare the transaction null 
and void or modify one or more of the terms of the transaction to 
achieve an equitable rectification of the error that would place the 
parties in the same position, or as close as possible to the same 
position that they would have been in, had the error not occurred. 
The officer shall promptly notify the parties of the determination 
reached and shall issue a written resolution of the matter. The ETP 
Holder aggrieved by the officer's determination may appeal such 
determination in accordance with the provisions of Rule 10.13.
    (d) System Disruption and Malfunctions. In the event of any 
disruption or a malfunction in the use or operation of any 
electronic communications and trading facilities of the Corporation, 
the Chief Executive Officer or the President may declare a 
transaction arising out of the use or operation of such facilities 
during the period of such disruption or malfunction null and void or 
modify the terms of these transactions. Absent extraordinary 
circumstances, any such action of the Chief Executive Officer or 
President pursuant to this subsection (d) shall be taken within 
thirty (30) minutes of detection of the erroneous transaction. Each 
ETP Holder involved in the transaction shall be notified as soon as 
practicable, and the ETP Holder aggrieved by the action may appeal 
such action in accordance with the provisions of Rule 10.13.
    [Rules 7.17-7.39--Deleted.]
    [Rules 7.41-7.44--Deleted.]
    [Rule 7.46--Deleted.]

Trading Halts Due to Extraordinary Market Volatility

    Rule 7.12 [7.47] (a)-(c)--No change.

Commentary

    .01-.02--No change.
    .03  The reopening of trading following a trading halt under 
this Rule will be conducted pursuant to procedures adopted by the 
Corporation and communicated by notice to its ETP Holders[, Equity 
ASAP Holders, and ETP Firms].
    .04  Nothing in this Rule should be construed to limit the 
ability of the Corporation to otherwise halt or suspend the trading 
in any stock or stocks traded on the Corporation pursuant to any 
other Corporation Rule [rule] or policy.

Trading Suspensions

    Rule 7.13. Except as otherwise stated in Rule 5.5, the Chair of 
the Board or the President, or the officer designee of the Chair or 
the President, shall have the power to suspend trading in any and 
all securities traded on the Corporation whenever in his or her 
opinion such suspension would be in the public interest. No such 
action shall continue longer than a period of two days, or as soon 
thereafter as a quorum of Directors can be assembled, unless the 
Board approves the continuation of such suspension.

Clearance and Settlement

    Rule 7.14(a). Each ETP Holder shall either:
    (1) Be a clearing firm;
    (2) clear transactions on the Corporation through a clearing 
firm; or
    (3) clear transactions through an entity duly authorized by the 
Corporation.
    (b) An ETP Holder must give up the name of the clearing firm 
through which each transaction on the Corporation will be cleared. 
If there is a subsequent change in identity of the clearing firm 
through which the transaction on the Corporation will be cleared, 
the ETP Holder shall report such change to the Corporation at least 
five (5) business days in advance.
    (c) Each clearing firm must be admitted to the Corporation as an 
ETP Holder by meeting the qualification requirements set forth above 
in Rule 2; provided, however, if the clearing firm has become an ETP 
Holder for the sole purpose of acting as a clearing firm on the 
Corporation, such clearing firm need not pay the regular ETP Holder 
fee. The clearing firm shall be responsible for the clearance of the 
transactions effected by each ETP Holder which gives up such 
clearing firm's name pursuant to a letter of authorization, letter 
of guarantee or other authorization given by such clearing firm to 
such ETP Holder, which authorization shall be submitted to the 
Corporation.
    (d) Notwithstanding any other provisions contained in the Rule 
to the contrary, the Board may extend or postpone the time of the 
delivery of a transaction on the Corporation whenever in its 
opinion, such action is called for by the public interest, by just 
and equitable principles of trade or by the need to meet unusual 
conditions. In such case, delivery shall be effected at such time, 
place and manner as directed by the Board of Directors.

Stock Option Transactions

    Rule 7.15[7.45](a). No Market Maker [specialist] nor his or her 
firm, nor any participant therein, shall, directly or indirectly, be 
interested in a pool dealing or trading in any security in which he 
or she is registered as a Market Maker [specialist].
    (b) No Market Maker [specialist], nor his or her firm, nor any 
participant therein shall acquire, hold or grant, directly or 
indirectly, any interest in any option to buy or to sell or to 
receive or to deliver shares of any security in which he or she is 
registered as a Market Maker [specialist], unless such option is 
issued by the Options Clearing Corporation and is immediately 
reported to the Corporation in accordance with such procedures as 
may be prescribed by the Corporation.

Short Sales

    Rule 7.16 [7.40](a) (1) Except as provided in subsection (d) 
hereof, no ETP Holder[, Equity ASAP Holder, or ETP Firm] shall for 
his, her or its own account or for the account of any other person, 
effect [on] through the facilities of the Corporation a short sale 
of any security for which trades are reported pursuant to a 
consolidated transaction reporting system operated in accordance 
with a plan declared effective under the Securities Exchange Act 
Rule 11Aa3-1 [17a-15] (a ``consolidated system'') (A) below the 
price at which the last sale thereof, regular way, was reported in 
such consolidated system, or (B) at such price unless such price is 
above the next preceding different price at which a sale of such 
security, regular way, was reported in such consolidated system.
    (2) Except as provided in subsection (d) hereof, no ETP Holder[, 
Equity ASAP Holder, or ETP Firm] shall for his, her or its own 
account, or for the account of any other person, effect [on] through 
the facilities of the Corporation a short sale of any security not 
covered by paragraph (1) of this subsection (A) below the price at 
which the last sale of such security, regular way, was effected [on] 
through the facilities of the Corporation, or (B) at such price 
unless such price is above the next preceding different price at 
which a sale of such security, regular way, was effected [on] 
through the facilities of the Corporation.
    (3) Notwithstanding paragraph (1) of this subsection (a), the 
Board of Directors of the Corporation, in its discretion, may 
determine that it is necessary or appropriate in the public interest 
or for the protection of investors that short sales in any security 
for which trades are reported in a consolidated system be subject to 
the Rule [rule] set forth in paragraph (2) hereof. Following any 
such designation of any such security by the Board of Directors, 
compliance with the terms of paragraph (2) shall constitute 
compliance with this subsection (a).
    (b) Order Identification. No ETP Holder[, Equity ASAP Holder, or 
ETP Firm] of the Corporation shall, by the use of any facility of 
the Corporation, execute any sell order unless such order is 
indicated as either ``long'' or ``short''.
    (c) Marking Orders. No ETP Holder[, Equity ASAP Holder, or ETP 
Firm] of the Corporation shall mark a sell order ``long'' unless (1) 
the security to be delivered after sale is carried in the account 
for which the sale is to be effected, or (2) such ETP Holder[, 
Equity ASAP Holder, or ETP Firm] is informed that the seller owns 
the security ordered to be sold, and as soon as is possible without 
undue inconvenience or expense, will deliver the security owned to 
the account for which the sale is to be effected.
    (d) Exceptions. The provisions of subsection (a) hereof shall 
not apply to:
    (1) Any sale by any person, for an account in which he or she 
has an interest, if such person owns the security sold and intends 
to deliver such security as soon as possible without undue 
inconvenience or expense;

[[Page 78858]]

    (2) Any ETP Holder[, Equity ASAP Holder, or ETP Firm] in respect 
of a sale, for an account in which it has no interest, pursuant to 
an order to sell which is marked ``long'';
    (3) Any sale of a security for which trades are reported in a 
consolidated system (except a sale to a stabilizing bid complying 
with Securities Exchange Act Rule 104 [10b-7]) by a registered 
market maker [specialist] in such security for its own account (i) 
effected at a price equal to or above the last sale, regular way, 
reported for such security pursuant to an effective transaction 
reporting plan; or (ii) effected at a price equal to the most recent 
offer communicated for the security by such registered specialist 
pursuant to the Securities Exchange Act Rule 11Ac1-1 if such offer, 
when communicated, was equal to or above the last sale, regular way, 
reported for such security pursuant to an effective transaction 
reporting plan. This exemption shall not be available for a short 
sale of any security not covered by paragraph (a)(1) of this Rule 
7.16 [7.40];
    (4) Any sale by an odd lot dealer registered with the 
Corporation for such security [a specialist] to offset odd lot 
orders of customers;
    (5) Any sale by an odd lot dealer registered with the 
Corporation for such security [a specialist] to liquidate a long 
position which is less than a round lot, provided such sale does not 
change the position of such Market Maker [specialist] by more than 
the unit of trading;
    (6) Any sale of a security for which trades are not reported in 
a consolidated system (except a sale to a stabilizing bid complying 
with Securities Exchange Act Rule 104 [10b-7]) effected with the 
approval of the Corporation which is necessary to equalize the price 
of such security on the Corporation with the current price of such 
security on another national securities exchange which is the 
principal exchange market for such security;
    (7) Any sale of a security for a special arbitrage account by a 
person who then owns another security by virtue of which he or she 
is, or presently will be, entitled to acquire an equivalent number 
of securities of the same class as the securities sold, provided 
such sale, or the purchase which such sale offsets, is effected for 
the bona fide purpose of profiting from a current difference between 
the price of the security sold and the security owned and that such 
right of acquisition was originally attached to or represented by 
another security or was issued to all the holders of any class of 
securities of the issuer;
    (8) Any sales of a security on the Corporation effected for a 
special international arbitrage account for the bona fide purpose of 
profiting from a current difference between the price of such 
security on a securities market not within or subject to the 
jurisdiction of the United States and on the Corporation, provided 
the seller at the time of such sale knows or, by virtue of 
information currently received, has reasonable grounds to believe 
that an offer enabling him or her to cover such sale is then 
available to him in such foreign securities market and intends to 
accept such offer immediately;
    [(9) Any sale of a security effected in accordance with a 
special offering plan declared effective by the Securities and 
Exchange Commission pursuant to paragraph (d) of Securities Exchange 
Act Rule 10b-2; or]
    (9)[(10)] Any sale by an underwriter, or any member of a 
syndicate or group participating in the distribution of a security, 
in connection with an over-allotment of securities, or any lay-off 
sale by such a person in connection with a distribution of 
securities through rights [pursuant to Securities and Exchange Act 
Rule 10b-8] or a standby underwriting commitment.
    (11) Any sale of a security for which trades are reported in a 
consolidated system (except a sale to a stabilizing bid complying 
with the Securities and Exchange Act Rule 104 [10b-7]) by any broker 
or dealer, for his or her own account or for the account of any 
other person, effected at a price equal to the most recent offer 
communicated by such broker or dealer pursuant to the Securities and 
Exchange Act Rule 11Ac1-1 in an amount less than or equal to the 
quotation size associated with such offer, if such offer, when 
communicated, was (A) above the price at which the last sale, 
regular way, for such security was reported pursuant to an effective 
transaction reporting plan; or (B) at such last sale price, if such 
last sale price is above the next preceding different price at which 
a sale of such security, regular way, was reported pursuant to an 
effective transaction reporting plan. This exemption shall not be 
available for a short sale of any security not covered by paragraph 
(a)(1) of this Rule 7.16 7.40.
    For the purpose of paragraph (8) of this subsection (d) a 
depository receipt for a security shall be deemed to be the same 
security as the security represented by such receipt.
    (e) Short Sales After ``Ex'' Date. In determining the price at 
which a short sale may be effected after a security goes ex-
dividend, ex-rights or ex-any other distribution, all sales prices 
prior to ``ex'' date may be reduced by the value of such 
distribution.
    (f) Covering Short Sales. No ETP Holder[, Equity ASAP Holder, or 
ETP Firm] of the Corporation shall lend, or arrange for the loan of 
any security for delivery to the broker for the purchaser after 
sale, or shall fail to deliver a security on the date delivery is 
due, if such ETP Holder[, Equity ASAP Holder, or ETP Firm] knows or 
has reasonable grounds to believe that the sale was effected, or 
will be effected, pursuant to an order marked ``long'' unless such 
ETP Holder[, Equity ASAP Holder, or ETP Firm] knows, or has been 
informed by the seller (i) that the security sold has been forwarded 
to the account for which the sale was effected, or (ii) that the 
seller owns the security sold, that it is then impracticable to 
deliver such security to such account and that delivery will be made 
as soon as is possible without undue inconvenience or expense. The 
provisions of this subsection (f) shall not apply to:
    (1) The lending of a security by an [a] ETP Holder[, Equity ASAP 
Holder, or ETP Firm] through the medium of a loan to another ETP 
Holder[, Equity ASAP Holder, or ETP Firm]; or
    (2) Any loan, or arrangement for the loan, of any security, or 
any failure to deliver any security if, prior to such loan, 
arrangement, or failure to deliver, the Corporation finds (A) that 
such sale resulted from a mistake made in good faith; (B) either 
that the condition of the market at the time the mistake was 
discovered was such that undue hardship would result from covering 
the transaction by a ``purchase for cash'' or that the mistake was 
made by the seller's broker and the sale was at a price permissible 
for a short sale under Rule 7.16 [7.40]; and (C) that due diligence 
was used to ascertain that the circumstances specified in clause (1) 
of Rule 7.16(c) [7.40(c)] existed or to obtain the information 
specified in clause (2) thereof.

Firm Orders and Quotes

    Rule 7.17(a) Orders at Stated Prices and Sizes. No ETP Holder 
shall submit to the Corporation an order (including Q Orders) to buy 
from or sell to any person any security at a stated price and/or 
size unless such ETP Holder is prepared to, and, upon submission of 
an appropriate contra-side order, does, purchase or sell, as the 
case may be, at such price and/or size and under such conditions as 
are stated at the time of submission of such order to buy or sell.
    (b) Firm Quotes. All bids made and all offers made shall be in 
accordance with the provisions of Rule 11Ac1-1 under the Securities 
Exchange Act of 1934, governing the dissemination of quotations for 
reported securities.
    [Rule 7.18. Reserved.
    [Rule 7.19. Reserved.
    [Rules 7.48-7.49--Deleted.]
    [Rule 7.52--Deleted.]
    [Rules 7.54-7.65--Deleted.]

Section 2. Market Makers

Registration of Market Makers

    Rule 7.20(a). No ETP Holder shall act as a Market Maker in any 
security unless such ETP Holder is registered as a Market Maker in 
such security by the Corporation pursuant to this Rule and the 
Corporation has not suspended or canceled such registration. 
Registered Market Makers are designated as dealers on the 
Corporation for all purposes under the Securities Exchange Act of 
1934 and the rules and regulations thereunder.
    (b) As applicant for registration as a Market Maker shall file 
an application in writing on such form as the Corporation may 
prescribe. Applications shall be reviewed by the Corporation, which 
shall consider such factors including, but no limited to capital 
operations, personnel, technical resources, and disciplinary 
history.
    (c) An applicant's registration as a Market Maker Shall become 
effective upon receipt by the ETP Holder of notice of an approval of 
registration by the Corporation. In the event that an application is 
disapproved by the Corporation, the applicant shall have an 
opportunity to be heard upon the specific grounds for the denial, in 
accordance with the provisions of Rule 10.13.
    (d) The registration of a Market Maker may be suspended or 
terminated by the Corporation upon a determination of any 
substantial or continued failure by such Market Maker to engage in 
dealings in accordance with Rule 7.23.

[[Page 78859]]

    (e) Any registered Market Maker may withdraw its registration by 
giving written notice to the Corporation. Such withdrawal of 
registration shall become effective on the tenth business day 
following the Corporation's receipt of the notice. A Market Maker 
who fails to give a ten-day written notice of withdrawal, the ETP 
Holder shall not be permitted to re-register as a Market Maker for a 
period of six months.

Obligations of Market Maker Authorized Traders

    Rule 7.21(a). General. MMATs are permitted to enter orders only 
for the account of the Market Maker for which they are registered.
    (b) Registration of Market Maker Authorized Traders. The 
Corporation may, upon receiving an application in writing from a 
Market Maker on a form prescribed by the Corporation, register a 
person as a MMAT.
    (1) MMAT's may be officers, partners, employees or other 
associated persons of ETP Holders that are registered with the 
Corporation as Market Maker.
    (2) To be eligible for registration as a MMAT, a person must be 
successfully complete the General Securities Representative 
Examination (Series 7) and complete a training and certification 
program sponsored by the Corporation; provided, however, the 
requirement to complete the Series 7 Examination may be waived by 
the Corporation if the applicant MMAT has served as a dealer-
specialist or market maker on a registered national securities 
exchange or association for at least two consecutive years within 
three years of the date of application.
    (3) The Corporation may require a Market Maker to provide 
additional information the Corporation considers necessary to 
establish whether registration should be granted.
    (4) The Corporation may grant a person conditional registration 
as a MMAT subject to any conditions it considers appropriate in the 
interests of maintaining a fair and orderly market.
    (5) A Market Maker must ensure that a MMAT is properly qualified 
to perform market making activities, including but not limited to 
ensuring the MMAT has met the requirements set forth in paragraph 
(b)(2) of this Rule.
    (c) Suspension or Withdrawal of Registration.
    (1) The Corporation may suspend or withdraw the registration 
previously given to a person to be a MMAT if the Corporation 
determines that:
    (A) the person has caused the Market Maker to fail to comply 
with the securities laws, rules and regulations or the Bylaws, Rules 
and procedures of the Corporation;
    (B) the person is not properly performing the responsibilities 
of a MMAT.
    (C) the person has failed to meet the conditions set forth under 
paragraphs (b) above; or
    (D) the Corporation believes it is in the interest of 
maintaining fair and orderly markets.
    (2) If the Corporation suspends the registration of a person as 
a MMAT, the Market Maker must not allow the person to submit orders 
into the Archipelago Exchange.
    (3) The registration of a MMAT will be withdrawn upon the 
written request of the ETP Holder for which the MMAT is registered. 
Such written request shall be submitted on the form prescribed by 
the Corporation.

Registration of Market Makers in a Security

    Rule 7.22(a). A Market Maker may become registered in a newly 
authorized security or in a security already admitted on the 
Corporation by filing a security registration form with the 
Corporation. Registration in the security shall become effective on 
the first business day following the Corporation's approval of the 
registration. In considering the approval of the registration of the 
Market Maker in a security, the Corporation may consider;
    (1) the financial resources available to the Market maker;
    (2) the Market Maker's experience, expertise and past 
performance in making markets, including the Market Maker's 
performance in other securities;
    (3) the Market Maker's operational capability;
    (4) the maintenance and enhancement of competition among Market 
Makers in each security in which they are registered;
    (5) the existence of satisfactory arrangements for clearing the 
Market Maker's transactions;
    (6) the character of the market for the security, e.g., price, 
volatility, and relative liquidity.
    (b) A Market Maker's registration in a security may be 
terminated by the Corporation if the Market Maker fails to enter 
quotations in the security within five (5) business days after the 
Market Maker's registration in the security becomes effective.
    (c) Voluntary Termination of Security Registration. A Market 
Maker may voluntarily terminate its registration in a security by 
providing the Corporation with a one-day written notice of such 
termination. A Market Maker that fails to give advanced written 
notice of termination to the Corporation may be subject to formal 
disciplinary action pursuant to Rule 10.
    (d) The Corporation may suspend or terminate any registration of 
a Market Maker in a security or securities under this Rule whenever, 
in the Corporation's judgment, the interests of a fair and orderly 
market are best served by such action.
    (e) An ETP Holder may seek review of any action taken by the 
Corporation pursuant to this Rule, including the denial of the 
application for, or the termination or suspension of, a Market 
Maker's registration in a security or securities, in accordance with 
Rule 10.13.

Obligations of Market Makers

    Rule 7.23(a). General. ETP Holders who are registered as Market 
Makers in one or more securities traded on the Corporation must 
engage in a course of dealings for their own account to assist in 
the maintenance, insofar as reasonably practicable, of fair and 
orderly markets on the Corporation in accordance with this Rule. The 
responsibilities and duties of a Market Maker specifically include, 
but are not limited to, the following:
    (1) Maintain continuous, two-sided Q Orders in those securities 
in which the Market Maker is registered to trade;
    (2) Maintain adequate minimum capital in accordance with Rule 
4.1; 
    (3) Remain in Good Standing with the Corporation;
    (4) Inform the Corporation of any material change in financial 
or operational condition or in personnel.
    (5) Clear and settle transaction through the facilities of a 
registered clearing agency. This requirement may be satisfied by 
direct participation, use of direct clearing services, or by entry 
into a correspondent clearing arrangement with another ETP Holder 
that clears trades through such agency.
    (6) Enter and maintain a Cleanup Order in each security in which 
the Market Maker is registered as such for each Market Order 
Auction. 
    (b) A Market Maker must satisfy the responsibilities and duties 
as set forth in paragraph (a) of this Rule during the Core Trading 
Hours on all days in which the Corporation is open for business.
    (c) If the Corporation finds any substantial or continued 
failure by a Market Maker to engage in a course of dealings as 
specified in paragraph (a) of this Rule, such Market Maker will be 
subject to disciplinary action or suspension or revocation of the 
registration by the Corporation in one or more of the securities in 
which the Market Maker is registered. Nothing in this Rule will 
limit any other power of the Board of Directors under the Bylaws, 
Rules, or procedures of the Corporation with respect to the 
registration of a Market Maker or in respect of any violation by a 
Market Maker of the provisions of this Rule. In accordance with Rule 
10, an ETP Holder may seek review of actions taken by the 
Corporation pursuant to this Rule.
    (d) Temporary Withdrawal. A Market Maker may apply to the 
Corporation to withdraw temporarily from its Market Maker status in 
the securities in which it is registered. The Market Maker must base 
its request on demonstrated legal or regulatory requirements that 
necessitate its temporary withdrawal, or provide the Corporation an 
opinion of counsel certifying that such legal or regulatory basis 
exists. The Corporation will act promptly on such request and, if 
the request is granted, the Corporation may temporarily reassign the 
securities to another Market Maker. 
    Rule 7.24. Reserved.

Registration of Odd Lot Dealers

    Rule 7.25(a). Eligibility. Any Market Maker may become 
registered as an Odd Lot Dealer in any security by filing an odd lot 
registration form with the Corporation. Registration as an Odd Lot 
Dealers shall become effective on the first business day following 
the Corporation's approval of the registration. In considering the 
approval of the registration of the Market Maker as an Odd Lot 
Dealer in a security, the Corporation shall consider such factors 
including, but not limited to, financial resources, capital 
operations, personnel, technical resources and disciplinary history. 
If the Corporation denies an application to become an Odd Lot

[[Page 78860]]

Dealer in a security or securities, the applicant may seek review of 
the decision in accordance with Rule 10.13.
    (b) Market Makers Registered in a Security. For each security in 
which a Market Maker is registered, the Market Maker must become an 
Odd Lot Dealer in that security.
    (c) Obligations of Odd Lot Dealers. An Odd Lot Dealer must:
    (1) Maintain an OLTO, as described in Rule 7.31(g), during each 
day in which the Corporation is open for business for each security 
in which the Odd Lot Dealer is registered as such; and 
    (2) Register and maintain registration as an Odd Lot Dealer in a 
minimum of 100 securities if the Odd Lot Dealer registers as such in 
any security for which it is not registered as a Market Maker.
    (d) Termination of Odd Lot Dealer Registration. The Corporation 
may suspend or terminate an Odd Lot Dealer's registration in a 
security or securities: 
    (1) If the Corporation determines that the Odd Lot Dealer has 
substantially or continually failed to engage in dealings in 
accordance with paragraph (c); or 
    (2) If, in the Corporation's judgment, the interest of a fair 
and orderly market are best served by such action.
    An ETP Holder may seek review of any such termination or 
suspension in accordance with Rule 10.
    (e) Voluntary Termination of Registration. An Odd Lot Dealer may 
voluntarily terminate its registration as such in a security or 
securities by providing the Corporation with a one-day written 
notice of such termination. An Odd Lot Dealer that fails to give 
advance notice of termination to the Corporation may be subject to 
formal disciplinary action pursuant to Rule 10.

Limitations on Dealings

    Rule 7.26(a) General. A Market Maker on the Corporation may 
engage in Other Business Activities, or it may be affiliated with a 
broker-dealer that engages in Other Business Activities, only if 
there is an Information Barrier (also commonly referred to as 
``Chinese Wall'') between the market making activities and the Other 
Business Activities. ``Other Business Activities'' mean:
    (1) conducting an investment banking or public securities 
business;
    (2) making markets in the options overlying the security in 
which it makes markets; or
    (3) functioning as a GAT.
    (b) Information Barrier. For the purposes of this rule, an 
Information Barrier is an organizational structure in which:
    (1) The market making functions are conducted in a physical 
location separate from the locations in which the Other Business 
Activities are conducted, in a manner that effectively impedes the 
free flow of communications between MMATs, and persons conducting 
the Other Business Activities. However, upon request and not on his/
her own initiative, a MMAT performing the function of a Market Maker 
may furnish to persons at the same firm or an affiliated firm 
(``affiliated persons''), the same sort of market information that 
the MMAT would make available in the normal course of its market 
making activity to any other person. The MMAT must provide such 
information to affiliated persons in the same manner that he/she 
would make such information available to a non-affiliated person.
    (2) There are procedures implemented to prevent the use of 
material non-public corporate or market information in the 
possession of persons on one side of the barrier from influencing 
the conduct of persons on the other side of the barrier. These 
procedures, at a minimum, must provide that:
    (A) the MMAT performing the function of a Market Maker does not 
take advantage of knowledge of pending transactions, order flow 
information, corporate information or recommendations arising from 
the Other Business Activities; and
    (B) all information pertaining to the Market Maker's positions 
and trading activities is kept confidential and not made available 
to persons on the other side of the Information Barrier.
    (3) Persons on one side of the barrier may not exercise 
influence or control over persons on the other side of the barrier, 
provided that:
    (A) the market making function and the Other Business Activities 
may be under common management as long as any general management 
oversight does not conflict with or compromise the Market Maker's 
responsibilities under the Rules of the Corporation; and
    (B) the same person or persons (the ``Supervisor'') may be 
responsible for the supervision of the market making and the GAT 
functions of the same firm or affiliated firms in order to monitor 
the overall risk exposure of the firm or affiliated firms. While the 
Supervisor may establish general trading parameters with respect to 
both market making and other proprietary trading other than on an 
order-specific basis, the Supervisor may not:
    (i) actually perform the function either of MMAT or GAT;
    (ii) provide to any person performing the function of a GAT any 
information relating to market making activity beyond the 
information that a MMAT performing the function of a Market Maker 
may provide under subparagraph (b)(1), above; nor
    (iii) provide a MMAT performing the function of Market Maker 
with specific information regarding the firm's pending transactions 
or order flow arising out of its GAT activities.
    (c) Documenting and Reporting of Information Barrier Procedures. 
An ETP Holder implementing an Information Barrier pursuant to this 
Rule shall submit to the Corporation a written statement setting 
forth:
    (1) The manner in which it intends to satisfy the conditions in 
paragraph (b) of this Rule, and the compliance and audit procedures 
it proposes to implement to ensure that the Information Barrier is 
maintained;
    (2) The names and titles of the person or persons responsible 
for maintenance and surveillance of the procedures;
    (3) A commitment to provide the Corporation with such 
information and reports as the Corporation may request relating to 
its transactions;
    (4) A commitment to take appropriate remedial action against any 
person violating this Rule or the ETP Holder's internal compliance 
and audit procedures adopted pursuant to subparagraph (c)(1) of this 
Rule, and that it recognizes that the Corporation may take 
appropriate remedial action, including (without limitation) 
reallocation of securities in which it serves as a Market Maker, in 
the event of such a violation;
    (5) Whether the ETP Holder or an affiliate intends to clear its 
proprietary trades and, if so, the procedures established to ensure 
that information with respect to such clearing activities will not 
be used to compromise the ETP Holder's Information Barrier, which 
procedures, at a minimum, must be the same as those used by the ETP 
Holder or the affiliate to clear for unaffiliated third parties; and
    (6) That it recognizes that any trading by a person while in 
possession of material, non-public information received as a result 
of the breach of the internal controls required under this Rule may 
be a violation of Rules 10b-5 and 14e-3 under the Exchange Act or on 
or more other provisions of the Exchange Act, the rules thereunder 
or the Rules of the Corporation, and that the Corporation intends to 
review carefully any such trading of which it becomes aware to 
determine whether a violation has occurred.
    (d) Approval of Information Barrier Procedures. The written 
statement required by paragraph (c) of this Rule must detail the 
internal controls that the ETP Holder will implement to satisfy each 
of the conditions stated in that Rule, and the compliance and audit 
procedures proposed to implement and ensure that the controls are 
maintained. If the Corporation determines that the organizational 
structure and the compliance and audit procedures proposed by the 
ETP Holder are acceptable under this Rule, the Corporation shall so 
inform the ETP Holder, in writing. Absent the Corporation finding an 
ETP Holder's Information Barrier procedures acceptable, a Market 
Maker may not conduct Other Business Activities.
    (e) Clearing Arrangements. Subparagraph (c)(5) permits an ETP 
Holder or an affiliate of the ETP Holder to clear the ETP Holder's 
Market Maker transactions if it establishes procedures to ensure 
that information with respect to such clearing activities will not 
be used to compromise the Information Barrier. In this regard:
    (1) The procedures must provide that any information pertaining 
to Market Maker securities positions and trading activities, and 
information derived from any clearing and margin financing 
arrangements, may be made available only to those employees (other 
than employees actually performing clearing and margin functions) 
specifically authorized under this Rule to have access to such 
information or to other employees in senior management positions who 
are involved in exercising general managerial oversight with respect 
to the market making activity.
    (2) Any margin financing arrangements must be sufficiently 
flexible so as not to limit the ability of any Market Maker to meet 
market making or other obligations under the Corporation's Rules.
    Rule 7.27. Reserved.
    Rule 7.28. Reserved.

[[Page 78861]]

Section 3. Archipelago Exchange

Access

    Rule 7.29(a). General. The Archipelago Exchange shall be 
available for entry and execution of orders by Users with authorized 
access. To obtain authorized access to the Archipelago Exchange, 
each User must enter into a User Agreement.
    (b) Sponsored Participants. A Sponsored Participant may obtain 
authorized access to the Archipelago Exchange only if such access is 
authorized in advance by one or more Sponsoring ETP Holders as 
follows:
    (1) Sponsored Participants must enter into and maintain customer 
agreements with one or more Sponsoring ETP Holders establishing 
proper relationship(s) and account(s) through which the Sponsored 
Participant may trade on the Archipelago Exchange. Such customer 
agreement(s) must incorporate the Sponsorship Provisions set forth 
in paragraph (2) below.
    (2) For a Sponsored Participant to obtain and maintain 
authorized access to the Archipelago Exchange, a Sponsored 
Participant and its Sponsoring ETP Holder must agree in writing to 
the following Sponsorship Provisions:
    (A) Sponsored Participant and its Sponsoring ETP Holder must 
have entered into and maintained a User Agreement with Archipelago 
Exchange, L.L.C. The Sponsoring ETP Holder must designate the 
Sponsored Participant by name in its User Agreement as such.
    (B) Sponsoring ETP Holder acknowledges and agrees that
    (i) All orders entered by the Sponsored Participants and any 
person acting on behalf of or in the name of such Sponsored 
Participant and any executions occurring as a result of such orders 
are binding in all respect on the Sponsoring ETP Holder and
    (ii) Sponsoring ETP Holder is responsible for any and all 
actions taken by such Sponsored Participant and any person acting on 
behalf of or in the name of such Sponsored Participant.
    (C) Sponsored ETP Holder shall comply with the PCXE Certificate 
of Incorporation, Bylaws, Rules and procedures with regard to the 
Archipelago Exchange and Sponsored Participant shall comply with 
PCXE Certificate of Incorporation, Bylaws, Rules and procedures with 
regard to the Archipelago Exchange, as if Sponsored Participant were 
an ETP Holder.
    (D) Sponsored Participant shall maintain, keep current and 
provide to the Sponsoring ETP Holder a list of Authorized Traders 
who may obtain access to the Archipelago Exchange on behalf of the 
Sponsored Participant.
    (E) Sponsored Participant shall familiarize its Authorized 
Traders with all of the Sponsored Participant's obligations under 
this Rule and will assure that they receive appropriate training 
prior to any use or access to the Archipelago Exchange.
    (F) Sponsored Participant may not permit anyone other than 
Authorized Traders to use or obtain access to the Archipelago 
Exchange.
    (G) Sponsored Participant shall take reasonable security 
precautions to prevent unauthorized use of access to the Archipelago 
Exchange, including unauthorized entry of information into the 
Archipelago Exchange, or the information and data made available 
therein. Sponsored Participant understands and agrees that Sponsored 
Participant is responsible for any and all orders, trades and other 
messages and instructions entered, transmitted or received under 
identifiers, passwords and security codes of Authorized Traders, and 
for the trading and other consequences thereof.
    (H) Sponsored Participant acknowledges its responsibility to 
establish adequate procedures and controls that permit it to 
effectively monitor its employees, agents and customers' use and 
access to the Archipelago Exchange for compliance with the terms of 
this agreement.
    (I) Sponsored Participant shall pay when due all amounts, if 
any, payable to Sponsoring ETP Holder, Archipelago Exchange, L.L.C., 
PCXE or any other third parties that arise from the Sponsored 
Participants access to and use of the Archipelago Exchange. Such 
amounts include, but are not limited to applicable exchange and 
regulatory fees.
    (3) The Sponsoring ETP Holder must provide the Corporation with 
a Notice of Consent acknowledging its responsibility for the orders, 
executions and actions of its Sponsored Participant at issue.

Authorized Traders

    Rule 7.30(a). An ETP Holder shall maintain a list of ATs who may 
obtain access to the Archipelago Exchange on behalf of the ETP 
Holder or the ETP Holder's Sponsored Participants. The ETP Holder 
shall update the list of ATs as necessary. ETP Holders must provide 
the list of ATs to the Corporation upon request.
    (b) An ETP Holder must have reasonable procedures to ensure that 
all ATs comply with the trading Rules and procedures related to the 
Archipelago Exchange and all other Rules of the Corporation.
    (c) An ETP Holder must suspend or withdraw a person's status as 
an AT if the Corporation has determined that the person has caused 
the ETP Holder to fail to comply with the Rules of the Corporation 
and the Corporation has directed the ETP Holder to suspend or 
withdraw the person's status as an AT.
    (d) An ETP Holder must have reasonable procedures to ensure that 
the ATs maintain the physical security of the equipment for 
accessing the facilities of the Corporation to prevent the improper 
use of access to the systems, including unauthorized entry of 
information into the systems.

Orders and Modifiers

Rule 7.31.

    (a) Market Order. An order to buy or sell a stated amount of a 
security that is to be executed at the best price obtainable when 
the order reaches the Corporation.
    (b) Limit Order. An order to buy or sell a stated amount of a 
security at a specified price or better. A ``marketable'' limit 
order is a limit order to buy (sell) at or above (below) the 
consolidated best offer (bid) for the security.
    (c) Day Order. An order to buy or sell which, if not executed, 
expires at the end of the day on which it was entered.
    (d) Good-Till-Canceled (``GTC'') Order. An order to buy or sell 
which remains in effect until it is executed or canceled. The 
Corporation will modify GTC Orders as appropriate in light of stock 
events (e.g., stock split or reverse split).
    (e) Immediate-or-Cancel Order. A market or limit order that is 
to be executed in whole or in part as soon as such order is 
received, and the portion not so executed is to be treated as 
canceled.
    (f) Tracking Order.
    (1) Any User may submit an instruction to the Archipelago 
Exchange for the parameters of a Tracking Order at any time during 
the day. The parameters shall include:
    (A) the maximum aggregate size, which is the aggregate size of 
all partial orders generated in the Tracking Order Process for a 
particular security that the User is willing to trade on that day;
    (B) the maximum tradeable size, which is the maximum size of any 
partial order generated in response to an order entering the 
Tracking Order Process that the User is wiling to trade on that day; 

    (C) the price in relation to the NBBO; and
    (D) the relevant security.
    (2) Once a User has submitted an instruction for the parameters 
of the Tracking Order, the instruction will remain in effect until 
closing or until the User has traded its maximum aggregate size for 
that day, whichever comes first. 
    (3) The Tracking Order Process rotation is as follows: Users who 
have submitted an instruction for the parameters of a Tracking Order 
will be assigned trades on a price/time rotating basis, such that 
within each price level, trades shall be assigned by the time the 
Users' instructions are received by the Archipelago Exchange. Within 
each price level, the first User to send an instruction for a 
Tracking Order will be the first User to be assigned a trade in the 
rotation process. For each order that enters the Tracking Order 
Process, the Tracking Order Process will rotate once through the 
Users in the rotation pattern. In each rotation, the User will be 
responsible for one trade up to the User's maximum tradeable size. 
    (4) The order described in the User's Tracking Order instruction 
will only be generated if:
    (A) an unfilled round or mixed lot order enters the Tracking 
Order Process and
    (B) it is such User's turn as determined by the Tracking Order 
Process rotation pattern.
    (5) Each partial order generated in a rotation is a limit order 
in which:
    (A) the price is set or better than the NBBO at the time the 
unfilled order enters the Tracking Order Process, based on the 
User's parameters; and 
    (B) the size is (i) equal to the User's maximum tradeable size 
if the unfilled order is equal to or larger than the maximum 
tradeable size; or (ii) equal to the size of the unfilled order if 
the unfilled order is smaller than the maximum tradeable size.
    (6) A User may modify the parameters of the instruction for the 
Tracking Order from time to time, as the Corporation permits.

[[Page 78862]]

    (7) Whenever in the judgment of the Corporation, because of an 
influx of orders, a system malfunction or other unusual conditions 
or circumstances, the interests of a fair and orderly market so 
require, the Corporation may suspend the Tracking Order Process. The 
Tracking Order Process shall resume when the Corporation determines 
that the conditions supporting the suspension no longer exist.
    (g) Odd Lot Tracking Order.
    (1) Only Odd Lot Dealers may submit an Odd Lot Tracking Order or 
``OLTO'' to the Archipelago Exchange.
    (2) An OLTO is a Tracking Order, as described in paragraph (f), 
in which:
    (A) the maximum aggregate size is unlimited; 
    (B) the maximum tradeable size is 99 shares; 
    (C) the price is set at the NBBO; and
    (D) the security is one in which the ODD Lot Dealer is 
registered as such; and
    (E) the instruction must be in effect for the duration of Core 
Trading Hours;
    provided, however, the order described in the OLTO instruction 
will only be generated if
    (1) an unfilled odd lot market order enters the Odd Lot Tracking 
Order Process pursuant to Rule 7.37(c); or
    (2) an odd lot limit order causes a locked market as described 
in Rule 7.56.
    (h) Working Order. Any order with a conditional or undisplayed 
price and/or size designated as a ``Working Order'' by the 
Corporation, including, without limitation:
    (1) All-or-None Order. A limit order which is to be executed in 
its entirety or not at all.
    (2) Discretionary Order. An order to buy or sell a stated amount 
of a security at a specified, undisplayed price (the ``discretionary 
price''), in addition to at a specified, displayed price 
(``displayed price.'')
     (3) Reserve Order. A limit order with a portion of the size 
displayed and with a reserve portion of the size (``reserve size'') 
that is not displayed on the Corporation.
    (i) Directed Order. Any market or limit order to buy or sell 
which has been directed to a particular Market Maker by the User.
    (j) Directed Fill. Any Market Maker may submit a standing 
instruction to the Archipelago Exchange for the parameters of a 
Directed Fill, including, but not limited to, the size of the order, 
the Users that may send such Market Maker a Directed Order, the 
price improvement algorithm and the period of time the instruction 
is effective. The Market Maker's Directed Fill described in the 
instruction will only be generated in response to a Directed Order 
directed to such Marker Maker. The Directed Fill is a limit order 
with (1) a size that is equal to or less than the size of the 
Directed Order and (2) a price that improves the BBO by an 
automatically preset amount, which must be equal to or greater than 
the MPII, pursuant to a price improvement algorithm; provided, 
however, the Directed Fill will not be generated if the price is not 
equal to or better than the NBBO. A Marker Maker may modify the 
parameters of the instruction for a Directed Fill from time to time, 
as the Corporation permits.
    (k) Q Order. A limit order submitted to the Archipelago Exchange 
by a Market Maker. A Q Order may not be a Working Order.
    (l) Stop Order. A Stop Order to buy becomes a market order when 
a transaction in the security occurs on the Corporation or on 
another national securities exchange or association at or above the 
stop price. A Stop Order to sell becomes a market order when a 
transaction in the security occurs on the Corporation or on another 
national securities exchange or association at or below the ``stop'' 
price. Stop Orders shall not have standing in any Order Process in 
the Arca Book and shall not be displayed.
    (m) Stop Limit Order. A Stop Limit Order to buy becomes a limit 
order when a transaction in the security occurs on the Corporation 
or on another national securities exchange or association at or 
above the stop price. A Stop Limit Order to sell becomes a limit 
order when a transaction in the security occurs on the Corporation 
or on another national securities exchange of association at or 
below the stop price.
    (n) Do Not Reduce. A limit order to buy, a Stop Order to sell or 
a Stop Limit Order to sell which is not to be reduced by the amount 
of an ordinary cash dividend on the ex-dividend date. A Do Not 
Reduce Order applies only to ordinary cash dividends; it should be 
reduced for other distributions such as when a stock goes ``ex'' a 
stock dividend or ex rights.
    (o) Do Not Increase. A limit order to buy, a Stop Order to sell 
or a Stop Limit Order to sell which is not to be increased in shares 
on the ex-date as a result of a stock dividend or stock 
distribution.
    (p) Fill-or-Return. An order to buy or sell that is to be 
executed in whole or in part on the Corporation, and the portion not 
so executed is to be cancelled, without routing the order to another 
market center or market participant.
    (q) Timed Order. An order to buy or sell which is to remain in 
effect from and/or until a specified time, after which such order or 
the portion thereof not executed is to be treated as cancelled.
    (r) FIll-or-Return Plus. An order to buy or sell that is to be 
executed in whole or in part on the Corporation, and the portion not 
so executed is to be cancelled, without routing the order to another 
market center or market participant. In the event any portion of the 
order is not executed on the Corporation and must be cancelled, the 
Archipelago Exchange, after canceling the unexecuted portion of the 
order, shall send an administrative message to an ETP Holder 
designated by the order entry ETP Holder informing the designated 
ETP Holder that portion of the order was cancelled.
    (s) Cross Order. A two-sided order with instructions to match 
the identified buy-side with the identified sell-side at a specified 
price (the ``cross price''). For the purposes of this Rule 7.31(s), 
an order of block size shall have the same meaning as set forth in 
Rule 7.57. A Cross Order will be executed as follows; provided, 
however, no Cross Orders shall be matched at the cross price without 
interacting with any orders in the Arca Book unless the cross price 
improves the BBO by the MPII:
    (l) If the cross price is equal to or better than the NBBO.
    (A) and the cross price is between the BBO, the Cross Order 
shall be matched at the cross price without interacting with any 
orders in the Arca Book.
    (B) and the cross price is at the BBO.
    (i) first, the Cross Order shall be matched at the displayed 
price, against all pre-existing displayed orders in the Display 
Order Process of the Arca Book with priority according to Rule 7.36; 
and
    (ii) then, any remainder of the Cross Order shall be matched at 
the cross price.
    (2) If the cross price is outside the NBBO,
    (A) and the cross price is between the BBO,
    (i) first, the portion of the Cross Order that may be executed 
in another market shall be routed away for execution pursuant to 
Section 5 of Rule 7; and
    (ii) then, the remainder of the Cross Order shall be matched at 
the cross price without interacting with any orders in the Arca 
Book.
    (B) and the cross price is at the BBO,
    (i) first, the portion of the Cross Order that may be executed 
in another market shall be routed away for execution pursaunt to 
Section 5 of Rule 7;
    (ii) then, the Cross Order shall be matched, at the displayed 
price, against all pre-existing displayed orders in the Display 
Order Process of the Arca Book with priority according to Rule 7.36; 
and
    (iii) then, any remainder of the Cross Order shall be matched at 
the cross price.
    (C) and the cross price is outside the BBO,
    (i) and the NBBO is better than the BBO,
    (l) first, the portion of the Cross Order that may be executed 
in another market shall be routed away for execution pursuant to 
Section 5 of Rule 7;
    (2) then, the Cross Order shall be matched,
    (a) at the displayed price (if the Cross Order is smaller than 
block size) or at the cross price (if the Cross Order is of block 
size), against all pre-existing orders in the Display Order Process 
of the Arca Book with priority according to Rule 7.36; and
    (b) at the price at which the Working Order is represented in 
the Arca Book, against all pre-existing orders in the Working Order 
Process of the Arca Book with priority according to Rule 7.36.
    The Cross Order shall be matched against any displayed and/or 
Working Order at a better price level before being matched to any 
displayed and/or Working Order at the next best price level.
    (2) then, the portion of the Cross Order that may be executed in 
another market shall be routed away for execution pursuant to 
Section 5 of Rule 7;
    (3) then, any remainder of the Cross Order shall be matched at 
the cross price.
    (t) Auction-Only Limit Order. A limit order that is to be 
executed only during the Market Order Auction.
    (u) Cleanup Order.
    (1) Only Market Makers may submit Cleanup Orders to the 
Archipelago Exchange.
    (2) Cleanup Orders must be submitted to the Archipelago Exchange 
before 6:15 a.m. (Pacific Time) and remain in effect until the 
conclusion of the Market Order Auction.
    (3) Cleanup Orders must be 2500 shares in size.

[[Page 78863]]

    (4) Cleanup Orders must be entered as both buy or sell orders, 
provided, however, the Cleanup Order may only be executed on the 
side of the market opposite the Imbalance.
    (5) Cleanup Orders will be executed at the Indicative Match 
Price as of the time of the Market Order Auction.
    (6) Cleanup Orders will only be executed if:
    (A) There is an Imbalance of Market Orders at the conclusion of 
the Market Order Auction, as provided in Rule 7.35; and
    (B) The Imbalance is less than or equal to aggregate size of all 
Cleanup Orders in the relevant security.
    (7) If there is an Imbalance and Cleanup Orders will be executed 
based on the criteria in paragraph (6), the market orders which make 
up the Imbalance will be divided equally among, and allocated to, 
all Market Makers registered in the relevant security and executed 
against such Market Makers' Cleanup Orders.
    (8) If no Imbalance exists at the time of the Market Order 
Auction, all Cleanup Orders shall be cancelled at that time.
    (v) NOW Order. A Limited Price Order that is to be executed in 
whole or in part on the Corporation, and the portion not so executed 
shall be routed pursuant to Rule 7.37(d) only to one or more NOW 
Recipients for immediate execution as soon as the order is received 
by the NOW Recipient. Any portion not immediately executed by the 
NOW Recipient shall be cancelled. If a NOW Order is not marketable 
when it is submitted to the Corporation, it shall be cancelled. NOW 
Orders may not be Directed Orders.
    (w) PNP Order (Post No Preference). A limit order to buy or sell 
that is to be executed in whole or in part on the Corporation, and 
the portion not so executed is to be ranked in the Arca Book, 
without routing any portion of the order to another market center; 
provided, however, the Corporation shall cancel a PNP Order that 
would lock or cross the NBBO.
    (x) Primary Only Order (PO Order). For exchange-listed 
securities only, a market order that is to be routed as a market-on-
open order to the primary market for participation in the primary 
market opening process. A PO Order must be entered before 6:28 a.m. 
(Pacific Time) and it will not be included in the Market Order 
Auction.

Order Entry

    Rule 7.32. Users may enter into the Archipelago Exchange the 
types of orders listed in Rule 7.31; provided, however, no User may 
enter an order other than a Fill-or-Return, Fill-or-Return Plus or 
PNP Order unless the User or the User's Sponsoring ETP Holder has 
entered into a Routing Agreement.

ETP Holder Users

    Rule 7.33. Consistent with Rules of the Corporation, ETP Holder 
Users of the Archipelago Exchange may enter proprietary orders and 
agency orders for the account of a customer. Proprietary orders 
accepted by the Archipelago Exchange from ETP Holder Users are 
subject to the same display and execution processes as agency 
orders. An ETP Holder User that enters a proprietary order into the 
Archipelago Exchange shall mark the order with the appropriate 
designator to identify the order as proprietary.

Trading Sessions

    Rule 7.34(a) Sessions. The Archipelago Exchange shall have three 
trading sessions each day the Corporation is open for business:
    (1) Opening Session. The Opening Session shall begin at 5:00:00 
a.m. (Pacific Time) and conclude at the commencement of the Core 
Trading Session. The Opening Auction and the Market Order Auction 
shall occur during the Opening Session.
    (2) Core Trading Session. The Core Trading Session shall begin 
for each security at 6:30:00 a.m. (Pacific Time) or at the 
conclusion of the Market Order Auction, whichever comes later, and 
conclude at 1:00:00 p.m. (Pacific Time).
    (3) Late Trading Session. The Late Trading Session shall begin 
following the conclusion of the Core Trading Session and conclude at 
5:00:00 p.m. (Pacific Time).
    (b) Market Maker Obligations. During the Core Trading Session, 
Market Makers will be obligated to enter Q Orders in securities in 
which they are registered in accordance with Rule 7.23 by the time 
Core Trading Hours begin. During the Opening Session and the Late 
Trading Session, Market Makers are not obligated to enter Q Orders 
in securities in which they are registered. Market Makers are 
required to enter at least one Cleanup Order for all securities in 
which they are registered for each Market Order Auction.
    (c) Order Designation. Any Day Order entered into the 
Archipelago Exchange may remain in effect for one or more 
consecutive trading sessions on a particular day. For each Day Order 
entered into the Archipelago Exchange, the User must designate for 
which trading session(s) the order will remain in effect. Any GTC 
Order entered into the Archipelago Exchange will remain in effect 
only during Core Trading Sessions, unless the User indicates that 
the GTC Order will remain in effect for the Opening and/or Late 
Trading Sessions.
    (d) Orders Permitted in Each Session.
    (1) During the Opening Session:
    (A) Orders eligible for the Display Order Process (other than Q 
Orders) and for the Working Order Process that have been designated 
as available for the Opening Session are eligible for entry into and 
execution on the Archipelago Exchange.
    (B) Stop Orders are not eligible for execution during the 
Opening Session.
    (C) Users may enter market and Auction-Only Limit Orders for 
inclusion in the Market Order Auction. Market orders and Auction-
Only Limit Orders are not eligible for execution during the Opening 
Session, except during the Market Order Auction.
    (D) Neither the Directed Order Process nor the Tracking Order 
Process is available during the Opening Session. For the purposes of 
the Opening Session, market Directed Orders are included in the 
Market Order Auction.
    (E) NOW Orders are eligible for execution during the Opening 
Session, provided, however, NOW Orders are not eligible for the 
Opening Auction or the Market Order Auction.
    (F) PNP Orders are eligible for execution during the Opening 
Session.
    (2) During the Core Trading Session, market orders, Stop Orders, 
NOW Orders, PNP Orders and orders eligible for the Directed Order, 
Display Order, Working Order and Tracking Order Processes are 
eligible for entry into and execution on the Archipelago Exchange.
    (3) During the Late Trading Session:
    (A) Orders eligible for the Display Order Process (other than Q 
Orders) and for the Working Order Process, including NOW Orders and 
PNP Orders, than have been designated as available for the Late 
Trading Session are eligible for entry into and execution on the 
Archipelago Exchange.
    (B) Market orders and Stop Orders are not eligible for execution 
during the Late Trading Session.
    (C) The Directed Order and Tracking Order Processes are not 
available during the Late Trading Session.
    (e) Customer Disclosures. No ETP Holder may accept an order from 
a non-ETP Holder for execution in the Opening or Late Trading 
Session without disclosing to such non-ETP Holder that:
    (1) except for market orders eligible for execution during the 
Market Order Auction, Limited Price Orders are the only orders that 
are eligible for execution during the Opening and Late Trading 
Sessions;
    (2) an order must be designated specifically for trading in the 
Opening and/or Late Trading Session to be eligible for trading in 
the Opening and/or Late Trading Session; and
    (3) extended hours trading involves material trading risks, 
including the possibility of lower liquidity, high volatility, 
changing prices, unlinked markets, an exaggerated effect from news 
announcements, wider spreads and any other relevant risk.
    The disclosures required pursuant to this subparagraph (e)(3) 
may take the following form or such other form as provides 
substantially similar information:
    1. Risk of Lower Liquidity. Liquidity refers to the ability of 
market participants to buy and sell securities. Generally, the more 
orders that are available in a market, the greater the liquidity. 
Liquidity is important because with greater liquidity it is easier 
for investors to buy or sell securities, and as a result, investors 
are more likely to pay or receive a competitive price of securities 
purchased or sold. There may be lower liquidity in extended hours 
trading as compared to regular market hours. As a result, your order 
may only be partially executed, or not at all.
    2. Risk of Higher Volatility. Volatility refers to the changes 
in price that securities undergo when trading. Generally, the higher 
the volatility of a security, the greater its price swings. There 
may be greater volatility in extended hours trading than in regular 
market hours. As a result, your order may only be partially 
executed, or not at all, or you may receive an inferior price in 
extended hours trading than you would during regular markets hours.
    3. Risk of Changing Prices. The prices of securities traded in 
extended hours trading may not reflect the prices either at the end

[[Page 78864]]

of regular market hours, or upon the opening of the next morning. As 
a result, you may receive an inferior price in extended hours 
trading than you would during regular market hours.
    4. Risk of Unlinked Markets. Depending on the extended hours 
trading system or the time of day, the prices displayed on a 
particular extended hours system may not reflect the prices in other 
concurrently operating extended hours trading systems dealing in the 
same securities. Accordingly, you may receive an inferior price in 
one extended hours trading system than you would in another extended 
hours trading system.
    5. Risk of New Announcements. Normally, issues make news 
announcements that may affect the price of securities after regular 
market hours. Similarly important financial information is 
frequently announced outside of regular market hours. In extended 
hours trading, these announcements may occur during trading, and if 
combined with lower liquidity and higher volatility, may cause an 
exaggerated and unsustainable effect on the price of a security.
    6. Risk of Wider Spreads. The spread refers to the difference in 
price between what you can buy a security for and what you can sell 
it for. Lower liquidity and higher volatility in extended hours 
trading may result in wider than normal spreads for a particular 
security.
    (f) Trades on the Archipelago Exchange executed and reported 
outside of the Core Trading Session shall be designated as .T 
trades.

Opening Session Auctions

    Rule 7.35(a) Order Entry and Cancellation Before Opening Auction
    (1) Users may submit any orders to the Archipelago Exchange 
beginnings at 4:30 am (Pacific Timer). Any such Limited Price Orders 
designated for the Opening Session will be queued until 5:00 am 
(Pacific Time) at which time they will be eligible to be executed 
pursuant to paragraph (b) of this Rule. Any such market orders will 
be queued until the Market Order Auction at which time they will be 
executed pursuant to paragraph (c) of this Rule.
    (2) Only limited priced orders designated for the Opening 
Session will be eligible for the Opening Auction. Market orders 
entered before the Opening Auction will participate in the Market 
Order Auction. Limited Price Orders not designated for the Opening 
Session will become eligible for execution pursuant to Rule 7.37 at 
the commencement of the Core Trading Session.
    (3) Beginning at 4:30 am (Pacific Time), and various times 
thereafter as determined from time to time by the Corporation, the 
Indicative Match Price of the Opening Auction, and any Imbalance 
associated therewith, shall be published via electronic means as 
determined from time to time by the Corporation.
    (4) Orders that are eligible for the Opening Auction may not be 
cancelled between 4:58 am (Pacific Time) and the conclusion of the 
Opening Auction.
    (b) Opening Auction.
    (1) At 5:00 am (Pacific Time), Limited Price Orders designated 
for the Opening Session are matched and executed in the Opening 
Auction.
    (2) The orders in the Opening Auction shall be executed at the 
Indicative Match Price as of the time of the Opening Auction.
    (3) Orders that are eligible for, but not executed in, the 
Opening Match shall become eligible for the Opening Session 
immediately upon conclusion of the Opening Auction.
    (c) Market Order Auction.
    (1) Publication of Indicative Match Price and Imbalances
    (A) Beginning at 5:00 am (Pacific Time), and various times 
thereafter as determined from time to time by the Corporation, the 
Indicative Match Price of the Market Order Auction and the volume 
available to trade at such price, shall be published via electronic 
means as determined from time to time by the Corporation. If such a 
price does not exist (i.e., there is an Imbalance of market orders), 
the Archipelago Exchange shall indicate via electronic means that an 
Indicative Match Price does not exist.
    (B) Beginning at 5:00 am (Pacific Time), and various times 
thereafter as determined from time to time by the Corporation, the 
market order Imbalance associated with the Market Order Auction, if 
any, shall be published via electronic means as determined from time 
to time by the Corporation.
    (C) If the difference between the Indicative Match Price and the 
closing price of the price of the previous trading day's normal 
market hours, as determined by the Consolidated Tape, is equal to or 
greater than a pre-determined amount, as determined from time to 
time by the Corporation, the Archipelago Exchange will assign a 
``SIG'' designator to such Indicative Match Price and publish such 
designator via electronic means as determined from time to time by 
the Corporation.
    Example: (1) Market order to buy 5000 shares;
    (2) Auction-Only Limit Order to sell 1000 at 50;
    (3) Limit order to sell 1000 at 50.50; and
    (4) Limit order to sell 500 at 50.75.
    The Archipelago Exchange will publish an Indicative Match Price 
of 50.75, a volume of 2500 shares and a buy Imbalance of 2500 
shares.
    Example: (1) Market order to buy 3000 shares;
    (2) Market order to sell 1000;
    (3) Limit order to sell 1000 at 41.00; and
    (4) Limit order to sell 1000 at 41.25.
    The Archipelago Exchange will publish an Indicative Match price 
of 41.25 and a volume of 3000 shares and will not publish an 
Imbalance.
    (2) Reduction of Imbalances
    (A) Any Imbalance in the Market Order Auction may be reduced by 
new orders, entered on the side of the market opposite the 
Imbalance, pursuant to the following priority:
    (i) Market orders;
    (ii) Limited Price Orders eligible for the Opening Session;
    (iii) Limited Price Orders entered before 6:28 am (Pacific 
Time);
    (iv) Auction-Only Limit Orders; and
    (v) Cleanup Orders.
    (B) Between 6:28 am (Pacific Time) and the conclusion of the 
Market Order Auction, Limited Price Orders eligible for the Opening 
Session or the Core Trading Session may be cancelled, but market 
orders, Auction-Only Limit Orders and Cleanup Orders may not be 
cancelled.
    (C) Between 6:28 am (Pacific Time) and the conclusion of the 
Market Order Auction, market orders and Auction-Only Limit Orders 
may not be entered on the same side as the Imbalance. Market orders 
and Auction-Only Limit Orders may be entered on the opposite side of 
the Imbalance, however, any time before the Market Order Auction.
    (3) Determination of Market Order Auction Price
    (A) If there is no Imbalance, orders will be executed in the 
Market Order Auction at the Indicative Match Price as of 6:30 am 
(Pacific Time).
    (B) If an Imbalance exists, or if an equilibrium exists between 
buy market orders and sell market orders, as many buy market orders 
and sell market orders as possible shall be matched, on a time 
priority basis,
    (i) at the midpoint of the NBBO at 6:30 am (Pacific Time), in 
the case of exchange-listed securities for which the Corporation is 
not the primary market; or
    (ii) at the midpoint of the NBBO at 6:30 am (Pacific Time), in 
the case of Nasdaq-listed securities, provided that the NBBO is not 
crossed; or
    (iii) at the midpoint of the first uncrossed NBBO after 6:30 am 
(Pacific Time), in the case of Nasdaq securities in which the NBBO 
is crossed but the BBO is not crossed by the NBBO; or
    (iv) at the bid (offer) of the BBO that was crossed prior to 
6:30 am (Pacific Time), in the case of Nasdaq securities in which 
the BBO is crossed by a market participant; or
    (v) at the indicative Match Price as of 6:30 am (Pacific Time) 
in the case of those issues for which the Corporation is the primary 
market. If equilibrium exists between buy and sell market orders, 
the match price shall be the last Corporation sale price in the 
security regardless of the trading session, provided that, if the 
last Corporation sale price is inferior to the BBO, the match price 
shall be the Corporation bid (offer).
    Such executions shall be designated with a modifier to identify 
them as Market Order Auction trades. The market orders that are 
eligible for, but not executed in the Market Order Auction, shall 
become eligible for execution in the Core Trading Session 
immediately upon conclusion of the Market Order Auction.
    (d) Reserved.
    (e) Transition to Core Trading Session.
    (1) Limited Price Orders entered before 6:28 am (Pacific Time) 
shall participate in the Market Order Auction. Limited Price Orders 
designated for the Core Trading Session entered after 6:28 am 
(Pacific Time) shall become eligible for execution at 6:30 am 
(Pacific Time) or at the conclusion of the Market Order Auction, 
whichever is later.
    (2) Market orders entered after 6:28 am (Pacific Time) and 
before 6:30 am (Pacific Time), which are eligible for either the 
Market Order Auction or the Core Trading

[[Page 78865]]

Session, shall become eligible for execution at 6:30 am (Pacific 
Time) or at the conclusion of the Market Order Auction, whichever is 
later, unless otherwise provided in Rule 7.30(c)(2)(C).
    (3) Stop Orders entered before or during the Opening Session 
become eligible for execution at 6:30 am (Pacific Time) or at the 
conclusion of the Market Order Auction, whichever is later.

Order Ranking and Display

    Rule 7.36. The Archipelago Exchange shall display to Users and 
other market participants all non-marketable limit orders in the 
Display Order Process. The Archipelago Exchange will also 
disseminate current consolidated quotations/last sale information, 
and such other market information as may be made available from time 
to time pursuant to agreement between the Corporation and other 
market centers.
    (a) Ranking. Orders of Users shall be ranked and maintained in 
the Display Order Process and/or Working Order Process of the Arca 
Book according to price-time priority, such that within each price 
level, all orders shall be organized by the time of entry in the 
following manner.
    (1) Display Order Process. Within the Display Order Process:
    (A) Limit orders, with no other conditions, shall be ranked 
based on the specified limit price and the time of original order 
entry.
    (B) The displayed portion of Reserve Orders (not the reserve 
size) shall be ranked at the specified limit price and the time of 
order entry. If the displayed portion of the Reserve Order is 
decremented in its entirety, the displayed portion of the Reserve 
Order shall be refreshed for the displayed amount from the reserve 
portion and shall be submitted and ranked at the specified limit 
price and the new time that the displayed portion of the order was 
refreshed.
    (C) Discretionary Orders shall be ranked based on the displayed 
price (not the discretionary price) and the time of order entry. If 
a Discretionary Order is decremented, it remains ranked based on the 
displayed price and the time of original order entry.
    (2) Working Order Process. Within the Working Order Process:
    (A) The reserve portion of Reserve Orders shall be ranked based 
on the specified limit price and the time of original order entry. 
After the displayed portion of a Reserve Order is refreshed from the 
reserve portion, the reserve portion remains ranked based on the 
original time of order entry, while the displayed portion is sent to 
the Display Order Process with a new time-stamp.
    (B) Discretionary Orders shall be ranked based on the displayed 
price and the time of original order entry. After a Discretionary 
Order is decremented, it remains ranked as described above.
    (C) All-or-None Orders shall be ranked based on the specified 
limit price and the time of order entry.
    (b) Display. All Orders at all price levels in the Display Order 
Process of the Arca Book shall be displayed to all Users and other 
market participants on an anonymous basis.
    (c) Dissemination. The best-ranked displayed order(s) to buy and 
the best ranked displayed order(s) to sell in the Arca Book and the 
aggregate displayed size of such orders associated with such prices 
shall be collected and made available to quotation vendors for 
dissemination pursuant to the requirements of Rule 11Ac1-1 under the 
Exchange Act.

Order Execution

    Rule 7.37. Subject to the restrictions on short sales under Rule 
10a-1 under the Exchange Act, like-priced orders, bids and offers 
shall be matched for execution by following Steps 1 through 5 in 
this Rule; provided, however, for an execution to occur on any Order 
Process, the price must be equal to or better than the NBBO, unless 
the Archipelago Exchange has routed orders to all away markets at 
the NBBO.
    (a) Step 1: Directed Order Process. During Core Trading Hours 
only, orders may be matched and executed in the Directed Order 
Process as follows:
    (1) If a User submits a marketable Directed Order to the 
Archipelago Exchange and the User's designated Market Maker has a 
standing instruction for a Directed Fill to the Archipelago 
Exchange, the Directed Order shall be executed against the Directed 
Fill of the designated Market Maker.
    (2) If a User submits a marketable Directed Order to the 
Archipelago Exchange and the User's designated Market Maker has not 
submitted an instruction for a Directed Fill, the Directed Order 
shall enter the Display Order Process, as described in subsection 
(b) of this Rule.
    (3) If a User submits any order other than a marketable Directed 
Order to the Archipelago Exchange, the User's order immediately 
shall enter the Display Order Process, as described in subsection 
(b) of this Rule, without interacting with any Directed Fills.
    (b) If an incoming marketable order has not been executed in its 
entirety pursuant to paragraph (a) of this Rule, any remaining part 
of the order shall be routed to the Display Order Process.
    (1) Step 2: Display Order Process.
    (A) An incoming marketable order shall first attempt to be 
matched for execution against orders the Display Order Process at 
the display price of the resident order for the total amount of 
stock available at that price or for the size of the incoming order, 
whichever is smaller. For the purposes of this subsection, the size 
of an incoming Reserve Order includes the displayed and reserve size 
and the size of the portion of the Reserve Order resident in the 
Display Order Process is equal to its displayed size. If the 
incoming marketable order has not been executed in its entirety, the 
remaining part of the order shall be routed to the Working Order 
Process.
    (B) An incoming order that is not marketable shall enter the 
Working Order Process to be executed against any Discretionary 
Orders at or better than the NBBO.
    (2)Step 3: Working Order Process.
    (A) An incoming marketable order shall be matched for execution 
against orders in the Working Order Process in the following manner:
    (i) An incoming marketable order shall be matched against orders 
within the Working Order Process in the order of their ranking, at 
the price of the displayed portion (or in the case of an All-or-None 
Order, at the limit price), for the total amount of stock available 
at that price or for the size of the incoming order, whichever is 
smaller.
    (ii) If the BBO is outside the NBBO and any Discretionary 
Order(s) within the Working Order Process have a discretionary price 
equal to or better than the NBBO, the incoming order shall execute 
against such Discretionary Order(s) at the NBBO up to the size of 
the smaller of the two orders.
    (iii) If an incoming marketable order is a Discretionary Order 
or a Reserve Order and its prices overlap with the prices of a 
Discretionary Orders in the Working Order Process, then the orders 
will be executed at the display price of the order that was entered 
first up to the size of the smaller of the two orders. For the 
purposes of this subsection, the size of the incoming Reserved order 
includes the displayed and reserve size.
    (iv) If the incoming marketable order has not been executed in 
its entirety, the remaining part of the order shall be routed to the 
Tracking Order Process.
    (B) An incoming order is not marketable shall be matched for 
execution against orders in the Working Order Process in the 
following manner:
    (i) The incoming order shall be matched against any 
Discretionary Orders in the Working Order Process that have 
discretionary prices that would satisfy an otherwise displayable 
incoming Limited Price Order. The execution shall occur at the 
limited price of the incoming order.
    (ii) If the incoming order is a Discretionary Order and its 
prices overlap with the prices of a Discretionary Order in the 
Working Order Process, then the orders will be executed at the 
discretionary price of the incoming order that would be the best 
price available for the order entered first.
    (C) If any change in the NBBO or other available away trading 
interest would cause a potential match between the away order and an 
order in the Working Order Process, a commitment to trade shall be 
sent to that market center or market participant pursuant to Step 5 
below.
    (c) Step 4: Tracking Order Process. During Core Trading Hours 
only, orders may be matched and executed in the Tracking Order 
Process as follows: If an order has not been executed in its 
entirety pursuant to paragraphs (a) and (b) of this Rule, the 
Archipelago Exchange shall match and execute any remaining part of 
the order in the Tracking Order Process in the following manner; 
provided, however, any portion of an order received from another 
market center or market participant shall be cancelled immediately:
    (1) If the unfilled order is a mixed lot or round lot order, the 
order shall be matched against any Tracking Orders pursuant to the 
rotation pattern described in Rule 7.31(f)(3) for immediate 
execution thereafter. After the order has been matched against any 
Tracking Orders, if the order has not been executed in its entirety 
and the remaining part of the order is an odd lot, the odd lot order 
shall been executed in the Odd Lot Tracking Order Process, as 
described in paragraph (2).

[[Page 78866]]

    (2) If the unfilled order is an odd lot, the order shall be 
matched in the Odd Lot Tracking Order Process against any OLTOs 
pursuant to the rotation pattern described in Rule 7.31(f)(3) for 
immediate execution thereafter.
    (d) Step 5: Routing Away.
    (1) If an order has not been executed in its entirety pursuant 
to paragraphs (a) through (c) of this Rule and it has been 
designated as a Fill-or-Return, Fill-or-Return Plus Order or PNP 
Order, the Order shall be cancelled, without routing the order to 
another market center or market participant.
    (2) If an order has not been executed in its entirety pursuant 
to paragraphs (a) through (c) of this Rule and it has not been 
designated as a Fill-or-Return, Fill-or-Return Plus Order or PNP 
Order, the order shall be routed for execution as follows:
    (A) The order shall be routed, either in its entirety or as 
component orders, to another market center or market participant as 
a limit order priced at the quote published by the market center or 
market participant.
    (B) the Archipelago Exchange shall attempt to match the part of 
the order that has not been routed away against then available 
trading interest in the Archipelago Exchange for an internal fill by 
following Steps 1 through 4 as set forth in paragraphs (a) through 
(c) above.
    (C) Orders routed to other market centers or market participants 
shall remain outside the Archipelago Exchange for a prescribed time 
period during which they may be executed (in whole or in part) or 
declined. While an order remains outside the Archipelago Exchange, 
it shall have no time standing, relative to other orders received 
from Users at the same price which may be executed against the Arca 
Book. Requests from Users to cancel their orders while the order is 
routed away to another market center or market participant and 
remains outside the Archipelago Exchange shall be processed, subject 
to the applicable trading rules of the relevant market center or 
market participant.
    (D) In the event that a marketable order routed from the 
Archipelago Exchange to another market center or market participant 
is not executed in its entirety at the other market center or market 
participant's quote (i.e., all attempts at the fill are declined or 
timed-out), the Archipelago Exchange shall attempt to match the 
residual or declined market order against then available trading 
interest in the Archipelago Exchange for an internal fill by 
following Steps 1 through 4 as set forth in paragraphs (a) through 
(c) above. Any remaining unmatched trading interest shall be 
rerouted to another market center or market participant at the next 
available displayed price level pursuant to this paragraph (d)(2) 
above.
    (E) When routing an order in an Eligible Security away to 
another market center, the Corporation shall utilize such electronic 
intermarket linkages and order delivery facilities as may be 
approved by the Board of Directors from time to time, subject to 
such applicable requirements as may be agreed to with the relevant 
market center.
    (e) If an order has not been executed in its entirety after 
following Steps 1-5, the order shall be ranked in the Arca Book 
pursuant to Rule 7.36.

Odd and Mixed Lots

    Rule 7.38(a) Order Types.
    (1) Odd Lots. All odd lot orders submitted by Users to the 
Archipelago Exchange must be market orders or limit orders, where 
such orders are subject to no additional conditions (e.g., odd lot 
orders may not be Working Orders, Directed Orders, Directed Fills, 
Tracking Orders, etc.), provided, however, Odd Lot Dealers may 
submit OLTOs.
    (2) Mixed Lots. Mixed lot orders submitted by Users to the 
Archipelago Exchange may be any order type supported by the 
Archipelago Exchange.
    (b) Ranking and Execution. Round lot, mixed lot and odd lot 
orders are treated in the same manner in the Archipelago Exchange; 
provided, however, the Tracking Order Process treats odd lot orders 
in a different manner from mixed lot and round lot orders.
    (c) Prohibitions. It shall be considered conduct inconsistent 
with just equitable principle for ETP Holders to engage in the 
following actions:
    (1) Combining odd lot orders given by different customers into a 
round lot order or orders unless specifically requested to do so by 
the customers giving the orders;
    (2) Unbundling round lots for the purpose of entering odd lot 
limit orders in comparable amounts;
    (3) Failing to aggregate odd lot orders into round lots when 
such orders are for the same account or for various accounts in 
which there is a common monetary interest; and
    (4) Entering both buy and sell odd lot limit orders in the same 
stock before one of the orders is executed for the purpose of 
capturing the spread in the stock.

Interaction with PCXE Application of the OptiMark System

    Rule 7.39(a) The information from the Arca Book (including 
Working Orders), but not the orders themselves, shall be submitted 
to the PCXE Application at all relevant times during Core Trading 
Hours, as set forth in Rule 7.47.
    (b) The Archipelago Exchange may receive Immediate-or-Cancel 
Orders from the PCXE Application as set forth in Rule 7.48. Such 
Immediate-or-Cancel Orders shall be treated as a User order once 
submitted to the Archipelago Exchange.

 Trade Execution and Reporting

    Rule 7.40. Executions occurring as a result of orders matched 
against the Arca Book shall be reported by the Corporation to an 
appropriate consolidate transaction reporting system. Executions 
occurring as a result of orders routed away from the Archipelago 
Exchange shall be reported to an appropriate consolidated 
transaction reporting system by the relevant reporting market 
center. The Archipelago Exchange shall promptly notify Users of all 
executions of their orders as soon as executions take place.

Clearance and Settlement

    Rule 7.41. The details of each transaction executed within the 
Archipelago Exchange shall be automatically processed for clearance 
and settlement on a locked-in basis. ETP Holders need not separately 
report their transactions to the Corporation for trade comparison 
purposes. All transactions effected by a Sponsored Participant shall 
be cleared and settle, using the relevant Sponsoring ETP Holder's 
mnemonic (or its clearing firm's mnemonic as applicable).

Limitation of Liability

    Rule 7.42(a). Neither the Corporation, any affiliate of the 
Corporation, Archipelago Exchange, L.L.C., nor any affiliate of the 
Archipelago Exchange, L.L.C., shall be liable to Users for any loss, 
damages, claim or expense:
    (1) growing out of the use or enjoyment of the Archipelago 
Exchange; or
    (2) arising from or occasioned by any inaccuracy, error or delay 
in, or omission of or from the collection, calculation, compilation, 
maintenance, reporting or dissemination of any information derived 
from the Archipelago Exchange, resulting either from any act or 
omission by the Corporation, any affiliate of the Corporation, 
Archipelago Exchange, L.L.C., or any affiliate of Archipelago 
Exchange, L.L.C., or from any act condition or cause beyond the 
reasonable control of the Corporation, any affiliate of the 
Corporation, Archipelago Exchange, L.L.C., or any affiliate of 
Archipelago Exchange, L.L.C., including, but not limited to, flood, 
extraordinary weather conditions, earthquake or other acts of God, 
fire, war, insurrection, labor dispute, accident, action of 
government, communications or power failure, or equipment or 
software malfunction.
    (b) Each ETP Holder expressly agrees, in consideration of the 
issuance of the ETP, to release and discharge the Corporation, any 
affiliate of the Corporation, Archipelago Exchange, L.L.C., and any 
affiliate of the Archipelago Exchange, L.L.C., and any officers, 
directors, employees and agents thereof, of and from all claims and 
damages arising from their acceptance and use of the Archipelago 
Exchange.
    (c) Neither the Corporation, any affiliate of the Corporation, 
Archipelago Exchange, L.L.C., nor any affiliate of the Archipelago 
Exchange, L.L.C., makes any express or implied warranties or 
conditions to Users as to results that any person or party may 
obtain from the Archipelago Exchange for trading or for any other 
purpose, and all warranties of merchantability or fitness for a 
particular purpose or use, title, and non-infringement with respect 
to the Archipelago Exchange are hereby disclaimed.
    Rule 7.43. Reserved.
    Rule 7.44. Reserved.

Section 4 [10]. PCXE Application of the OptiMark System [Automatic 
Execution Systems]

    [Rule 7.70--Deleted.]

PCX Equities, Inc. Application of the OptiMark System

Definitions

    Rule 7.45[7.71](a). Definitions. Whenever and wherever used 
herein, unless the context requires otherwise, the following terms 
shall be deemed to have the meanings indicated:

[[Page 78867]]

    (1)--No change.
    (2) The term ``Designated Broker'' shall mean a broker-dealer 
that has been issued an ETP [or Equity ASAP] by the Corporation who 
has been designated by a non-ETP [or non-Equity ASAP] User to 
execute, clear and settle transactions resulting from the 
Application.
    [(3) The term ``Eligible Securities'' shall mean the equity 
securities currently listed or traded on the Corporation.]
    (3)[4] The term ``Supplemental Account Agreement'' shall mean 
the form of Agreement between a non-ETP [or non-Equity ASAP] User 
and a Designated Broker under which Orders of the non-ETP [or non-
Equity ASAP] User and resulting transactions will be executed, 
cleared and settled, using the Designated Broker's mnemonic (or its 
clearing broker's mnemonic as applicable).
    (4) [(5)]--No change.
    (5) [(6)] The term ``Orders'' shall mean one or more orders 
generated from a Cycle at specific prices and sizes at which 
execution immediately may occur; provided, however, an Order to be 
matched against a limit order from the Arca Book shall be routed to 
the Archipelago Exchange as an Immediate-or-Cancel Order. Orders in 
Eligible Securities for execution on the Corporation or other ITS 
participating market centers shall be in round lots equal to or 
greater than 1,000 shares, except for Orders resulting from 
processing COS Profiles (as defined below) and those Profiles 
created from the Arca Book [PCX Specialist's book] that may be in 
any round lot size, and in price increments conforming to the 
requirements of the Corporation's [rules] Rules and policies 
applicable to all orders executed on the Archipelago Exchange 
[Floor]; provided, however, that Orders may be generated from 
central processing of the Profiles designated for the midpoint 
service by the OptiMark System in conformance with the trading 
differential in Rule [7.10] 7.6(a), Commentary .04. Such orders 
shall be considered ``immediate or cancel [Cancel]'' orders within 
the meaning of the Corporation's Rule 7.31 [7.4] and shall include 
the following information:
    (A) the stock ticker symbol;
    (B) a designation as ``buy,'' ``sell long,'' or ``sell short''; 
and
    (C) such other information as may be required by the Board
    (6) [(7)] The term ``Profile'' shall mean the expression of 
trading interest received by the OptiMark System in the form of a 
satisfaction profile that shows the User's degree of satisfaction 
(expressed as a number between zero and one) to trade at each 
coordinate of the price/size grid. The term ``COS Profile'' means 
the satisfaction profile generated by the OptiMark system from 
processing quotations of other market centers from the COS that can 
be accessed by ITS/CAES. The term ``Arca Profile'' means the 
satisfaction profile generated by the OptiMark System from 
processing the Arca Book.
    (7) [(8)] the term ``PCXE Application'' (or ``Application'') 
shall mean the Corporation's trading service facility consisting of 
certain electronic communications and information services of the 
OptiMark System provided on a non-exclusive basis through the 
necessary communications interfaces (``PCX Interfaces'') between the 
OptiMark System and the Corporation's computerized order system and 
other facilities to permit execution of Orders in Eligible 
Securities and to receive executions and reports in respect thereof, 
all in accordance with these Rules and other applicable Rules and 
policies of the Corporation.
    (8) [(9)]--No change.
    (9) [(10)]--No change.

Access

    Rule 7.46 [7.72]. The PCXE Application shall be available for 
all interested ETP Holders[, Equity ASAP Holders, and ETP Firms] 
that decide to become Users. [The Corporation will assure that each 
PCX Specialist is provided with appropriate access to the PCX 
Application for the purpose of submitting Profiles from the 
Specialist's Post.] A non-ETP Holder User may obtain access to the 
PCXE Application only if such access is authorized in advance by one 
or more Designated Brokers in accordance with the terms of the 
applicable Supplemental Account Agreement and the Designated Broker 
Consent Agreement. Both agreements shall be in force before a non-
ETP [or non-Equity ASAP] User may be given the authorization to 
obtain access to the PCXE Application. At a minimum, the 
Supplemental Account Agreement and the Designated Broker Consent 
Agreement shall include any applicable credit limits imposed by the 
Designated Broker on the non-ETP Holder User; the Designated 
Broker's undertaking that it is responsible for that non-ETP Holder 
[or non-/Equity ASAP] User's Orders and resulting transactions; and 
such other terms and conditions that may be agreed to from time to 
time. The Corporation shall be provided with a written statement 
from the Designated Broker acknowledging its responsibility for such 
Orders and resulting transactions.

Entry of Profiles and Generation of Orders

    Rule 7.47 [7.73] (a)--No change.
    (b) Interaction with the Archipelago Exchange. The information 
from the Arca Book (including Working Orders) shall be submitted to 
the PCXE Application at all relevant times during Core Trading Hours 
in the form of Arca Profiles. [Specialist Obligations. Specialists 
must ensure that at all relevant times during regular trading hours, 
their best bids and offers (whether reflecting limit orders or the 
Specialist's own interest) will be included in the OptiMark System 
as Profiles.]
    (c)--No change.

Commentary

    .01.  For the purpose of this Rule [rule], a profile for the 
proprietary account of an ETP Holder[, Equity ASAP Holder, or ETP 
Firm] (other than for a Market Maker [specialist or floor broker]) 
will be deemed ``principle exempt'' and therefore receive the 
priority treatment of agency profiles but only when such person does 
not hold or have knowledge that his or her firm or any participant 
therein holds or has knowledge of a customer's profile or order at 
the same price or better. If the ETP Holder[, ETP Firm or Equity 
ASAP Holder] holds or has knowledge of such customer profile or 
order, the ETP Holder[, ETP Firm or Equity ASAP Holder] will be 
deemed non-exempt and must designate any proprietary profile as 
``principal non-exempt.''
    .02.  After screening for price and standing, the matching 
algorithm will rank the following categories of profiles and order 
types for time priority purposes:
    (1) Arca Profiles [PCX Book--limit orders from the PCX limit 
order book];
    (2) Agency--other public customer profiles, non-ETP [or non-
Equity ASAP] profiles, and ``principal-exempt'' proprietary profiles 
entered directly into OptiMark;
    (3) Principal--proprietary profiles submitted by Market Makers 
[specialists and floor brokers], and ``non-exempt'' ETP Holders[, 
Equity ASAP Holders, and ETP Firms] ([all three] considered 
``principal non-exempt''); and
    (4) [Consolidated Quote System (``]CQS['') profiles.
    (d) Frequency. Cycles respecting an Eligible Security shall be 
scheduled at one or more specified times throughout the trading day 
after the opening of the market in that security and prior to the 
closing of the market. The maximum frequency with which Cycles may 
take place throughout the trading day shall be 90 seconds, while the 
minimum shall be once a day. The exact frequency of Cycles as to any 
given Corporation [PCX] Security shall be determined by OptiMark 
Services, Inc., based on the general characteristics of the 
security, the robustness of the associated Profile flow over a 
period and the current level of interest expressed by Users, and may 
be subsequently altered in response to subsequent developments in 
the above-stated market circumstances. Any change in the frequency 
of Cycles will be effective upon three days' notice to the User in 
advance; provided, however, that at all relevant times, the 
Corporation finds any such scheduling of Cycles to be commensurate 
with the demand for the PCXE Application among ETP Holders[, Equity 
ASAP Holders or ETP Firms] and their customers and also consistent 
with the safeguards in place to ensure system capacity and 
integrity.

Order Execution and Reporting

    Rule 7.48(a) [7.74]--No change.
    (b) Notwithstanding paragraph (a) of this Rule, any Order 
generated from a Cycle representing matches involving Arca Profiles 
shall be routed to the Archipelago Exchange for execution against 
the relevant the Archipelago Exchange limit order as an Immediate-
or-Cancel Order. If the relevant Archipelago Exchange limit order is 
no longer available, the Order generated from the Cycle shall be 
automatically canceled.

Hours of Operation

    Rule 7.49 [7.75]. The PCXE Application will be available for 
execution of Orders and routing of ITS commitments during the 
regular trading hours.

Errors

    Rule 7.50 [7.76]. Whenever a User discovers an error in a 
transaction resulting from the PCXE Application, such error may be 
corrected in accordance with the rules of the applicable market 
center and clearing

[[Page 78868]]

arrangement through which the transaction is executed and settled.

Trading Suspension and Halts

    Rule 7.51 [7.77]. In the event of a suspension in trading of an 
Eligible Security pursuant to Rule 7.12 [7.46(b)], the Corporation 
shall suspend the related trading activities respecting that 
security through the PCXE Application. In addition, the trading 
activities through the PCXE Application respecting all Eligible 
Securities shall halt whenever the President or, in the President's 
absence, Chief Operating Officer or other PCXE Officer(s) as the 
President may designate, determines that market conditions warrant 
such a halt. The Corporation may suspend the trading activities 
through the PCXE Application relating to one or more Eligible 
Securities at any other time upon consultation with OptiMark 
Technologies, Inc., if deemed necessary and proper to preserve 
system capacity and integrity.

Limitation of Liability

    Rule 7.52 [7.78](a). Limitation of Liability. Neither the 
Corporation, any affiliate, nor any operator, licensor or 
administrator of the OptiMark System shall have any liability to 
Users or Designated Brokers for any loss, damages, claim or expense 
arising from or occasioned by any inaccuracy, error or delay in, or 
omission of or from:
    (1) the PCXE Application of the OptiMark System or
    (2) the collection, calculation, compilation, maintenance, 
reporting or dissemination of any information derived from the PCXE 
Application or the OptiMark System, resulting either from any act or 
omission by the Corporation or any affiliate, or any operator, 
licensor or administrator of the OptiMark System or from any act, 
condition or cause beyond the reasonable control of the Corporation 
or any affiliate, or any operator, licensor or administrator of the 
OptiMark System, including, but not limited to, flood, extraordinary 
weather conditions, earthquake or other acts of God, fire, war, 
insurrection, riot, labor dispute, accident, action of government, 
communications or power failure, or equipment of software 
malfunction.
    (b) Neither the Corporation, any affiliate, nor any operator, 
licensor or administrator of the OptiMark System makes any express 
or implied warranties or conditions to Users or Designated Brokers 
as to results that any person or party may obtain from the PCXE 
Application for trading or for any other purpose, and all warranties 
of merchantability or fitness for a particular purpose or use, 
title, and non-infringement with respect to the PCXE Application are 
hereby disclaimed.
    Rule 7.53. Reserved.
    Rule 7.54. Reserved.

Section 5 [9]. Intermarket Trading System Plan

Definitions

    Rule 7.55 [7.66](a). Definitions. Whenever and wherever used 
herein, unless the context requires otherwise, the following terms 
shall be deemed to have the meanings indicated:
    (1)-(4)--No change.
    (5) The term ``Pre-Opening Application'' shall mean the 
application of the System which permits a market maker in one 
participating market, who wishes to open his or her market in an 
Eligible Listed Security, to obtain from other market makers 
registered in that security in other participating markets, any pre-
opening interests such other market makers might decide to disclose 
as set forth in the Plan.
    (6)-(10)--No change.
    [(11)--Deleted.]

Intermarket Trading System Application

    (b) Provisions of the Plan. The Corporation has agreed to comply 
to the best of its ability, and, absent reasonable justification or 
excuse, to enforce compliance by its ETP Holders, [Equality ASAP 
Holders and ETP Firms,] with the provisions of the Plan. In this 
connection, the following shall apply:

Intermarket Trading System (ITS)

    (1) All transactions effected through ITS shall be on a 
``regular way'' basis. Each transaction effected through ITS shall 
be cleared and settled through a clearing agency registered with the 
Securities and Exchange Commission which maintains facilities 
through which ITS transactions may be compared and settled and which 
agrees to supply each participating market center with data 
reasonably requested in order to permit such market center to 
enforce compliance by its members [ETP Holders, Equity ASAP Holders 
and ETP Firms] with the provisions of the Act, the rules and 
regulations thereunder, and the rules of such market center.
    (2) Any ``commitment to trade'', which is transmitted by an ETP 
Holder [or ETP Firm], via the facilities of the Corporation, to 
another participating market center through ITS, shall be firm and 
irrevocable for the period of time applicable to such commitment. 
All such commitments to trade shall:
    (A) specify the security which is the subject of the commitment; 
[,]
    (B) designate the commitment as either a commitment to buy or a 
commitment to sell; [,]
    (C) specify the amount of the security to be bought or sold, 
which amount shall be for one unit of trading or any multiple 
thereof; [,]
    (D) specify the price at or below which the security is to be 
bought or the price at or above which the security is to be sold, or 
specify that the commitment is a commitment to trade ``at the 
market;'' [,'']
    (E) designate the commitment ``short'' or ``short exempt'' 
whenever it is a commitment to sell which, if it should result in an 
execution in the market of the receiving market center, would result 
in a short sale to which the provisions of paragraph (a) of Rule 
10a-1 under the Act would apply; and [,]
    (F)--No change.
    (3) No change.
    (4) The ETP Holder [or ETP Firm on the Floor] who made the bid 
or offer which is sought by a commitment to trade received [on the 
Floor] through ITS shall accept such commitment to trade, via the 
facilities of the Corporation, up to the amount of the bid or offer 
if the bid or offer is still available [on the Floor] when the 
commitment to trade is received by such ETP Holder [or ETP Firm], 
via the facilities of the Corporation, unless acceptance is 
precluded by the Rules [rules] of the Corporation. In the event that 
the bid or offer which is sought by a commitment to trade is no 
longer available through the facilities of the Corporation [on the 
Floor] when the commitment is received, but a new bid or offer is 
available through the facilities of the Corporation [on the Floor] 
which would enable the commitment to trade to be executed at a price 
which is more favorable than the price specified in such commitment, 
then the ETP Holder [or ETP firm] who [has] made the [such new] bid 
or offer shall accept, via the facilities of the Corporation, such 
commitment at the price, and up to the amount of, the new [his] bid 
or offer, unless acceptance is precluded by the Rules [rules] of the 
Corporation.
    (5) Any ETP Holder [or ETP Firm] who receives, via the 
facilities of the Corporation, a commitment to trade through ITS 
from another market center and who intends to reject that commitment 
shall notify, via the facilities of the Corporation, the market 
center from which the commitment was sent of such rejection as 
promptly as possible.
    (6) Any commitment to trade received [on the Floor] through ITS 
and any execution thereof and any commitment to trade issued by an 
ETP Holder [or ETP Firm], via the facilities of the Corporation, 
through ITS shall be subject to such Rules [rules] as the 
Corporation may from time to time determine.

Pre-Opening Application

    (7) The provisions of subparagraph (1) above shall also be 
applicable to any transaction effected through the Pre-Opening 
Application. The Pre-Opening Application applies in two instances. 
First, it applies whenever a market maker in any Participant market 
[Market], in arranging an opening transaction in his or her market 
in a System security, anticipates that the opening transaction will 
be at a price that represents a change from the security's 
``previous day's consolidated closing price'' at more than the 
``applicable price change.'' Second, it applies whenever an 
``indication of interest'' (i.e., an anticipated opening price 
range) is sent to the CTA Plan Processor as required or permitted by 
the CTA Plan or a Participant market's rules.
    (8) Openings
    (A) [(i)] Notification Requirements
    (i) [(A)] Applicable Price Change
    (1) Initial Notification--Whenever a Market Maker [specialist], 
in arranging an opening transaction through the facilities of [on] 
the Corporation in any Eligible Listed Security, anticipates that 
the opening transaction [on] through the facilities of the 
Corporation will be at a price that represents a change from the 
security's previous day's consolidated closing price of more than 
the ``applicable price change'' (as defined below), he or she, via 
the facilities of the Corporation, shall notify the other 
Participant markets of the situation by sending a ``pre-opening 
notification'' through the System. Thereafter, the Market Maker 
[specialist] shall not open the security in his or her market until 
not less than three minutes after the [his]

[[Page 78869]]

transmission of the pre-opening notification. The ``applicable price 
changes'' are:

------------------------------------------------------------------------
                                                       Applicable price
            Security                 Consolidated        change  (more
                                     closing price           than)
------------------------------------------------------------------------
Network A.......................  Under $15.........  .10 or \1/8\ point
                                  $15 or over *.....  .25 or \1/4\ point
Network B.......................  Under $5..........  .10 or \1/8\ point
                                  $5 or over *......  .25 or \1/4\ point
                                    --A pre-opening notification shall:
                                    (A) be designated as a pre-opening
                                          notification (``IND'');
                                    (B) identify the participant market
                                         (``P''), the Market Maker
                                       [specialist] and the security
                                               (``XYZ''); and
                                    (C) indicate the ``applicable price
                                      range'' by being formatted as a
                                          standardized pre-opening
                                     administrative message as follows:
 
                                             IND P/XYZ (RANGE)
 
   The price range shall not exceed the ``applicable price range'' shown
                                   below:
------------------------------------------------------------------------
Network A.......................  Under $50.........  .50 or \1/2\ point
                                  $50 or over*......  1 point or, for
                                                       stocks trading in
                                                       decimals, 1.00
Network B.......................  Under $10.........  .50 or \1/2\ point
                                  $10 or over*......  1 point or, for
                                                       stocks trading in
                                                       decimals, 1.00
 The price range also shall not straddle the previous day's consolidated
closing price, although it may include it as an endpoint (e.g., a.10-.60
  or \1/8\-\5/8\ price range would be permissible if the previous day's
consolidated closing price were .10 or .60 or \1/8\ or \5/8\, but not if
the closing price were .25, or .40 or .50 or \1/4\, or \3/8\ or \1/2\).
------------------------------------------------------------------------
* If the previous day's consolidated closing price of a Network A
  Eligible Security exceeded $100 and the security does not underlie an
  individual stock option contract listed and currently trading on a
  national securities exchange, the ``applicable price range'' is two
  dollars.
* If the previous day's consolidated closing price of a Network B
  Eligible Security exceeded $75 and the security is not a Portfolio
  Depository Receipt, Index Fund Share, or Trust Issued Receipt, or does
  not underlie an individual stock option contract listed and currently
  trading on a national securities exchange, the ``applicable price
  range'' is two dollars.

    (2) Subsequent Notifications--If, after sending a pre-opening 
notification, the situation in a Market Maker's [specialist's] 
market changes, he or she may have to issue, via the facilities of 
the Corporation, a subsequent pre-opening notification. The three 
situations requiring subsequent pre-opening notifications are 
described below. Subsequent pre-opening notifications shall be 
standardized pre-opening administrative messages. After sending a 
subsequent notification, the Market Maker [specialist] shall wait 
either (A) one minute or (B) until the balance of the original 
three-minute waiting period expires whichever is longer, before 
opening his or her market (i.e., if more than one minute of the 
initial waiting period has not yet expired at the time the 
subsequent notification is sent, the Market Maker [specialist] must 
wait for the rest of the period to pass before opening his or her 
market).
    (I) Increase or Decrease in Applicable Price Range--Where, prior 
to the Market Maker's [specialist's] opening of his or her market in 
the security, his or her anticipated opening price shifts so that it 
(1) is outside of the price range specified in his or her pre-
opening notification but (2) still represents a change from the 
previous day's consolidated closing price of more than the 
applicable price change, he or she shall issue, via the facilities 
of the Corporation, a replacement preopening notification (an 
``additional'' notification) through the System before opening his 
or her market in the security. An additional notification contains 
the same kind of information as is required in an original 
preopening notification.
    (II) [II.] Shift to Within Applicable Price Change Parameter--
    (a) The Market Maker [specialist] shall, by issuing, via the 
facilities of the Corporation, a ``cancellation'' notification 
through the System, notify the Participant market(s) of the 
receiving market maker(s) prior to opening the security if the price 
at which he or she anticipates opening his or her market shifts so 
that it (1) is outside of the price range specified in his or her 
pre-opening notification but (2) does not represent a change from 
the previous day's consolidated closing price of more than the 
applicable price change.
    (b) Notwithstanding the preceding sentence, in situations where 
the price range in an initial or additional notification includes 
price variations equal to or less than the applicable price change 
parameters, the ``cancellation'' notification signifies that the 
anticipated opening price: (1) may or may not be outside of the 
price range specified in the pre-opening notification and (2) does 
not represent a change from the previous day's consolidated closing 
price of more than the applicable price change.***
---------------------------------------------------------------------------

    *** Example: CTA close at 30. Pre-Opening Notification sent with 
any one of the following price ranges 30--\1/2\; 30\1/8\--\5/8\; or 
30\1/4\--\3/4\. It is then determined that the stock will open at 
29\3/4\ or \7/8\. Under paragraph (II)(a), the Market Maker 
[specialist] ``shall'' send, via the facilities of the Corporation, 
cancellation notification. If it is subsequently determined that 
stock will open at 30, 30\1/8\, or 30\1/4\, the Market Maker 
[specialist] need not reindicate stock, via the facilities of the 
Corporation, pursuant to paragraph (II)(b).
---------------------------------------------------------------------------

    (III) Participation as Principal Precluded (``Second Look'')--If 
a responding market maker who has shown in his or her pre-opening 
response interest as principal at a price better than the 
anticipated opening price would be precluded from participation as 
principal in the opening transaction (e.g., his or her responding 
principal interest is to sell at a price \1/8\ or more below the 
opening price established by paired agency orders), the Market Maker 
[specialist] shall send, via the facilities of the Corporation, a 
``second look'' notification through the System notifying such 
responding market maker of the price and size at which he or she 
could participate as principal (i.e., in the parenthetical example 
above, the total amount of the security that he or she would have to 
sell at the \1/8\ better price to permit the opening transaction to 
occur at that price).
    (ii)[(B)] Tape Indications--If the CTA Plan or the Corporation's 
Rules [rules] require or permit that an ``indication of interest'' 
(i.e., an anticipated opening price range) in a security be 
furnished to the consolidated last sale reporting system prior to 
the opening of trading, or reopening of trading following a halt or 
suspension in trading in one or more Eligible Listed Securities, 
then the furnishing of an indication of interest, in such situations 
shall, without any other additional action required of the Market 
Maker [specialist], (1) initiate the Pre-Opening process, and, (2) 
if applicable, substitute for and satisfy the requirements of 
paragraphs (8)(A)(i)(1), (8)(A)(i)(2)(I) and (8)(A)(i)(2)(II) 
[(8)(i)(A)(1), (8)(i)(A)(2)(I) and (8)(i)(A)(2)(II)]. (While the 
furnishing of an indication of interest to the consolidated last 
sale reporting system satisfies the notification requirements of 
this Rule [rule], a Market Maker [a specialist] should also 
transmit, via the facilities of the Corporation, the indication 
through the System in the format of a standardized pre-opening 
administrative message.) In any such situation the Market Maker 
[specialist] shall not open or reopen the security until not less 
than three minutes after the [his] transmission of the opening or 
reopening indication of interest. For the purpose of paragraphs 
(8)(B)(i), (8)(B)(iii), (8)(A)(i)(2)(III), (8)(B)(iv), (8)(B)(v), 
(8)(C) and (8)(A)(ii) [8(ii)(A), 8(ii)(C), 8(i)(A)(2)(III), 8(i)(D), 
8(ii)(E), 8(iii) and 8(i)(B)] ``pre-opening

[[Page 78870]]

notification'' includes an indication of interest furnished to the 
consolidated last sale reporting service.
    (B)[(ii)] Pre-Opening Responses
    (i) [Decision on Opening Transaction--Subject to paragraph 
8(B)(ii) [(8)(ii)(B)]. If a Market Maker [specialist] who has 
issued, via the facilities of the Corporation, a pre-opening 
notification receives, via the facilities of the Corporation, ``pre-
opening responses'' through the System containing ``obligation to 
trade'' from market makers in other Participant markets 
(``responding market makers''), he or she shall combine those 
obligations with orders he or she already holds in the security and, 
on the basis of this aggregated information, decide upon the opening 
transaction in the security. If the Market Maker [specialist] has 
received, via the facilities of the Corporation, more than one-pre-
opening response from a Participant market, he or she shall include 
in such combination only those obligations to trade from such 
Participant market as are specified in the most recent response 
whether or not the most recent response expressly cancels the 
preceding response(s). An original or revised response, via the 
facilities, received after the Market Maker [specialist] has 
affected his or her opening transaction shall be to no effect.
    (ii)[(B)] Pre-Opening Responses from Open Markets--A Market 
Maker, via the facilities of the Corporation, [specialist] must 
accept only those pre-opening responses sent to the Corporation by 
market makers in other Participant markets prior to the opening of 
the[ir] market[s] for trading in the security.\1\ Following a halt 
or suspension in trading on the Corporation, a Market Maker, via the 
facilities of the Corporation, [specialist] must accept only those 
pre-opening responses sent by market makers to the Corporation from 
other Participant markets that halted trading in the security 
contemporaneously with the Corporation and that had not resumed 
trading in the security at the time the pre-opening response is 
sent.
---------------------------------------------------------------------------

    \1\ For purposes of this section, the market in a security is 
opened (or reopened) with either a trade or a quotation, if trades 
are being reported to the Consolidated Tape and quotes are being 
disseminated on the Consolidated Quotation System.
---------------------------------------------------------------------------

    In the event that one or more market makers from Participant 
markets that have already opened trading in a security or, with 
respect to a halt or suspension in trading, either did not halt 
trading in a security contemporaneously with the Corporation, or has 
already resumed trading in a security, respond to a pre-opening 
notification in that security, the Market Maker [specialist] need 
not, but may in his or her discretion, accept, via the facilities of 
the Corporation, such responses for the purpose of inclusion in the 
opening or reopening transaction. In the event that a Participant 
market opens or with respect to a halt or suspension in trading, 
resumes trading in a security subsequent to a market maker in that 
Participant market sending a pre-opening response but prior to the 
opening or reopening transaction on the Corporation, the market 
maker who sent the pre-opening response to the Corporation must 
confirm the pre-opening response by sending an administrative 
message through the System stating that the response remains valid: 
if the market maker fails to so confirm the pre-opening response, 
the Market Maker [specialist] need not, but may in his or her 
discretion, accept, via the facilities of the Corporation, the 
original response for the purpose of inclusion in the opening or 
reopening transaction.
    (iii)[(C)] Allocation of Imbalances--Whenever pre-opening 
responses from one or more responding market makers include 
obligations to take or supply as principal more than 50 percent of 
the opening imbalance, the Market Maker [specialist] may take or 
supply as principal 50 percent of the imbalance at the opening 
price, rounded up or down as may be necessary to avoid the 
allocation of odd lots. In any such case, where the pre-opening 
response is from more than one responding market maker, the Market 
Maker [specialist] shall allocate the remaining imbalance (which may 
be greater than 50 percent if the Market Maker [specialist] elects 
to take or supply less than 50 percent of the imbalance) among them 
in proportion to the amount each obligated himself or herself to 
take or supply as principal at the opening price in his or her pre-
opening response, rounded up or down as may be necessary to avoid 
the allocation of odd lots. For the purpose of this paragraph 
8(B)(iii) [(8)(ii)(C)], multiple responding market makers in the 
same Eligible Listed Security in the same Participant market shall 
be deemed to be a single responding market maker.
    (iv)[(D)] Treatment of Obligations to Trade--In receiving a pre-
opening response via the facilities of the Corporation, a Market 
Maker [specialist], via the facilities of the Corporation, shall 
accord to any obligation to trade as agent included in the response 
the same treatment as he or she would to an order entrusted to him 
or her as agent on the Corporation [Exchange] at the same time such 
obligation was received.
    (v)[(E)] Responses Increasing the Imbalance--A Market Maker 
[specialist] shall not reject, via the facilities of the 
Corporation, a pre-opening response that has the effect of further 
increasing the existing imbalance for that reason alone.
    (C)[(iii)] Reports of Participation--Promptly following the 
opening in any security as to which a Market Maker, via the 
facilities of the Corporation, [an Exchange specialist] issued pre-
opening notification, the Market Maker, via the facilities of the 
Corporation, [specialist] shall report to each Participant 
responsible for a market in which one or more responding market 
makers are located (A) the amount of the security purchased and/or 
sold, if any, by the responding market maker(s) in the opening 
transaction and the price thereof or (B) if the responding market 
maker's response(s) included agency or principal interest at the 
opening price that did not participate in the opening transaction, 
the fact that such interest did not so participate.
    (9) Opening in Other Participating Markets
    (A)[(i)] Pre-Opening Responses--Subject to paragraph (9)(B) 
[(9)(ii)], whenever a Market Maker, via the facilities of the 
Corporation, [specialist] who has received a pre-opening 
notification as provided in the ITS Plan in any Eligible Listed 
Security as to which he or she is registered as a Market Maker 
[specialist] wishes to participate in the opening of that security 
in the Participant market from which the pre-opening notification 
was issued, he or she may do so by sending, via the facilities of 
the Corporation, obligations to trade through the System to such 
Participant market in a pre-opening response. A pre-opening response 
shall:
    (i)[(A)] be designated as a pre-opening response (``RES'')
    (ii)[(B)] Identify the Participant market P, the Market Maker 
[specialist] and the security (``XYZ''), and
    (iii) [(C)] Show the Market Maker's [specialist's] interest (if 
any), both as principal for his or her own account (``P'') and as 
agent for orders left with him or her (``A''), at each price level 
within the price-range indicated in the pre-opening notification 
(e.g., 40\3/8\, reflected on a netted share basis by being formatted 
as a standardized pre-opening administrative message as follow: RES/
P/XYZ BUY A--P 40\3/8\
    The response may also show market orders separately.
    (B)[(ii)] Response When the Corporation is Open--Notwithstanding 
paragraph (9)(A) [(9)(i)], a Market Maker [specialist] who has 
received via the facilities of the Corporation, a pre-opening 
notification in any Eligible Listed Security in which he or she is 
registered as a Market Maker [specialist] should not send, via the 
facilities of the Corporation, a pre-opening response to the 
originator of such notification if (i) [(A)] the market for trading 
in the security is open on the Corporation or (ii) [(B)] the 
Participant market from which the notification emanated had declared 
a halt or suspension in trading in such security, and the 
Corporation either had not halted trading in the security reasonably 
contemporaneously with the Participant Market or had resumed trading 
during the halt or suspension in trading.
    (C) [(iii)] Revised Responses--a Market Maker [specialist] may 
cancel or modify his or her pre-opening response by sending through 
the System, via the facilities of the Corporation, a revised 
response that cancels the obligations to trade contained in this 
original responses and, if a modification is desired, that 
substitutes new obligations to trade stating the Market Maker's 
[specialist's] aggregate interest (i.e., his or her interest 
reflected in the original response plus any additional interest and/
or minus any withdrawn interest) at each price level. Each 
succeeding response, even if it fails to expressly cancel its 
predecessor response, shall supersede the predecessor response in 
its entirety. Any revised response shall be to no effect if received 
in the Participant market from which the pre-opening notification 
was issued after the security has opened in such Participant market.
    (D)[iv] Sole Means of Pre-Opening Routing--Once a pre-opening 
notification as to any security is received through the facilities 
of [on] the Corporation, the one or more Market Makers [specialists] 
in such security shall submit, via the facilities of the

[[Page 78871]]

Corporation, any obligations to trade that security as principal for 
his, her or their own accounts to the Participant market from which 
the pre-opening notification was issued only through the Pre-Opening 
Application and shall not send orders to trade that security for 
his, her or their own accounts to such Participant market for 
participation at the opening in that market by any other means. The 
foregoing sentence shall have no application to orders sent to that 
market by the Market Makers, via the facilities of the Corporation, 
[specialists(s)] prior to the issuance of a pre-opening 
notification.
    (E) Use of System before Opening or Reopening--No ETP Holder[, 
Equity ASAP Holder or ETP Firm] where acting as principal or agent, 
shall send, via the facilities of the Corporation, an obligation to 
trade, commitment to trade or order in any security in the 
Participant market (or prior to the resumption of trading in the 
security in the Participant market following the initiation of a 
halt or suspension in trading in the security until a pre-opening 
notification in the security has been issued from the other 
Participant market, or, if no pre-opening notification is required, 
until the market in the security has opened in such other 
Participant market.
    (F)[(iv)] Duration of Obligations to Trade--Responses to pre-
opening notifications shall be voluntary, but each obligation to 
trade that at a Market Maker [specialist] includes, via the 
facilities of the Corporation, in any pre-opening response, or in 
any modification of a pre-opening reponse, shall remain binding on 
him or her, and on any person for whom he or she is acting, until 
the security has opened in the Participant market from which the 
pre-opening notification was issued or until a cancellation or 
modification of such obligation has been received in such 
Participant [participant] market, and any such modification shall 
itself be binding on the Market Maker [specialist] or such person 
until a subsequent cancellation or modification thereof has been 
received in such Participant market. The preceding sentence applies 
to obligations to trade even if included in pre-opening responses 
contravening paragraph (8)(B) [(8)(ii)].

Commentary

    01.  No ETP Holder[, Equity ASAP Holder or ETP Firm] shall buy 
against a commitment to sell designated as ``short'' which is 
received through [on] the facilities of the Corporation if the 
resulting transaction would violate the short selling rules.
    02.  Any purchase or sale against a commitment to trade received 
through [on] the facilities of the Corporation shall be effected in 
accordance with the Rules [rules] applicable to the making of bids, 
offers and transactions on the facilities of the Corporation 
[facility].
    03.  For the purposes of this Rule [rule], the market in a 
security is opened (or reopened) with either a trade or quotation, 
if trades are being reported to the Consolidated Tape and quotes are 
being disseminated to the Consolidated Quotation System.
    [.04--Deleted.]

ITS ``Trade-Throughs'' and ``Locked Markets''

    Rule 7.56 [7.67](a). Definitions.
    (1) An ``Exchange trade-through,'' as that term is used in this 
Rule, occurs whenever an ETP Holder [or ETP Firm] initiates the 
purchase of an Eligible Listed Security through the facilities of 
[on] the Corporation at a price which is higher than the price at 
which the security is being offered (or initiates the sale of such a 
security through the facilities of [on] the Corporation at a price 
which is lower than the price at which the security is being bid 
for) at the time of the purchase (or sale) in another ITS 
participating market center as reflected by the bid (offer) then 
being displayed [on the Floor] from such other market center. The 
ETP Holder [or ETP Firm] described in the foregoing sentence is 
referred to in this Rule as the ETP Holder [or ETP Firm ] who 
initiated a trade-through.
    (2)--No change.
    (3) A ``third participating market center trade-through,'' as 
that term is used in this Rule, occurs whenever an ETP Holder [or 
ETP Firm on the Corporation] initiates the purchase of an Eligible 
Listed Security by sending a commitment, via the facilities of the 
Corporation, to trade through the System and such commitment results 
in an execution at a price which is higher than the price at which 
the security is being offered (or initiates the sale of such a 
security by sending, via the facilities of the Corporation, a 
commitment to trade through the System and such commitment results 
in an execution at a price which is lower than the price at which 
the security is being bid for) at the time of purchase (or sale) in 
another ITS participating market center, as reflected by the offer 
(bid) then being displayed through the facilities of the 
Corporation. The ETP Holder [member] described in the foregoing 
sentence is referred to in this Rule as the ``ETP Holder [or ETP 
Firm] who initiated a third participating market center trade-
through.''
    (4) A ``trade-through,'' as that term is used in this Rule, 
means either an Exchange trade-through [on the facilities of the 
Corporation] or a third participating market center trade-through.
    (b) Trade Throughs.
    When purchasing or selling, either as principal or agent, any 
Eligible Listed Security through the facilities of [on] the 
Corporation or by issuing, via the facilities of the Corporation, a 
commitment to trade through the System, ETP Holders[, Equity ASAP 
Holder or ETP Firms] should avoid initiated a trade-through unless 
the provisions of paragraphs (b)(3) below are applicable.
    (2)(A) Except as provided in paragraph (b)(3) below, if a trade-
through occurs and a complaint thereof is received by the 
Corporation through the System from the party whose bid or offer was 
traded-through (``the aggrieved party'', then:
    (i) In the case of an Exchange trade-through [on through the 
facilities of the Corporation] only, if the ETP Holder[or ETP Firm] 
who initiated the trade-through and the party on the contra side of 
the transaction each initiated the transaction [while on] through 
the facilities of the Corporation for his or or her own account or 
any account in which he or she has an interest, the transaction 
shall be deemed void and a cancellation therefore shall be reported 
through the consolidated last sale reporting system;
    (ii) Except as provided in paragraph (b)(2)(A)(i) above, (a) the 
ETP Holder [or ETP Firm] who initiated the trade-through shall 
satisfy, or cause to be satisfied the bid or offer traded-through in 
its entirely either at the price of such bid or offer, or, at the 
price that caused the trade-through (as determined in accordance 
with paragraph (b)(2)(B) below) or, (b) if he or she elects not to 
do so (and, in the case of an third participating market center 
trade-through he or she obtains the agreement of the contra party 
within the ITS participating market center that received the 
commitment that caused that trade-through), then the price of the 
transaction which constituted the trade-through shall be corrected 
to a price at which a trade-through would not have occurred and the 
price correction shall be reported through the consolidated last 
sale reporting system.
    (B) The price at which the bid or offer traded-through shall be 
satisfied pursuant to clause (a) of paragraph (b)(2)(A)(ii) shall be 
the price of such bid or offer except if:
    (i) the transaction that constituted the trade-through was of 
``block size'' but did not constitute a ``block trade'' (as those 
terms are defined in Rule 7.57 [7.68]); and
    (ii) the ETP Holder [or ETP Firm] who initiated the trade-
through did not make every reasonable effort to satisfy or cause to 
be satisfied, through the System, the bid or offer traded-through at 
its price and in its entirety within two (2) minutes from the time 
the report of this transaction that constituted the trade-through 
was disseminated over the high speed line of the consolidated last 
sale report system. In the case of such exception, the price at 
which the bid or offer traded-through shall be satisfied shall be 
the price that caused the trade-through.
    Whenever paragraph (b)(2)(A)(ii) applies, if the ETP Holder [or 
ETP Firm] who initiated the trade-through, or the party (or the 
broker/dealer within another ITS participating market center) on the 
contra side of the transaction was, of if both such parties were 
executing (in whole or in part) orders that originated from off the 
facilities of the Corporation or off the Floor of the other [their] 
respective market centers [Floor], each such order to portion 
thereof that was executed in the transaction that constituted the 
trade-through (whether such order or portion thereof was executed by 
the party who initiated the trade-through or by the member or a 
broker/dealer within another ITS participating market center on the 
contra side of the transaction) shall receive the price that caused 
the trade-through or the price at which the bid or offer traded-
through was satisfied, if it was satisfied, pursuant to clause (a) 
of paragraph (b)(2)(A)(ii) or the adjusted price, if there was an 
adjustment, pursuant to clause (b) of paragraph (b)(2)(A)(ii), 
whichever price is most beneficial to the order or portion. 
Resulting money differences shall be the liability of the party who 
initiated the trade through.

[[Page 78872]]

    (3) The provisions of paragraph (b)(2) above shall not apply 
under the following conditions:
    (A)-(C)--No change.
    (D) the trade-through occurred during a period when, with 
respect to the Eligible Listed Security which was the subject of the 
trade-through, ETP Holders [and ETP Firms of the Corporation] were 
relieved of their obligations under paragraph (c)(2) of Rule 11 Ac1-
1 pursuant to the ``unusual market'' exception of paragraph (b)(3) 
of Rule 11Ac1-1; provided, however, that, unless the provisions of 
this paragraph (b)(3) (other than those of this proviso) apply, 
during any such period ETP Holders [and ETP Firms] shall make every 
reasonable effort to avoid trading-through any bid or offer 
displayed on the Floor from another ITS participating market center 
whose members are not relieved of their obligations under said 
paragraph (c)(2) with respect to such bid or offer;
    (E)-(G)--No change.
    (c) Complaints and Responses to Complaints.
    (1) When a trade-through complaint is received by the 
Corporation, it shall be the duty of the ETP Holder [or ETP Firm] 
who initiated the trade-through to respond as promptly as 
practicable to the aggrieved party. Such a response shall notify the 
aggrieved party either:
    (A)-(B)--No change.
    (2)--No change.
    (A)--No change.
    (B) the loss proximately caused by the trade-through that would 
have been suffered by the aggrieved party had he or she purchased or 
sold the security subject to the trade-through so as to mitigate his 
or her loss and had such purchase or sale been effected at the 
``loss basis price.''
    For purposes of this paragraph, the ``loss basis price'' shall 
be the price of the next transaction, as reported by the high speed 
line of the consolidated last sale reporting system, in the security 
in question, after one hour has lapsed from the time the complaint 
is received by the Corporation (or, if the complaint is so received 
within the last hour of trading on the Corporation on any day, then 
the price of the opening transaction in such security being 
displayed through the facilities of [on] the Corporation on the next 
day on which the Corporation trades that security).
    (3) Any ETP Holder [or ETP Firm] who is an aggrieved party may 
at any time, at his or her discretion, take steps to establish and 
mitigate any loss he or she might incur as a result of the trade-
through. He or she shall give prompt notice to the other market 
[exchange] center of any such action.
    (4) If a complaint of a purported trade-through is received by 
the Corporation and the complained-of transaction resulted from an 
ETP Holder's [or ETP Firm's] execution [on] through the facilities 
of the Corporation of a commitment to trade received from another 
ITS participating market center, the ETP Holder [or ETP Firm] 
should, if circumstances permit, make reasonable efforts to notify 
the complaining party as promptly as practicable following receipt 
of the complaint, (A) that the transaction was not initiated [on] 
through the facilities of the Corporation and (B) of the identity of 
the ITS participating market center that originated the commitment. 
Neither compliance nor non-compliance with the preceding sentence 
shall be the basis for any liability of the ETP Holder [or ETP Firm] 
for any loss associated with the complained-of transaction.
    (5) If a transaction that resulted from the [an] ETP Holder's 
[or ETP Firm's] execution [on] through the facilities of the 
Corporation of a commitment to trade constitutes a trade-through 
under the rules of the originating ITS participating market center, 
then:
    (A) if the broker/dealer on such market center who initiated the 
transaction requests that the ETP Holder [or ETP Firm] correct the 
price of such transaction in accordance with the counterpart in such 
market center's trade-through rule to paragraph (b)(2)(A)(ii)(b) of 
this Rule, the ETP Holder [or ETP Firm] may, but need not, acquiesce 
and so correct the price; and
    (B) paragraph (b)(2)(C) of this Rule [rule] shall apply as if 
the ETP Holder [or ETP Firm] were a contra party within the meaning 
of that paragraph.
    (d) Locked Markets.
    (1) Except as provided in paragraph (d)(2) below, an ETP Holder 
[or ETP Firm] who makes a bid for an Eligible Listed Security [on] 
through the facilities of the Corporation and, in so doing, causes a 
locked market with another ITS participating market center, and the 
Corporation receives a complaint through the System [system] from 
the market center whose offer was locked, the ETP Holder [or ETP 
Firm] responsible for the locking shall, as specified in the 
complaint, either promptly (A) send, via the facilities of the 
Corporation, a commitment to trade to such other market center 
seeking the offer he or she has equaled or exceeded, which 
commitment shall be for either the number of shares he or she has 
bid for or the number of shares offered on the other market center, 
whichever is less; or (B) ``unlock'' (i.e., adjust his or her 
locking bid so as not to cause a locked market). If the complaint 
specifies ``unlock'', he or she may nevertheless ship instead. The 
same principle shall apply to an ETP Holder [or ETP Firm] who makes 
an offer for an Eligible Listed Security through the facilities of 
[on] the Corporation and causes a locked market with another ITS 
participating market center.
    (2) The provisions of paragraph (d)(1) above shall not apply 
when:
    (A)--No change.
    (B) the ETP Holder [for ETP Firm] who caused a locked market 
makes every reasonable effort to comply with paragraph (d)(1) above, 
but is unable to comply because of a system/equipment failure or 
malfunction;
    (C)--No change.
    (D) the locked market occurred at a time when, with respect to 
the Eligible Listed Security which was the subject of the locked 
market, ETP Holders [or ETP Firms either] on [through the facilities 
of] the Corporation or members in the ITS participating market 
center in which the aggrieved member is located were relieved of 
their obligations under paragraph (c)(2) of Rule 11Ac1-1 pursuant to 
the ``unusual market'' exception of paragraph (b)(3) of Rule 11Ac1-
1; or
    (E)--No change.
    (F) the locking bid or offer no longer prevails [on the Floor] 
at the time the complaint is received [on the Floor]. This exemption 
is not intended to discourage a locking member from electing to send 
a commitment if the complaint requests him or her to do so.

Commentary

    .01  The provisions of this Rule shall not apply to (1) 
purchases and sales effected by members participating in the opening 
(or reopening) transaction in an Eligible Listed Security, or (2) 
any ``block trade'' as defined in Rule 7.57 [7.68].
    [.02--Deleted.]
    .02 [.03] A Market Maker [Specialist] utilizing an automatic 
quotation system for quotation changes cannot quote a size greater 
than one round lot bid and offer.
    .03 [.04]--No change.

Block Trade Policy

    Rule 7.57[7.68](a). Definitions.
    (1) A ``block trade,'' as that term is used in this Rule, means 
a trade executed [on] through the facilities of the Corporation 
that:
    (A)-(B)--No change.
    (C) involves either:
    (i) a cross of block size (where the ETP Holder [member] 
represents all of one side of the transaction and all or a portion 
of the other side); or
    (ii) any other transaction of block size (i.e., in which the ETP 
Holder [or ETP Firm] represents an order of block size on one side 
of the transaction only) that is not the result of an execution at 
the current bid or offer on the Corporation.
    Contemporaneous transactions at the same price filling an order 
or orders then or theretofore represented through the facilities of 
[on] the Corporation by an ETP Holder [or ETP Firm] (including 
transactions resulting from commitments to trade sent, via the 
facilities of the Corporation, by the ETP Holder [or ETP Firm] 
pursuant to paragraph (b) below) shall be deemed to constitute a 
single transaction for the purpose of this definition.
    (2) A ``current bid or offer on the Corporation,'' as that term 
is used in paragraph (a)(1)(c)(ii) above, means the price of the 
current quotation on the facilities of the Corporation established 
independently of the order to buy or sell that is represented by the 
ETP Holder [or ETP Firm].
    (3) A ``bid or offer displayed from another ITS participating 
market center'' (or any derivative phrase), as that term is used in 
this Rule, means the current quotation from another ITS 
participating market center displayed through the facilities [on the 
Floor] of the Corporation as required by the ITS Plan, and does not 
include ``away-from-the-market'' limit orders or other interests 
that may be represented in such other ITS participating market 
center.
    (b) Obligation to Send Commitments. Unless one or more of the 
conditions described in paragraph (c) below exist, the ETP Holder 
[or ETP Firm] representing the block-size order(s) shall at the time 
of execution of a block trade send, or cause to be sent, via the 
facilities of the Corporation, through ITS to each other ITS 
participating

[[Page 78873]]

market center displaying a bid (offer) superior to the execution 
price, a commitment to trade at the execution price and for the 
number of shares displayed with that market center's better-priced 
bid (offer).
    (c) Inapplicability. Paragraph (b) above shall not apply under 
the following conditions:
    (1)--No change.
    (2) the ETP Holder [or ETP Firm] representing the block-size 
order(s) made every reasonable effort to satisfy through ITS a 
better-priced bid or offer displayed by another ITS participating 
market center but was unable to because of a systems/equipment 
failure or malfunction;
    (3)--No change.
    (4) the block was executed during a period when, with respect to 
the Eligible Listed Security that was the subject of the block 
trade, ETP Holders [on of the Corporation] were relieved of their 
obligations under paragraph (c)(2) of Rule 11Ac1-1 pursuant to the 
``unusual market'' exception of paragraph (b)(3) of Rule 11Ac1-1; 
provided, however, that, unless one of the conditions of this 
paragraph (c) (other than that of this subparagraph (4)) applies, an 
ETP Holder [or ETP Firms] shall nevertheless make every reasonable 
effort during any such period to satisfy through ITS, via the 
facilities of the Corporation, any better-priced bid or offer 
displayed through the facilities of [on] the Corporation from 
another ITS participating market center whose members are not so 
relieved of their obligations with respect to such bid or offer 
under paragraph (c)(2) of Rule 11Ac1-1;
    (5)--No change.
    (6) the better-priced bid or offer had caused a ``locked 
marked,'' as that term is defined in Rule 7.56[7.67], in the 
Eligible Listed Security that was the subject of the block trade.

Commentary

    .01  A transaction not subject to this Rule may be subject to 
the trade-through provisions of Rule 7.56[7.67]. An ETP Holder or 
ETP Firm who makes a bid or offer through the facilities of [on] the 
Corporation otherwise than in connection with a block trade may be 
subject to the locked market provisions of Rule 7.56[7.67].
    [Rule 7.69--Deleted.]
    Rule 7.58[7.45]--No change.
    Rule 7.59. Reserved.

Section 6[8]. Contracts in Securities

Definitions and General Provisions

    Rule 7.60[7.50]--No change.
    Rule 7.61[7.51](a). ETP [or Equity ASAP] Contracts. All 
contracts in the ordinary course of business of an ETP Holder[, 
Equity ASAP Holder, or ETP Firm of the Corporation] with any other 
ETP Holder[, Equity ASAP Holder, or ETP Firm of the Corporation] for 
the purchase, sale, borrowing, loaning or hypothecating of 
securities, or for the borrowing, loaning or payment of money, 
whether occurring through the facilities [upon the Floors] of the 
Corporation or elsewhere, are ETP [or Equity ASAP] contracts of the 
Corporation unless made subject to the rules [Rules] of another 
exchange.
    (b) Provisions Included in ETP [or Equity ASAP] Contracts. All 
bids made and accepted, and all offers made and accepted in 
accordance with the Bylaws, Rules, and procedures of the Corporation 
shall be binding. The applicable provisions of the Bylaws, Rules, 
and procedures of the Corporation and all other regulations adopted 
pursuant thereto, shall be part of the terms and conditions of all 
ETP contracts [or Equity ASAP Contracts] and all contracts thereby 
effected, and shall be subject to said provisions and to the 
exercise by the Board of Directors of the Corporation of the powers 
in respect thereto vested in them.
    (c) Extend or Postpone Time, Prescribe Special Terms. 
Notwithstanding the foregoing subparagraphs (a) and (b) of this Rule 
or any other provisions of the Bylaws or Rules of the Corporation to 
the contrary, the Board of Directors may extend or postpone the time 
or prescribe special terms and conditions for the performance or 
settlement of ETP contracts [or Equity ASAP Contracts] whenever such 
action is called for by the public interest or by just and equitable 
principles of trade.

Delivery of Securities

    Rule 7.62 [7.53](a). Depository Eligibility.
    (1)--No change.
    (2) A security depository's inclusion of the CUSIP number 
identifying a security in its file of eligible issues does not 
render a security ``depository eligible'' within the meaning of Rule 
7.60(a)(2) [7.50(a)(2)] until:
    (A)-(B)--No change.
    (3)--No change.
    (b) Book Entry Settlement of Transactions.
    (1) An ETP Holder[, Equity ASAP Holder, ETP Firm] shall use the 
facilities of a securities depository for the book-entry settlement 
of all transactions in depository eligible securities with another 
financial intermediary or a member of a national securities exchange 
or a registered securities association.
    (2) An ETP Holder[, Equity ASAP Holder, ETP Firm] shall not 
effect a delivery-versus-payment or receipt-versus-payment 
transaction in a depository eligible security with a customer unless 
the transaction is settled by book-entry using the facilities of a 
securities depository.
    (3) This Rule [rule] shall not apply to transactions that are 
settled outside of the United States.
    (4) The requirements of this Rule [rule] shall supersede any 
inconsistent requirements under the Bylaws and Rules of the 
Corporation.
    (5) This Rule [rule] shall not apply to any transaction where 
the securities to be delivered in settlement of the transaction are 
not on deposit at a securities depository and
    (A)-(B)--No change.

Section 7. Special Offerings

Approval

    Rule 7.63E[7.79](a). The Corporation may, subject to the 
following conditions and provisions, permit a ``Special Offering'' 
as defined hereinafter, to be made through the facilities of the 
Corporation, provided that the Corporation shall have determined 
that the regular market on the facilities [Floor] of the Corporation 
cannot, within a reasonable time and at a reasonable price or 
prices, absorb the particular block of stock which is to be the 
subject of such Special Offering. In making such determination the 
following factors may be taken into consideration:
    (1) Price range and the volume of transactions in such stock on 
the facilities [Floor] of the Corporation during the preceding 
month;
    (2) Attempts which have been made to dispose of the stock in the 
regular market on the facilities [Floor] of the Corporation;
    (3) The existing condition of the Arca Book [specialist's book] 
with respect to such stock;
    (4) The apparent past and current interest in such stock in such 
regular market on the facilities of the Corporation [Floor]; and
    (5)--No change.
    Except in special circumstances a ``Special Offering'' will not 
be permitted unless the offering involves at least 1,000 shares of 
stock or shares having an aggregate market value of $25,000, 
whichever is greater.

Definition--Price--Special Commission

    (b) A Special Offering is defined as an offering (designated as 
a fixed price offering) by one or more ETP Holders[, Equity ASAP 
Holders, or ETP Firms] acting for his, her or their own account or 
for the account of one or more other persons, for the sale of a 
block of stock dealt in on the Corporation, through the facilities 
of the Corporation, at a price not in excess of the last sale of 
such stock or the current offer of such stock, in the regular market 
on the facilities [Floor] of the Corporation, whichever is the 
lower; but not lower than the current bid for such stock in such 
market, unless otherwise specifically permitted by the Corporation, 
whereby the offeror may agree to pay a special commission to such 
ETP Holders[, Equity ASAP Holders, or ETP Firms] as may accept all 
or any part of such Offering for the account of his, her or their 
customers.
    (c) Conditions. No Special Offering, as provided by this Rule 
[rule], shall be made unless all of the following conditions are 
satisfied:
    (1) Stabilizing. The person for whose account such Special 
offering is to be made shall at the time of such offering be the 
owner of the entire block of stock so to be offered, except that, 
for the purpose of stabilizing, there also may be sold for such 
person's account, or for the account of any ETP Holder[, Equity ASAP 
Holder or ETP Firm] offering the block of stock on his or her behalf 
as part of the Special Offering, an amount not to exceed 10% of the 
shares owned and originally offered in the Special Offering by such 
person.
    (2) All to be Offered within Reasonable Time. The person for 
whose account such Special Offering is to be made shall include 
within the Offering all of the security which he or her then intends 
to offer within a reasonable time; and there shall be furnished to 
the Corporation before the Offering is made a written statement by 
the offeror to that effect, or a written statement by his or her 
broker stating that the broker has been so advised by the offeror.
    (3)--No change.
    (4) Agreement by Offeror. The person for whose account such 
Special Offering is made

[[Page 78874]]

shall agree that during the period such offering is open he or her 
will not offer in the regular market on the facilities [floor] of 
the Corporation any shares of the stock which is the subject of such 
Special Offering, unless the prior permission of the Corporation is 
first obtained.
    (5) No Special Commission Member, Etc. No ETP Holder[, Equity 
ASAP Holder, or ETP Firm] shall directly or indirectly receive any 
pat of the special commission referred to in Section 1(b) in 
connection with any purchase for his, her or its own account or the 
account of any participant therein or for the account of any other 
ETP Holder[, Equity ASAP Holder, or ETP Firm] or any participant 
therein, made pursuant to a Special Offering, except that an ETP 
Holder[, Equity ASAP Holder, or ETP Firm] may accept and retain such 
special commission for his, her or its own account in respect of 
securities purchased as principal for the bona fide purpose of 
distribution, even though such firm has been unable to distribute 
the securities.
    (6)-(7)--No change.,
    (8) Allotments. The offeror may, at the time of the announcement 
of a Special Offering, allot on a firm basis to ETP Holder[, Equity 
ASAP Holder, or ETP Firms] engaged in the distributing business not 
more than 50% of the securities involved in the offering. When 
buying orders in a Special Offering exceed the amount of the 
offering, the remainder of the offered securities will be allocated 
in reasonably proportionate amounts.
    (d)--No change.
    (e) Information on Tape. The terms of a Special Offering shall 
be printed on the tape before it is effective, with statement, if 
such be the fact, that stabilizing transaction have been effected or 
are contemplated and that it is intended to over allot shares as 
permitted by Rule 7.63(c)(1) [7.79(c)(1)]. Transactions effected 
pursuant to a Special Offering shall when feasible be printed 
currently on the tape, and the tape shall show the gross price and 
the special commission in a legend such as ``SPOFF 100 XYZ 40 COM 
.50 or \1/2\,'' as well as the number of orders involved in such 
transaction where more than one order is involved; and after the 
close of the market, any unprinted remainder of such transactions 
executed during the day shall be so printed. When the offering is 
terminated, an announcement to that effect shall be printed on the 
tape; and when the intention to stabilize is terminated, such fact 
shall be announced on the tape together with a statement that 
stabilizing transactions have been effected, if such be the fact.
    (f)-(g)--No change.
    (h)(1) Confirmations. An ETP Holder[, Equity ASAP Holder, or ETP 
Firm] effecting for the account of a customer, a purchase pursuant 
to a Special Offering, shall confirm such transaction to such 
customer at the offering price and shall not charge to or collect 
from such customer any commission on account of such transaction.
    The confirmation by an ETP Holder[, Equity ASAP Holder, or ETP 
Firm] to a buyer or seller in a Special Offering shall state in full 
the terms and conditions of the Special Offering. The confirmation 
to a buyer shall state at least:
    (A)-(B)--No change.
    (C) That the seller is to pay a special commission to the ETP 
Holder[, Equity ASAP Holder, or ETP Firm], if such be the fact;
    (D)-(E)--No change.
    (F) The nature of the ETP Holder[, Equity ASAP Holder, or ETP 
Firm] interest in the special offering, if any, other than its 
interest as a recipient of the special commission.
    (2) Soliciting Orders. An ETP Holder[, Equity ASAP Holder, or 
ETP Firm] soliciting purchase orders for execution pursuant to a 
Special Offering shall advise the person so solicited of the terms 
and conditions of such Offering before effecting any transaction for 
such person pursuant thereto. Such disclosure shall include at least 
the items described in paragraphs (A) to (F) of Rule 7.63(h)(1) [(a) 
to (f) of Rule 7.79(h)(1)].
    (3) More Advantageous Price. An ETP Holder[, Equity ASAP Holder, 
or ETP Firm]
    (A)-(B)--No change.
    (C) Proposing, pursuant to discretionary authority from a 
customer, to effect a purchase of stock which is the subject of a 
Special Offering then in effect, shall, before executing any such 
order or effecting any such purchase pursuant to such Special 
Offering make a bona fide attempt to execute such order or to effect 
such purchase in the regular market on the facilities [Floor] of the 
Corporation at a price more advantageous to the customer than the 
gross offering price under the Special Offering.
    (i) Size of Offering. Rule 7.63(a) [7.79(a)] places a general 
limitation on the size of Special Offerings, except in special 
circumstances. Such an exception might be a Special Offering of a 
stock designated as an ``inactive'' stock.
    (j) Preliminary Information Required. The broker for the offeror 
will be required to furnish the following information to the 
Corporation, prior to the announcement of the Special Offering on 
the tape:
    (1)-(7)--No change.
    (8) Description of efforts to dispose of the security through 
the facilities [in the auction market on the Floor] of the 
Corporation.
    (9) Written assurance of the offeror, or the broker upon advice 
from the offeror, that the shares contained in the Offering are all 
of the security which he or she then intends to offer within a 
reasonable time, as required in Rule 7.63(c)(2) [7.79(c)(2)]
    (10)-(11)--No change.
    (12) Statement as to whether the offeror or his or her agent 
intends, for the purpose of stabilizing, to sell stock in the 
Special Offering in excess of that owned and included in the 
original offer as permitted to Rule 7.63(c)(1) [7.79(c)(1)].
    (13)--No change.
    The foregoing information should be given to the Corporation as 
soon as possible in advance of the time it is proposed to make the 
Special Offering. Announcement will not be made on the tape of the 
Special Offering (and the Special Offering thus cannot become 
effective) until the Corporation has the requisite information and 
has approved it.
    (k) Ownership. The offeror in a Special Offering must be the 
owner of the entire block of stock offered for sale, except for the 
purpose of stabilizing as permitted by Rule 7.63(c)(1) [7.79(c)(1)].
    (l)--No change.
    (m) Other Offers. It should be noted that under Rule 7.63(c)(4) 
[7.79(c)(4)], an offeror may not, while his or her Special Offering 
is open, offer any shares of the same stock in the regular trading 
through the facilities [auction market] without prior permission of 
the Corporation.
    (n) Orders After Close. Orders accumulated after the close shall 
be completed on the facilities [Floor] of the Corporation at the 
opening of the next market session.
    (o) Special Offering Transactions. [Purchases in Special 
Offerings shall be completed on the Floor of the Corporation at the 
Post or Posts where the stock is traded.] The handling of the order 
on either the purchase or the offering side may be entrusted to a 
Market Maker [Floor broker or specialist] in the same manner as in 
the case of regular orders. In connection with a special Offering, 
the broker for the buyer is acting in an agency capacity and the 
agency obligation to buy at the most advantageous price to the 
customer shall be observed.
    (p)--No change.
    (q) Odd Lot Stop Orders. Transactions effected pursuant to 
Special Offerings shall not elect Stop Orders or open odd lot orders 
for execution in the regular [auction] market.
    (r) Confirmations. Confirmation need not be on a specially 
prepared form but must show clearly in type no smaller than 8-point 
that the purchase was part of a Special Offering; that no commission 
is to be charged to the customer; that the seller is to pay a 
special commission to the ETP Holder[, Equity ASAP Holder, or ETP 
Firm], if such be the fact; the amount of such special commission; 
the information printed on the tape regarding stabilizing 
transactions or the intention to stabilize; and the nature of ETP 
Holder's[, Equity ASAP Holder's, or ETP Firm's] interest in the 
Special Offering, if any, other than its interest as a recipient of 
the special commission.
    Confirmations used by the broker for the seller similarly need 
not be on a specially prepared form, but must show clearly in type 
no smaller than 8-point that the sale is part of a Special Offering 
of * * * shares of * * * stock at * * * per share less * * * special 
commission, and, separately, the selling commission charged by the 
broker for the seller.
    (s)--No change.

Section 8 [12]. Exchange Distributions

    Rule 7.64 [7.80](a). Definition. An important feature of an 
Exchange Distribution is that an ETP Holder[, Equity ASAP Holder, or 
ETP Firm] may now pay compensation to its registered representatives 
for soliciting others to purchase through the facilities [in the 
regular auction market on the Floor] of the Corporation a security 
admitted to dealing which is the subject of an approved Exchange 
Distribution. Or it may on its own behalf or on behalf of a customer 
make an arrangement to pay a special commission, as mutually agreed, 
for distributing the security to one or more ETP Holders [members 
firms], who may in turn give special compensation to their 
registered representatives for purchases they have solicited in 
connection with the distribution.

[[Page 78875]]

    Under an Exchange Distribution, purchase orders may be grouped 
from time to time, as they are received, and sent to the facilities 
of the Corporation [Floor] together with an order to sell an equal 
amount and ``crossed'' under the rules of the Corporation.
    (b) Similar to Special Offering. An Exchange Distribution is 
somewhat similar to a Special Offering in the following respects:
    (1)--No change.
    (2) Approval will be given only when it is determined that the 
regular market on the facilities [Floor] could not, within a 
reasonable time and at a reasonable price or prices, otherwise 
absorb the block of securities;
    (3)--No change.
    (4) All transactions will take place on the facilities of the 
Corporation [(but unlike a Special Offering, will be done in the 
regular auction market)];
    (5) Only ETP Holders[, Equity ASAP Holders, or ETP Firms] are 
eligible for participation in the solicitation of purchase orders 
and in the special commission, if any, paid by the offeror on 
purchases resulting from such solicitation;
    (6) The person for whose account the distribution is to be made 
shall, at the time of the distribution, be the owner of the entire 
block of the security to be so distributed, and shall include within 
the distribution all of the security which he or she then intends to 
offer within a reasonable time;
    (7) Each ETP Holder[, Equity ASAP Holder, or ETP Firm] 
soliciting purchase orders in connection with an Exchange 
Distribution must advise the person being solicited, before 
effecting any transaction for such person pursuant thereto, that the 
securities being offered are part of a specified number of shares 
being offered in an Exchange Distribution and that he or she is 
receiving a special commission from the seller or his or her broker, 
if that is the case.
    (c) Differences from Special Offering. An Exchange Distribution 
differs from a Special Offering in that:
    (1) It is effected in the regular [auction] market and not at a 
fixed price;
    (2)-(3)--No change.
    (4) During the period when the distribution is being made, 
neither the person for whose account the distribution is being made 
nor the ETP Holders, [Equity ASAP Holders, or ETP Firms] who are 
parties to the distribution, shall bid for or purchase any of the 
securities for an account in which the ETP Holder, [, Equity ASAP 
Holder, or the ETP Firm] has a direct or indirect interest;
    (5) No ETP Holder[, Equity ASAP Holder, or ETP Firm] who is 
connected in any way with an Exchange Distribution may, with respect 
to such distribution, (A) effect stabilizing transactions, (B) 
effect short sales, (C) make firm allotments, (D) accept over-
subscriptions.
    (d) Procedure. To effect an ``Exchange Distribution'' of a block 
of a security admitted to dealing on the Corporation, an ETP 
Holder[, Equity ASAP Holder, or ETP Firm] for his, her or its own 
account, or the account of a customer, may
    (1) Make an arrangement with one or more other ETP Holders[, 
Equity ASAP Holders, or ETP Firms] under which
    (A) The ETP Holders[, Equity ASAP Holders, or ETP Firms], with 
whom the arrangement is made, solicit others to purchase such 
security;
    (B) The selling ETP Holder[, Equity ASAP Holder, or ETP Firm] 
may pay to the ETP Holders[, Equity ASAP Holders, or ETP Firms], 
whom the arrangement is made, a special commission which is mutually 
agreeable; and
    (C) ETP Holders[, Equity ASAP Holders, or ETP Firms], with whom 
the arrangement is made, may pay a special commission to their 
registered representatives; and/or
    (2) Pay a special commission to his, her or its registered 
representatives for soliciting others to purchase such security.
    (E) Approval Required. An ``Exchange Distribution'' may be made 
only with the prior approval of the Corporation. Such a Distribution 
shall not be approved unless the Corporation shall have determined 
that the regular market on the facilities [Floor] of the Corporation 
cannot, within a reasonable time and at a reasonable price or 
prices, otherwise absorb the block of securities which is to be the 
subject of the ``Exchange Distribution.'' In making such 
determination, the following factors may be taken into 
consideration:
    (1) Price range and the volume of transactions in such security 
on the facilities [Floor] of the Corporation during the preceding 
month;
    (2) Attempts which have been made to dispose of the security on 
the facilities [Floor] of the Corporation;
    (3) The existing conditions of the Arca Book [specialist's book 
and Floor quotations] with respect to such security;
    (4) The apparent past and current interest in such security on 
the facilities [Floor]; and
    (5)--No change.
    (f) Conditions. No ``Exchange Distribution'' shall be made 
unless all of the following conditions are satisfied:
    (1)--No change.
    (2) The person for whose account the Distribution is to be made 
shall include within the Distribution all of the security which he 
or she then intends to offer within a reasonable time; and there 
shall be furnished to the Corporation, before the Distribution is 
made, a written statement by the offeror to the effect or a written 
statement by his or her broker stating that the broker has been so 
advised by the offeror;
    (3) The person for whose account the Distribution is made shall 
agree that during the period the Distribution is being made he or 
she will not bid for or purchase any of the security for any account 
in which he or she has a direct or indirect interest;
    (4) The ETP Holders[, Equity ASAP Holders, or ETP Firms] who are 
parties to the arrangement for the Distribution shall not, during 
the period the Distribution is being made, bid for or purchase any 
of the security for an account in which they have a direct or 
indirect interest;
    (5) No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall be 
granted approval to effect an ``Exchange Distribution'' of a block 
of a security for an account in which he or she has a direct or 
indirect interest if he or she is registered as a Market Maker 
[specialist] in such security, unless the Corporation has determined 
that such Market Maker [specialist] has been unable, within a 
reasonable period of time, to dispose of the block of the security 
in the ordinary course of his or her dealings as a Market Maker 
[specialist]. Such approval shall stipulate that the Market Maker 
[specialist] may not deal directly with the public but must make an 
arrangement with one or more other ETP Holders[, Equity ASAP 
Holders, or ETP Firms] to solicit others to purchase the security, 
and pay, if any, a special commission to such other ETP Holders[, 
Equity ASAP Holders, or ETP Firm] as provided under Section 1(a) of 
this Rule [rule];
    (6) Each ETP Holder[, Equity ASAP Holder, or ETP Firm] 
soliciting purchase orders for execution in the Distribution shall 
advise the person so solicited, before effecting any transaction for 
such person pursuant thereto, that the securities being offered are 
part of a specified number of shares or bonds being offered in an 
``Exchange Distribution,'' and that he or she or it
    (A) is acting for the seller and will receive a special 
commission from the seller or his or her broker if that is the case, 
or is acting as a principal; and
    (B) is charging the buying customer a commission, if any, or is 
making the sale at a net amount, whichever the case may be.
    (7) No ``short'' sale may be made in connection with the 
Distribution except that securities may be borrowed to make delivery 
where the person owns the securities sold and intends to deliver 
such securities as soon as possible without undue inconvenience or 
expense.
    The conditions set forth in (2)(3) and (4) above shall not apply
    (A) To transactions effected on the Corporation, for the purpose 
of maintaining a fair and orderly market, by an ETP Holder [a 
member] in a security in which he or she is registered as a Market 
Maker [specialist] and which is the subject of an Exchange 
Distribution for an account in which he or she has an interest, 
except that, when such Distribution is in effect, he or she shall 
not bid for or purchase such stock [on] through the facilities of 
the Corporation for an account in which he or she has an interest:
    (i) at a price above the preceding sale, or
    (ii) at a price above the next preceding sale, or
    (B) To transactions effected by an ETP Holder[, Equity ASAP 
Holder or ETP Firm] on the Corporation in less than the unit of 
trading for the purpose of purchasing odd lots offered to him or her 
in a security in which he or she is registered as a Market Maker 
[specialist] and which is the subject of an Exchange Distribution in 
which he or she has an interest.
    The conditions set forth in (3) and (4) above shall not apply to 
purchases necessitated solely in connection with ``crossing'' orders 
pursuant to the Distribution.
    (g) Execution. In effecting an ``Exchange Distribution'' the 
orders for the purchase of the securities being distributed must be 
sent to the facilities of the Corporation [Floor] together with an 
order to sell an equal amount to be ``crossed'' in accordance with

[[Page 78876]]

the Rules [rules] applicable to the crossing of orders on the 
facilities [Floor], and such transactions shall be printed on the 
ticker tape.
    (h) Reports. The ETP Holder[, Equity ASAP Holder, or ETP Firm] 
selling securities in an ``Exchange Distribution'' shall report to 
the Corporation all transactions in such securities effected by him, 
her or it for any account in which the seller had a director 
indirect interest, commencing with the time arrangements for the 
Distribution were made and ending with the time the Distribution was 
completed.

Rule 8

Trading of Certain Equity Derivatives

Section 1. Currency and Index Warrants

    Rule 8.1-8.3--No change.

Account Approval

    Rule 8.4. No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall 
accept and order from a customer to purchase or sell a stock index, 
currency index or currency warrant unless the customer's account has 
been approved for options trading pursuant to Rule 9.18(b).
    Rule 8.5--No change.

Discretionary Accounts

    Rule 8.6. Rule 9.6(a) shall not apply to customer accounts 
insofar as an ETP Holder[, Equity ASAP Holder, or ETP Firm] 
exercises discretion to trade in stock index, currency index and 
currency warrants, and any such account shall instead be subject to 
the provisions of Rule 9.18(e) with respect to such trading. For 
purposes of this Rule, the term ``option'' as used in Rule 9.18(e) 
shall be deemed to include such warrants.

Supervision of Accounts

    Rule 8.7. Rule 9.18(d) shall not apply to all customer accounts 
of an ETP Holder[, Equity ASAP Holder, or ETP Firm] in which 
transactions in stock index, currency index or currency warrants are 
effected. The term ``option'' as used in Rule 9.18(d) shall be 
deemed to include such warrants.

Customer Complaints

    Rule 8.8 Rule 9.18(1) shall apply to all customer complaints 
received by an ETP Holder[, Equity ASAP Holder or ETP Firm] 
regarding stock index, currency index or currency warrants. The term 
``options'' as used in Rule 9.18(1) shall be deemed to include such 
warrants.

Prior Approval of Certain Communications to Customers

    Rule 8.9(a) No ETP Holder[, Equity ASAP Holder, or ETP Firm] or 
person associated with an ETP Holder[, Equity ASAP Holder, or ETP 
Firm] shall utilize any advertisement, educational material, sales 
literature or other communication to any customer or member of the 
public concerning stock index, currency index or currency warrants 
that:
    (1)-(3)--No change.
    (b) All advertisements, sales literature and educational 
material issued by an ETP Holder[, Equity ASAP Holder or ETP Firm] 
to any customer or member of the public pertaining to stock index, 
currency index or currency warrants shall comply with the 
requirements set forth in the Commentaries to Rule 9.28. For 
purposes or this Rule, the term ``option'' as used in such 
Commentaries shall be deemed to include such warrants, and the term 
``The Options Clearing Corporation'' as used in such Commentaries 
shall be deemed to mean the issuer(s) of such warrants.
    (c) All advertisements, sales literature (except completed 
worksheets) and educational materials issued by an ETP Holder[, 
Equity ASAP Holder or ETP Firm] to any customer or member of the 
public pertaining to stock index, currency index or currency 
warrants shall be approved in advance by a Compliance Registered 
Options Principal or designee thereof. Copies of such 
advertisements, literature or materials, together with the names of 
the persons who prepared them, the names of the persons who approved 
them and, in the case of sales literature, the source of any 
recommendations contained therein, shall be retained by the ETP 
Holder[, Equity ASAP Holder or ETP Firm] and be kept in an easily 
accessible place for examination by the Corporation for a period of 
three years.
    (d) In addition to the approval required by subsection (c) of 
this Rule, every advertisement and all educational material of an 
ETP Holder[, Equity ASAP Holder or ETP Firm] pertaining to stock 
index, currency index and currency warrants shall be submitted to 
the Corporation at least ten days prior to use (or such shorter time 
as the Corporation may allow in particular instances) for approval 
and, if changed or expressly disapproved by the Corporation, shall 
be withheld from circulation until any changes specified by the 
Corporation have been made or, in the event of disapproval, until 
such material has been resubmitted for, and has received, 
Corporation approval. The requirements of this paragraph shall not 
be applicable to:
    (1)--No change.
    (2) advertisements in which the only reference to stock index, 
currency index or currency warrants is contained in a listing of 
services of an ETP Holder[, Equity ASAP Holder or ETP Firm].
    (e)--No change.

Position Limits

    Rule 8.10(a). Except with prior written approval of the 
Corporation in each instance, no ETP Holder[, Equity ASAP Holder, or 
ETP Firm] shall effect for any account in which such ETP Holder[, 
Equity ASAP Holder, or ETP Firm] has an interest or for the account 
of any partner, officer, director or employee thereof or for the 
account of any customer, a purchase or sale transaction (whether on 
the Corporation or on or through the facilities of, or otherwise 
subject to the rules of, another national securities exchange or 
national securities association) in a stock index warrant if the ETP 
Holder[, Equity ASAP Holder, or ETP Firm] has reason to believe that 
as a result of such transaction the ETP Holder[, Equity ASAP Holder, 
or ETP Firm] or partner, officer, director or employee thereof or 
customer would, acting alone or in concert with others, directly or 
indirectly, control an aggregate position in an index warrant issue, 
or in all warrants issued on the same stock index group, on the same 
side of the market, in excess of the following position limits:
    (1)-(2)--No change.
    (b) Whenever the Corporation determines that a person or group 
of persons acting in concert holds or controls an aggregate position 
(whether long or short) in stock index warrants in excess of the 
applicable position limits established pursuant to paragraph (a) of 
this Rule 8.10, it may direct all ETP Holders[, Equity ASAP Holders, 
or ETP Firms] carrying a position in stock index warrants for such 
person or persons to liquidate such position, as expeditiously as 
possible consistent with the maintenance of an orderly market, to 
the extent necessary to assure that such person or persons are in 
compliance with applicable position limits. Whenever such a 
directive is issued by the Corporation, no ETP Holder[, Equity ASAP 
Holder, or ETP Firm] receiving notice thereof shall accept any order 
to purchase or sell any stock index warrants based on the same stock 
index for the account of the person or persons named in such 
directive, unless in each instance the Corporation provides its 
express approval therefor, or until such directive is rescinded.

Commentary

    .01--No change.
    .02  The Corporation may establish higher position limits for 
[specialists'] Market Maker transactions than those applicable with 
respect to other accounts. Whenever a [specialist] Market Maker 
reasonably anticipates that he or she may exceed such position 
limits in the performance of his [specialist] or her Market Maker 
functions, he or she must consult with and obtain the prior approval 
of [a Trading Official] the regulatory staff.

Exercise Limits

    Rule 8.11. Except with the prior approval of the Corporation in 
each instance, no ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall exercise, for any account in which such ETP Holder[, Equity 
ASAP Holder, or ETP Firm] has an interest, or for the account of any 
partner, officer, director or employee thereof, or, for the account 
of any customer, a long position in any stock index warrant dealt in 
on the Corporation if as a result thereof such ETP Holder[, Equity 
ASAP Holder, or ETP Firm] or partner, officer, director or employee 
thereof or customer, acting alone or in concert with others, 
directly or indirectly, has or will have exercised within any five 
(5) consecutive business days aggregate long positions in the number 
of stock index warrants set forth in Rule 8.10. The Corporation may 
from time to time institute other limitations concerning the 
exercise of stock index warrants. All such exercise limitations are 
separate and distinct from any other exercise limitations imposed by 
the issuers of index warrants.

Trading Halts or Suspensions

    Rule 8.12--No change.

Reporting of Warrant Positions

    Rule 8.13(a). Each ETP Holder[, Equity ASAP Holder, and ETP 
Firm] shall file with the Corporation a report with respect to each 
account in which the ETP Holder[, Equity ASAP Holder, or ETP Firm] 
has an interest,

[[Page 78877]]

each account of a partner, officer, director, or employee of such 
ETP [Firms or Equity ASAP] Holder and each customer account, that 
has established an aggregate position (whether long or short) of 
100,000 warrants covering the same underlying index, currency or 
currency index, combining for purposes of this [rule] Rule: (1) long 
positions in put warrants and short positions in call warrants, and 
(2) short positions in put warrants with long positions in call 
warrants. The report shall be in such form as may be prescribed by 
the Corporation and shall be filed no later than the close of 
business on the next day following the day on which the transaction 
or transactions requiring the filing of such report occurred. 
Whenever a report shall be required to be filed with respect to an 
account pursuant to this Rule, the ETP Holder[, Equity ASAP Holder, 
or ETP Firm] filing the same file with the Corporation such 
additional periodic reports with respect to such account as the 
Corporation may from time to time prescribe. In computing reportable 
positions, warrants on a stock index shall not be aggregated with: 
(1) warrants on any other stock index, (2) options on any stock 
index or (3) options or warrants on any stock or group of stocks 
included in such index.
    (b) In addition to the reports required by subsection (a) of 
this rule, each ETP Holder[, Equity ASAP Holder, or ETP Firm] shall 
report promptly to the Corporation any instance in which such ETP 
Holder[, Equity ASAP Holder, or ETP Firm] has reason to believe that 
a person, acting alone or in concert with others, has exceeded or is 
attempting to exceed the position limits prescribed in Rule 8.10 or 
the exercise limits prescribed in Rule 8.11.
    (c)--No change.

Section 2. Portfolio Depository Receipts

Portfolio Depositary Receipts

    Rule 8.100(a)-(b)--No change.
    (c) ETP Holders[, Equity ASAP Holders, or ETP Firms] shall 
provide to all purchasers of a series of Portfolio Depositary 
Receipts a written description of the terms and characteristics of 
such securities, in a form approved by the Corporation, not later 
than the time a confirmation of the first transaction in such series 
is delivered to such purchaser. In addition, ETP Holders[, Equity 
ASAP Holders, and ETP Firms] shall include such a written 
description with any sales material relating to a series of 
Portfolio Depositary Receipts that is provided to customers or the 
public. Any other written materials provided by [a] an ETP Holders[, 
Equity ASAP Holder, or ETP Firms] to customers or the public making 
specific reference to a series of Portfolio Depositary Receipts as 
an investment vehicle must include a statement in substantially the 
following form: ``A circular describing the terms and 
characteristics of [the series of Portfolio Depositary Receipts] is 
available from your broker. It is recommended that you obtain and 
review such circular before purchasing [the series of Portfolio 
Depositary Receipts]. In addition, upon request you may obtain from 
your broker a prospectus for [the series of Portfolio Depositary 
Receipts].''
    An ETP Holder[, Equity ASAP Holder, or ETP Firm] carrying an 
omnibus account for a non-ETP Holder [or non-Equity ASAP Holder] 
broker-dealer is required to inform such non-ETP Holder [or non-
Equity ASAP Holder] that execution of an order to purchase a series 
of Portfolio Depositary Receipts for such omnibus account will be 
deemed to constitute agreement by the non-ETP Holder [or non-equity 
ASAP Holders] to make such written description available to its 
customers on the same terms as are directly applicable ETP Holders[, 
Equity ASAP Holders and ETP Firms] under this [rule] Rule.
    Upon request of a customer, and ETP Holders[, Equity ASAP 
Holder, or ETP Firm] shall also provide a prospectus for the 
particular series of Portfolio Depositary Receipts.
    (d)-(e)--No change.
    Rule 8.100(f)-(g)--No change.

Rule 9

Conducting Business with the Public

Section 1. Conducting Business with the Public

Register with the Corporation

    Rule 9.1(a). Each office of an [Equity ASAP] ETP Holder [or ETP 
Firm] shall be registered with the Corporation.

Joint Quarters

    Rule 9.1(b). ETP Holders[, Equity ASAP Holders, and ETP Firms] 
may not occupy joint quarters with anyone other than another ETP 
Holder[, Equity ASAP Holder, or ETP Firm] without the prior and 
continuing approval of the Corporation.

Office Supervision

    Rule 9.1(c) (1) Each office of an [Equity ASAP] ETP Holder [or 
ETP Firm] shall be under the supervision and control of such [Equity 
ASAP] ETP Holder [or ETP Firm] to assure compliance with applicable 
securities laws and regulations and rules of the Corporation.
    (2) The ETP Holders[, Equity ASAP Holders, ETP Firms] and Allied 
Persons thereof shall designate from among their group a person or 
persons to assume authority and responsibility for supervision of 
the firm's activities and establishment and maintenance of 
appropriate procedures and follow-up and review to determine that 
such control and supervision is maintained.
    Rule 9.1(d). ETP Holders[, Equity ASAP Holders, and ETP Firms] 
shall at all times have responsibility for the proper supervision 
and control of their registered employees and as provided in Rule 
9.1(c) shall designate a principal of the firm to be responsible for 
the execution of such supervisory procedures.

Guarantees

    Rule 9.1(e) (1) No registered employee shall guarantee the 
payment of the debit balance in a customer's account to his or her 
employer or to any other creditor carrying such account without the 
prior consent of the Corporation.
    (2) No registered employee shall represent to any customer that 
he or she will personally guarantee the account of such customer.
    (3) No registered employee shall guarantee any customer against 
losses in his or her account, or in any way represent to any 
customer that he or she or his or her employer will guarantee the 
customer against such losses.
    Rule 9.1(f).--No change.

Compensation Rebate

    Rule 9.1(g). No registered employee shall directly or 
indirectly, rebate to any person, firm or corporation any part of 
the compensation he or she may receive as a registered employee; nor 
shall he or she pay such compensation or any part thereof, directly 
or indirectly, to any person, firm, or corporation, as a bonus, 
commission, fee or other consideration, for business sought or 
produced for him or her or any ETP Holder[, Equity ASAP Holder, or 
ETP Firm].

Registered Employee Compensation

    Rule 9.1(h). No registered employee shall, directly or 
indirectly, take, accept or receive, from any person, firm, 
corporation or association, other than the ETP Holder[, Equity ASAP 
Holder, or ETP Firm] with whom he or she is registered, compensation 
of any nature, as a bonus, commission fee, gratuity or other 
consideration, in connection with any securities transactions, 
unless the provisions of Rule 4.3(b) have been previously complied 
with.

Diligence As To Accounts

    Rule 9.2(a). Every ETP Holder, [Equity ASAP Holder or ETP Firm,] 
through a general partner, a principal executive officer or a 
designated authorized person, shall use due diligence to learn the 
essential facts relative to every customer, every order, every 
account accepted or carried by such ETP Holder[, Equity ASAP Holder 
or ETP Firm] and every person holding power of attorney over any 
account accepted or carried by such ETP Holder[, Equity ASAP Holder 
or ETP Firm].

Account Supervision

    Rule 9.2(b). Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall supervise diligently all accounts accepted or carried by such 
firm and shall exercise diligence in supervising the business 
practices of its registered persons and otherwise licensed persons. 
An ETP Holder[, Equity ASAP Holder or ETP Firm] shall adopt 
appropriate procedures for the opening and the maintaining of 
accounts, including the maintaining of records prescribed by the 
Bylaws and Rules of the Corporation and by the rules and regulations 
of the Securities and Exchange Commission, which shall include:
    (1)-(5)--No change.

Customer Records

    Rule 9.2(c). The ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall keep and preserve records concerning all accounts of customers 
in such form and substance as to disclose at least the following 
information:
    (1)-(4)--No change.
    (5) Signature of a general partner, a principal executive 
officer or an authorized person who approved the opening of the 
account prior to or promptly after the completion of any transaction 
for the account of or with a customer; provided, however, that in 
the case of branch offices, the opening of an account for a customer 
may be

[[Page 78878]]

approved by the manager of such branch office but the action of such 
branch office manager shall within a reasonable time be approved by 
a general partner, a principal executive officer or an authorized 
person designated as having such authority by the general partner or 
by the principal executive officer who has the overall authority and 
responsibility for account supervision and control. The general 
partner, principal executive officer or authorized person approving 
the opening of the account shall, prior to giving his or her 
approval, be personally informed as to the essential facts relative 
to the customer and to the nature of and the investment objectives 
of the proposed account and shall indicate his or her approval in 
writing.

Commentary

    .01  In the case of a margin account carried by an ETP Holder[, 
Equity ASAP Holder or ETP Firm] for a non-ETP [or non-Equity ASAP] 
corporation, definite knowledge should be had to the effect that the 
non-ETP [or non-Equity ASAP] corporation has the right under its 
charter and by-laws to engage in margin transactions for its own 
account and that the persons from whom orders and instructions are 
accepted have been duly authorized by the corporation to act on its 
behalf. It is advisable in each such case for the carrying firm to 
have in its possession a copy of the corporate charter, by-laws and 
authorizations. Where it is not possible to obtain such documents, 
an Allied Person in the ETP [Firm or Equity ASAP] Holder carrying 
the account should prepare and sign a memorandum for its files 
indicating the basis upon which he or she believes that the 
corporation may properly engage in margin transactions and that the 
persons acting for the corporation have been duly authorized to do 
so.
    In the case of a cash account carried for a non-ETP [or non-
Equity ASAP] corporation, the ETP [Firm or Equity ASAP] Holder 
should assure itself through a general partner or an officer who is 
a holder of voting stock that persons entering orders and issuing 
instructions with respect to the account do so upon the proper 
authority.
    .02  When an agency account is carried by an ETP [Firm or Equity 
ASAP] Holder its files should contain the name of the principal for 
whom the agent is acting and written evidence of the agent's 
authority.
    .03  When Estate and Trustee accounts are involved an ETP [Firm 
or Equity ASAP] Holder should obtain counsel's advice as to the 
documents which should be obtained.

Employee Accounts

    Rule 9.3(a). No ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall, without the prior consent of the employer, make:
    (1) A cash or margin transaction or carry a margin account in 
securities or in commodities in which an employee of the 
Corporation, or of any ETP Holder, [Equity ASAP Holder, or ETP 
Firm,] is directly or indirectly interested. Duplicate reports and 
statements shall be sent promptly to the employer.
    (2) A margin transaction or carry a margin account in securities 
or in commodities in which an employee of a bank, trust company, 
savings institution, insurance company or any individual or firm 
engaged in the business of dealing in securities, is directly or 
indirectly interested.
    This [rule] Rule applies to all employees of insurance companies 
regardless of whether they are compensated on a salary or commission 
basis. However, it is not considered applicable to independent 
insurance agents.
    A person who is clearly designated by the charter or by-laws of 
a bank, trust company, insurance company, etc., as an officer of 
such institution is not considered an ``employee'' for the purpose 
of this Rule.

ETP Holder and Allied Person Accounts

    Rule 9.3(b). No ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall carry an account for [an] another ETP Holder[, Equity ASAP 
Holder,] or Allied Person of another ETP Holder[, Equity ASAP Holder 
or ETP Firm] without the prior written consent of another person who 
is an ETP Holder[, Equity ASAP Holder,] or Allied Person of such 
other firm.
    Duplicate reports and statements shall be sent to such general 
partner or an officer who is a holder of voting stock designated in 
such consent unless their submission is waived in writing and a 
permanent record of such waiver is retained by both the carrying 
firm and the consenting firm.

Proxies Voting

    Rule 9.4. No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall 
sign or give a proxy to vote any stock registered in the name or 
under control of such ETP Holder[, Equity ASAP Holder, or ETP Firm] 
unless (a) the ETP Holder[, Equity ASAP Holder, or firm] is the 
actual owner thereof, (b) pursuant to the written instructions of 
such actual owner, or (c) pursuant to the rules of another national 
securities exchange to which he or she or his or her firm is 
responsible.

Solicitation Expense

    Rule 9.5. Any expense incident to the securing of proxy 
instructions shall be charged by the ETP Holder[, Equity ASAP 
Holder, or ETP Firm] to the party or parties requesting their 
solicitation.

Discretion as to Customers' Accounts

    Rule 9.6(a). No ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall permit any person employed by such ETP Holder[, Equity ASAP 
Holder, or ETP Firm] or by any other ETP Holder[, Equity ASAP 
Holder, or ETP Firm] to exercise discretion in the handling of a 
transaction for a customer of such ETP Holder[, Equity ASAP Holder, 
or ETP Firm], and no ETP Holder[, Equity ASAP Holder, or ETP Firm] 
or any participant therein shall delegate to any such employee any 
discretionary power vested by a customer in such ETP Holder[, Equity 
ASAP Holder, or ETP Firm] unless in either case the prior written 
authorization of the customer has been received; and if such 
discretionary authority runs, directly or by redelegation, to an 
employee of another ETP Holder[, Equity ASAP Holder, or ETP Firm,] 
the carrying ETP Holder[, Equity ASAP Holder, or ETP Firm] must 
obtain the prior written consent of the employer of the individual 
authorized to exercise discretion. An ETP Holder[, Equity ASAP 
Holder, or ETP Firm] or Allied Person of the carrying ETP [Firm or 
Equity ASAP] Holder shall approve and initial each discretionary 
order entered by an employee of such ETP [Firm or Equity ASAP] 
Holder of another ETP [Firm or Equity ASAP] Holder on the day the 
order is entered. The provisions of this Rule shall not apply to 
discretion as to the price at which or the time when an order given 
by a customer for the purchase or sale of a definite amount of a 
specified security shall be executed.

Records of Discretionary Accounts

    Rule 9.6(b). The ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall keep and preserve records of all customer discretionary 
accounts pursuant to the provisions of this [rule] Rule which shall 
include the signature of the individual who may exercise discretion 
in handling the account. All such accounts shall be reviewed by a 
general partner or principal executive officer at frequent 
intervals.

Marking Discretionary Orders

    Rule 9.6(c). Every ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall identify each discretionary order by appropriately marking 
each discretionary order accordingly.

Pledging Customer Securities

    Rule 9.7(a). An agreement between an ETP Holder[, Equity ASAP 
Holder, or ETP Firm] and a customer authorizing the ETP Holder[, 
Equity ASAP Holder, or ETP Firm] to pledge securities carried for 
the account of a customer or to lend such securities does not 
justify pledging or loaning more of such securities than is fair and 
reasonable in view of the indebtedness of said customer to said ETP 
Holder[, Equity ASAP Holder, or ETP Firm].

Use of Customer Securities

    Rule 9.7(b). The improper use of customer fully-paid and excess 
margin securities is inconsistent with just and equitable principles 
of trade, and no form of general agreement between an ETP Holder[, 
Equity ASAP Holder, or ETP Firm] and a customer shall warrant the 
use or lending of such securities by the ETP Holder[, Equity ASAP 
Holder, or ETP Firm].

Customer Protection--Reserves and Custody of Securities

    Rule 9.7(c). An ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall obtain custody and control of securities and maintain reserves 
as prescribed by Rule 15c3-3 promulgated under the Securities 
Exchange Act of 1934.

Agreements for Use of Customer Securities

    Rule 9.7(d). No ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall lend, either to itself as a broker-dealer or to others, 
securities which are held on margin for a customer and which are 
eligible to be pledged or loaned, unless such ETP Holder[, Equity 
ASAP Holder, or ETP Firm] shall first have obtained a separate 
written authorization from such customer permitting the loaning of 
such securities by the ETP Holder[, Equity ASAP Holder, or ETP 
Firm].

[[Page 78879]]

Business Connections

    Rule 9.8. No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall 
be directly or indirectly interested in or associated in business 
with, or have his or her office directly or indirectly connected by 
public or private wire or other method or contrivance with, or 
transact any business directly or indirectly with or for
    (a)-(c)--No change.

Margin Agreements

    Rule 9.9. No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall 
hypothecate or rehypothecate customer securities unless such ETP 
Holder[, Equity ASAP Holder, or ETP Firm] has obtained from its 
customer an executed margin agreement in a form satisfactory to the 
Corporation.

Assuming Losses

    Rule 9.10. No ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
assume for his or her own account of his or her firm, a contract 
made for a customer after a loss to the customer has been 
established or ascertained, unless the contract was made by mistake 
or unless approval of the Corporation has first been obtained.

Confirmations

    Rule 9.11. No ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
address confirmations, statements or other communications to a non-
ETP [or non-Equity ASAP] customer in care of a person holding power 
of attorney over the customers' account unless either (a) the 
customer has instructed the ETP Holder[, Equity ASAP Holder or ETP 
Firm] in writing to send such confirmations, statements or other 
communications in care of such person, or (b) duplicate copies are 
sent to the customer at some other address designated in writing by 
him or her, or at the address of any ETP Holder[, Equity ASAP Holder 
or ETP Firm,] or in care of a partner or employee of any firm.
    Upon written request, the Corporation may waive these 
requirements.

COD Orders--Partial Delivery

    Rule 9.12(a). No ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall accept an order from a customer pursuant to an arrangement 
whereby payment for securities purchased or delivery of securities 
sold is to be made to or by an agent of the customer unless all of 
the following procedures are complied with:
    (1) The ETP Holder[, Equity ASAP Holder or ETP Firm] shall have 
received from the customer prior to or at the time of accepting the 
order, the name and address of the agent and the name and account 
number of the customer on file with the agent;
    (2)--No change.
    (3) The ETP Holder[, Equity ASAP Holder or ETP Firm] delivers to 
the customer a confirmation, or all relevant data customarily 
contained in a confirmation with respect to the execution of the 
order, in whole or in part, not later than the close of business on 
the next business day after any such execution; and
    (4) The ETP Holder[, Equity ASAP Holder or ETP Firm] has 
obtained an agreement from the customer that the customer will 
furnish his or her agent instructions with respect to the receipt or 
delivery of the securities involved in the transaction promptly upon 
receipt by the customer of each confirmation, or the relevant data 
as to each execution, relating to such order (even though such 
execution represents the purchase or sale of only a part of the 
order), and that in any event the customer will assure that such 
instructions are delivered to his or her agent no later than:
    (A)-(B)--No change.
    (5) The customer or its agent shall utilize the facilities of a 
securities depository for the confirmation, acknowledgement, and 
book entry settlement of all depository eligible transactions.
    (A) For the purpose of this [rule] Rule ``securities 
depository'' shall mean a clearing agency as defined in Section 
3(a)(23) of the Securities Exchange Act of 1934 that is registered 
with the Securities and Exchange Commission pursuant to Section 
17A(b)(2) of the Act.
    (B) For the purpose of this [rule Rule, ``depository eligible 
transactions'' shall mean transactions in those securities for which 
confirmation, acknowledgement, and book entry settlement can be 
performed through the facilities of a securities depository as 
defined in Rule 9.12(a)(5)(A).
    (b) The following transaction shall be exempt from the 
provisions of paragraph (a)(5) of this [rule] Rule:
    (1)--No change.
    (2) Transactions wherein both an ETP Holder[, Equity ASAP Holder 
or ETP Firm] and its agent are not participants in a securities 
depository;
    (3)--No change.

Long Sales

    Rule 9.13(a). For the purposes of effecting delivery within the 
time period required under regular settlement procedures:
    (1) Any sale of a security for a customer which is designated as 
a ``long'' sale may be effected only if:
    (A) The customer is ``long,'' in good deliverable form, the 
security to be sold on the books [on] of the selling ETP Holder, 
[Equity ASAP Holder or ETP Firm,] or
    (B) The selling ETP Holder[, Equity ASAP Holder or ETP Firm] 
notes on he order ticket that
    (i)-(ii)--No change.
    (2)--No change.
    (3) the customer presents to the selling ETP Holder, [Equity 
ASAP Holder or ETP Firm,] with proper instructions, a security 
convertible into or exchangeable for, or an option, warrant or right 
which entitles him or her to purchase, together with the necessary 
funds, prior to settlement date, the security to be sold.

Account Designation

    Rule 9.14. Before any order for a customer of an ETP Holder[, 
Equity ASAP Holder or ETP Firm] is executed, including the case 
where an order is to be executed by the issuance [from the Floor] of 
a commitment to trade through ITS or any other Application of the 
System, there shall be placed upon the order slip or other record 
the name or designation of the account for which such order is to be 
executed. No change in such account name or designation shall be 
made unless the change has been authorized by the ETP Holder[, 
Equity ASAP Holder or ETP Firm] or a partner, who shall, prior to 
giving his or her approval of such change, be personally informed of 
the essential facts relative thereto and shall indicate his or her 
approval of such change in writing on the order.

Statements of Account to Customers

    Rule 9.15. Except with the permission of the Corporation, ETP 
Holders[, Equity ASAP Holders or ETP Firms] shall send their 
customers statements of account showing security and money positions 
and entries at least quarterly to all accounts having an entry, 
money or security position during the preceding quarter. (See also 
SEC Rule 15c3-2 concerning quarterly notices of free credit balances 
on statements.)

Statement or Notice on Interest

    Rule 9.16--No change.

Books and Records

    Rule 9.17. ETP Holders[, Equity ASAP Holder or ETP Firms] shall 
make and retain all the books and records prescribed by the Bylaws 
and Rules of the Corporation, the rules and regulations of the 
Securities and Exchange Commission and the constitution, rules and 
regulations of other regulatory or governmental bodies to which such 
ETP Holders[, Equity ASAP Holders or ETP Firms] are subject. Such 
books and records shall be retained for periods as prescribed and 
shall be made available for inspection by the Corporation.

Doing a Public Business in Options

    Rule 9.18. Rule 9.18 shall be applicable to ETP Holder[, Equity 
ASAP Holders, or ETP Firms] transacting business with the public in 
option contracts issued by the Options Clearing Corporation. Except 
to the extent that specific provisions of Rule 9.18 govern, or 
unless the context otherwise requires, the provisions of all other 
sections of this [rule] Rule shall be applicable to the conduct of 
accounts.
    (a) Registration of Principals and Representatives.
    No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall be 
approved to transact business with the public in option contracts, 
unless those persons associated with the ETP Holder[, Equity ASAP 
Holder, or ETP Firm] who are designated as Options Principals or who 
are designated as Registered Representatives have been approved by 
and registered with the Corporation as such, pursuant to the 
provisions of Rule 9.26 and Rule 9.27, as appropriate.
    (b) Opening of Accounts
    No ETP Holder[, Equity ASAP Holder, or ETP Firm] shall accept an 
order from a customer for the purchase or sale (writing) of an 
option contract unless the customer's account has been approved for 
options trading in accordance with the provisions of Rule 9.18.
    (1) Diligence in Opening Account--In approving a customer's 
account for options transactions, and ETP Holder[, Equity ASAP 
Holder, or ETP Firm] shall exercise due diligence to learn the 
essential facts as to the customer and his or her investment

[[Page 78880]]

objectives and financial situation, and shall make a record of such 
information which shall be retained in accordance with Rule 9.18(d). 
Based upon such information, the branch office manager or other 
Registered Options Principal shall approve in writing the customer's 
account for options transactions; provided, that if the branch 
office manager is not a Registered Options Principal, his or her 
approval shall within a reasonable time be confirmed by a Registered 
Options Principal.
    (2) Disclosure--At or prior to the time a customer's account is 
approved for options trading, the ETP Holder[, Equity ASAP Holder or 
ETP Firm] shall deliver to the customer a current Options Disclosure 
Document in accordance with the requirements of paragraph (g) of 
this Section.
    (3) Account Agreement--Within 15 days after a customer's account 
has been approved for options transactions an ETP Holder[, Equity 
ASAP Holder or ETP Firm] shall obtain from the customer a written 
agreement that (A) the customer is aware of and agrees to be bound 
by the Rules of the Corporation and the PCX Parent applicable to the 
trading of option contracts and the Rules of the Options Clearing 
Corporation and (B) the customer agrees not to violate, either alone 
or in concert with others, the position limits or the exercise 
limits established by the PCX Parent.
    (4) Verification of Customer Background and Financial 
Information--The background and financial information upon which the 
account of every new customer that is a natural person has been 
approved for options trading, unless the information is included in 
the customer's account agreement, shall be sent to the customer for 
verification within fifteen (15) days after the customer's account 
has been approved for options transactions. A copy of the background 
and financial information on file with the ETP Holder[, Equity ASAP 
Holder or ETP Firm] shall also be sent to the customer for 
verification within fifteen (15) days after the ETP Holder[, Equity 
ASAP Holder or ETP Firm] becomes aware of any material change in the 
customer's financial situation.
    (5) Options Disclosure document to be Furnished--At or prior to 
the time a customer's account is approved for options transactions, 
an ETP Holder[, Equity ASAP Holder or ETP Firm] shall furnish the 
customer with a current Options Disclosure Document in accordance 
with the requirements of Rule 9.18(g).
    (6) Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
transacting business with the public in uncovered options contracts 
shall develop, implement, and maintain specific written procedures 
governing the conduct of such business which shall include, but not 
be limited to, the following:
    (A)-(E)--No change.

Commentary

    .01  In fulfilling its obligations pursuant to paragraph (b)(1) 
of Rule 9.18 with respect to options customers that are natural 
persons, an ETP Holder[, Equity ASAP Holder or ETP Firm] shall seek 
to obtain the following information at a minimum (information shall 
be obtained for all participants in a joint account):
    1.-8.--No change.
    In addition, the customer's account records shall contain the 
following information, if applicable:
    a.-g.--No change.
    The ETP Holder[, Equity ASAP Holder, or ETP Firm] should 
consider utilizing a standard account approval form so as to ensure 
the receipt of all the required information.
    .02--No change.
    .03  The requirement of paragraph (b)(4) of Rule 9.18 for the 
initial and subsequent verification of customer background and 
financial information may be satisfied by sending to the customer 
the information required in Items 1 through 6 of Commentary .01 
above as contained in the ETP [Holder, Equity ASAP Holder or ETP 
Firm's] Holder's records and providing the customer with an 
opportunity to correct or complete the information. In all cases, 
absent from the customer to the contrary, the information will be 
deemed to be verified.
    .04  Before approving an account of a trust, pension fund, 
profit sharing plan or other fiduciary for options trading, an ETP 
Holder[, Equity ASAP Holder or ETP Firm] shall be satisfied that the 
instruments under which the fiduciary is acting permit options 
trading.
    .05  Before approving an account with respect to which trading 
authorization has been granted to a third person who is not an 
employee of the ETP Holder[, Equity ASAP Holder or ETP Firm] for 
options trading, the ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall obtain written evidence of the agent's authority to act and 
that such authority specifically includes options trading.
    .06  Before approving an account of an investment partnership or 
an investment club for options trading, the ETP Holder[, Equity ASAP 
Holder or ETP Firm] shall obtain written evidence of the authority 
of the person signing the agreement required by this paragraph to 
sign such agreement on behalf of such partnership or club, as the 
case may be, and that such authority specifically includes options 
trading. Information shall also be obtained with respect to any 
current long or short option positions of the respective partners or 
member of the partnership or investment club.
    .07--No change.
    (c) Suitability.
    (1) No ETP Holder[, Equity ASAP Holder or ETP Firm] or 
registered person thereof shall recommend to any customer any 
transaction for the purchase or sale (writing) of an option 
contract, currency warrant, or an index warrant unless such ETP 
Holder[, Equity ASAP Holder or ETP Firm] or registered person has 
reasonable grounds to believe that the entire recommended 
transaction is not unsuitable for such customer on the basis of 
information furnished by such customer after reasonable inquiry 
concerning the customer's investment objectives, financial situation 
and needs and any other information known by such ETP Holder[, 
Equity ASAP Holder or ETP Firm] or registered person.
    (2) No ETP Holder[, Equity ASAP Holder or ETP Firm,] Registered 
Options Principal or Registered Representative shall recommend to a 
customer an opening transaction in any option contract, currency 
warrant, or index warrant unless the person making the 
recommendation has a reasonable basis for believing at the time of 
making the recommendation that the customer has such knowledge and 
experience in financial matters that he or she may reasonably be 
expected to be capable of evaluating the risks of the recommended 
transaction, and is financially able to bear the risks of the 
recommended position in the option contract, currency warrant, or 
index warrant.
    (d) Supervision of Accounts.
    Every ETP Holder[, Equity ASAP Holder or ETP Firm] shall comply 
with the provisions of rule 9.1(b) in exercising its supervisory 
responsibilities. In addition to such provisions, every ETP Holder[, 
Equity ASAP Holder or ETP Firm] shall comply with the following 
provisions as they relate to its options business.
    (1) Senior Registered Options Principal--Every ETP Holder[, 
Equity ASAP Holder or ETP Firm] shall develop and implement a 
written program for the review of the organization's non-ETP [or 
non-Equity ASAP] customer accounts and all orders in such accounts, 
insofar as such accounts and orders relate to option contracts. This 
program shall be under the supervision of a designated Senior 
Registered Options Principal (``Senior ROP'') who is an officer (in 
the case of a corporation) or general partner (in the case of a 
partnership) of the ETP Holder[, Equity ASAP Holder or ETP Firm] who 
is specifically identified to the Corporation as the senior ROP.
    (2) Compliance Registered Options Principal--ETP [Holder, Equity 
ASAP Holder or ETP Firm] Holders shall designate and specifically 
identify to the Corporation a Compliance Registered Options 
Principal, (who may be the Senior Registered Options Principal), who 
shall have no sales functions and shall be responsible to review and 
to propose appropriate action to secure the ETP [Holder, Equity ASAP 
Holder or ETP Firm's] Holder's compliance with securities laws and 
regulations in respect of its options business. The Compliance 
Registered Options Principal shall regularly furnish reports 
directly to the compliance officer (if the Compliance Registered 
Options Principal is not himself or herself the compliance officer) 
and to other senior management of the ETP Holder[, Equity ASAP 
Holder or ETP Firm]. The requirement that the Compliance Registered 
Options Principal shall have no sales functions does not apply to an 
ETP Holder[, Equity ASAP Holder or ETP Firm] that has received less 
than $1,000,000 in gross commissions on options business as 
reflected in its FOCUS Report for either of the preceding two fiscal 
years or that currently has 10 or fewer Registered Options 
Representatives.
    (3)--No change.
    (4) Each ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
maintain at the principal supervisory office having jurisdiction 
over the office servicing the customer's account, or have readily 
accessible and promptly

[[Page 78881]]

retrievable, information to permit review of each customer's options 
account, on a timely basis to determine (i) the compatibility of 
options transactions with investment objectives and with the types 
of transactions for which the account was approved; (ii) the size 
and frequency of options transactions; (iii) commission activity in 
the account; (iv) profit or loss in the account; (v) undue 
concentration in any options class or classes, and (vi) compliance 
with the provisions of Regulation T of the Federal Reserve Board.

Commentary

    .01--No change.
    .02  Every ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
establish, maintain and enforce written procedures which detail the 
methods used to supervise exchange options transactions. These 
procedures should also detail the methods used to supervise all non-
ETP [or non-Equity ASAP] customer accounts including all orders in 
such accounts, insofar as such accounts and orders relate to option 
contracts.
    .02  Every ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
also develop and implement specific written procedures concerning 
the manner of supervision of customer accounts maintaining uncovered 
short (written) option positions and specifically providing for 
frequent supervisory review of such accounts.
    (e) Discretionary Accounts
    (1) Authorization and Approval Required--No ETP Holder[, Equity 
ASAP Holder or ETP Firm] shall exercise any discretionary power with 
respect to trading in option contracts, currency warrants, or index 
warrants in a customer's account, or accept orders for currency 
warrants, index warrants or option contracts for an account from a 
person other than the customer, except in compliance with the 
provisions of Rule 9.6(a) and in addition (i) the written 
authorization of the customer required by Rule 9.6(a) shall 
specifically authorize options trading in the account; (ii) the 
account shall have been accepted in writing by a Registered Options 
Principal. The Senior Registered Options Principal shall review the 
acceptance of each discretionary account to determine that the 
Registered Options Principal accepting the account has a reasonable 
basis for believing that the customer was able to understand and 
bear the risks of the strategies or transactions proposed, and he or 
she shall maintain a record of the basis for his or her 
determination. Each discretionary order shall be approved and 
initiated on the day entered by the branch office manager or other 
Registered Options Principal, provided that if the branch office 
manager is not a Registered Options Principal, his or her approval 
shall be confirmed within a reasonable time by a Registered Options 
Principal. Every discretionary order shall be identified as 
discretionary on the order at the time of entry. Discretionary 
accounts shall receive frequent appropriate supervisory review by 
the Compliance Registered Options Principal. The provisions of this 
subparagraph shall not apply to discretion as to the price at which 
or the time when an order given by a customer for the purchase or 
sale of a definite number of option contracts in a specified 
security shall be executed.
    (2) Prohibited Transactions--No ETP Holder[, Equity ASAP Holder 
or ETP Firm] having discretionary power over a customer's account 
shall, in the exercise of such discretion, execute or cause to be 
executed therein any purchases or sales of option contracts, 
currency warrants, or index warrants which are excessive in size or 
frequency in view of the financial resources in such account.
    (3) Record of Transactions--A record shall be made of every 
transaction in option contracts, currency warrants, or index 
warrants in respect to which an ETP Holder[, Equity ASAP Holder or 
ETP Firm] has exercised discretionary authority, clearly reflecting 
such fact and indicating the name of the customer, the designation 
and number of the option contracts, currency warrants, or index 
warrants the premium and the date and time when such transaction was 
effected.
    (4)--No change.

Commentary

    .01--No change.
    (f) Confirmations.
    Every ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
promptly furnish to each customer a written confirmation of each 
transaction in option contracts for such customer's account. Each 
such confirmation shall show the type of option, the underlying 
stock, the expiration month, the exercise price, the number of 
option contracts, the premium, commissions, the transaction and 
settlement dates, whether the transaction was a purchase or a sale 
(writting) transaction, whether the transaction was an opening or a 
closing transaction, and whether the transaction was effected on a 
principal or agency basis. The confirmation shall by appropriate 
symbols distinguish between exchange option transactions and other 
transactions in option contracts and between such transactions and 
transactions in other options.
    (g) Delivery of Current Options Disclosure Document and 
Prospectus
    (1) Options Disclosure Documents. Every ETP Holder[, Equity ASAP 
Holder or ETP Firm] shall deliver a current Options Disclosure 
Document (the formal title of which is ``Understanding the Risks and 
Uses of Listed Options'') to each customer at or prior to the time 
each customer's account is approved for options trading. Thereafter, 
each amended Options Disclosure Document shall be distributed to 
every customer having an account approved for options trading, or, 
in the alternative, shall be distributed not later than the time a 
confirmation of a transaction is delivered to each customer who 
enters into an options transaction. The term ``current Options 
Disclosure Document'' means, as to any category of underlying 
security, the most recent edition of such document that meets the 
requirements of Rule 9b-1 under the Securities Exchange Act of 1934.
    (2) Prospectus. Every ETP Holder[, Equity ASAP Holder or ETP 
Firm] shall deliver a copy of the current prospectus of the Options 
Clearing Corporation to each customer who requests one. The 
Corporation will advise ETP Holder[, Equity ASAP Holder or ETP Firm] 
when a new prospectus is available. The term ``current prospectus of 
the Options Clearing Corporation'' means the prospectus portion of 
Form S-20 which then meets the delivery requirements of Rule 153(b) 
of the Securities Act of 1933.
    (3) The written description of risks required by Rule 9.18(b)(6) 
shall be in a format prescribed by the Corporation or in a format 
developed by the ETP Holder[, Equity ASAP Holder or ETP Firm,] 
provided it contains substantially similar information as the 
prescribed Corporation format and has received prior written 
approval of the Corporation.

Commentary

    .01  Where the customer of an ETP Holder[, Equity ASAP Holder or 
ETP Firm] is a broker or dealer entering his or her orders with the 
ETP Holder[, Equity ASAP Holder or ETP Firm] in a single omnibus 
account, such ETP Holder[, Equity ASAP Holder or ETP Firm] shall 
take reasonable steps to assure that the broker or dealer is 
furnished reasonable quantities of current Options Disclosure 
Documents, as requested by him or her in order to enable him or her 
to comply with the requirements of this paragraph (g).
    .02  Where a broker or dealer enters orders for his or her 
customers with, or clears transactions through, an ETP Holder[, 
Equity ASAP Holder or ETP Firm] on a fully disclosed basis and such 
ETP Holder[, Equity ASAP Holder or ETP Firm] carries the accounts of 
such customers, the responsibility for delivering a current Options 
Disclosure Document as provided herein shall rest with the carrying 
ETP Holder[, Equity ASAP Holder or ETP Firm]. However, such ETP 
Holder[, Equity ASAP Holder or ETP Firm] may rely upon the good 
faith representation of the introducing broker or dealer that a 
current Options Disclosure Document has been delivered in compliance 
with this paragraph (g).
    (h) Transactions with Issuers.
    No ETP Holder[, Equity ASAP Holder or ETP Firm] shall accept an 
order for the account of any corporation which is the issuer of an 
underlying stock for the sale (writing) of an option contract with 
respect to that underlying stock.
    (i) Restricted Stock.
    For the purposes of: (i) Covering a short position in a call 
option contract, or (ii) delivery pursuant to the exercise of a put 
option contract, or (iii) satisfying an exercise notice assigned in 
respect of a call option contract, no ETP Holder[, Equity ASAP 
Holder or ETP Firm] shall accept shares of an underlying stock, 
which may not be sold by the holder thereof except upon registration 
pursuant to the provisions of the Securities Act of 1933 or pursuant 
to SEC rules promulgated under the Securities Act of 1933, unless, 
at the time such securities are accepted and at any later time such 
securities are delivered, applicable provisions of the Securities 
Act of 1933 and the rules thereunder have been complied with by the 
holder of such securities.
    (j) Statement of Accounts.
    Every ETP Holder[, Equity ASAP Holder or ETP Firm] shall send to 
its customers statements of account showing security and money 
positions entries, interest charges and any special charges that 
have been assessed

[[Page 78882]]

against such account during the period covered by the statement; 
provided, however, that such charges need not be specifically 
delineated on the statement if they are otherwise accounted for on 
the statement and have been itemized on transaction confirmations. 
With respect to options customers having a general (margin) account, 
such statement shall also provide the mark-to-market price and 
market value of each options position and other security position in 
the general (margin) account, the total market value of all 
positions in the account, the outstanding debit balance in the 
account, and the general (margin) account equity. The statement 
shall bear a legend stating that further information with respect to 
commissions and other charges related to the execution of listed 
option transactions has been included in confirmations of such 
transactions previously furnished to the customer, and that such 
information will be made available to the customer promptly upon 
request.
    Statements of account shall be sent at least quarterly to all 
accounts having a money or a security position during the preceding 
quarter and not less frequently than once every month to each 
customer in whose account there has been an entry during the 
preceding month with respect to an option contract.
    The statement shall also bear a legend requesting the customer 
to promptly advise the ETP Holder[, Equity ASAP Holder or ETP Firm] 
of any material change in the customer's investment objectives or 
financial situation.

Commentary

    .01  For purposes of the foregoing Section, general (margin) 
account equity shall be computed by subtracting the total of the 
``short'' security values and any debit balance from the total of 
the ``long'' security values and any credit balance.
    (k) Doing Business with the Public.
    An [individual] sole proprietor ETP [Holder or Equity ASAP 
Holder] may not transact business with the public, unless such 
Holder receives prior written approval from the Corporation. To 
qualify to transact business with the public, the [individual] sole 
proprietor ETP [Holder or Equity ASAP] Holder shall demonstrate 
compliance with the general requirements of the Corporation as 
prescribed by the Bylaws, Rules and procedures of the Corporation.
    (l) Customer Complaints.
    (1) Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
conducting a non-ETP [or non-Equity ASAP] customer business shall 
make and keep current a separate central log, index or other file 
for all options-related complaints, through which these complaints 
can easily be identified and retrieved. The term ``options-related 
complaint'' shall mean any written statement by a customer or person 
acting on behalf of a customer alleging a grievance arising out of 
or in connection with listed options. The central file shall be 
located at the principal place of business of the ETP Holder[, 
Equity ASAP Holder or ETP Firm] or such other principal office as 
shall be designated by the ETP Holder[, Equity ASAP Holder or ETP 
Firm]. At a minimum, the central file shall include: (i) 
Identification of complainant, (ii) date complaint was received, 
(iii) identification of Registered Representative servicing the 
account, (iv) a general description of the matter complained of, and 
(v) a record of what action, if any, has been taken by the ETP 
Holder[, Equity ASAP Holder or ETP Firm] with respect to the 
complaint. Each options-related complaint received by a branch 
office of an [Equity ASAP] ETP Holder [or ETP Firm] shall be 
forwarded to the office in which the separate, central file is 
located not later than thirty (30) days after receipt by the branch 
office. A copy of every options-related complaint shall be 
maintained at the branch office that is the subject of the 
complaint.
    (m) Branch Offices of [Equity ASAP] ETP Holders [or ETP Firms].
    No branch office of an [Equity ASAP] ETP Holder [or ETP Firm] 
shall transact options business with the public unless the manager 
of such branch office has been qualified as a Registered Options 
Principal; provided, that this requirement shall not apply to branch 
offices in which not more than three Registered Representatives are 
located so long as the [Equity ASAP] ETP Holder [or ETP Firm] can 
demonstrate that the options activities of such branch offices are 
appropriately supervised by a Registered Options Principal.

Transfer of Accounts

    Rule 9.19. Every ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall, upon written request of a customer, expedite the transfer of 
a customer's account pursuant to such customer's instructions.

Transactions for Public Customers

    Rule 9.20(a). Where an ETP Holder[, Equity ASAP Holder or ETP 
Firm] is doing business with the public in accordance with these 
Rules and is also associated with a Market Maker, such ETP Holder[, 
Equity ASAP Holder or ETP Firm] shall file such reports as the 
Corporation may require of transactions for customers in classes of 
option contracts to which such Market Maker has been appointed 
pursuant to PCX Parent Rule 6.35.

Telemarketing

    Rule 9.20(b). No ETP Holder[, Equity ASAP Holder or ETP Firm] or 
associated person of such Holder [or Firm] may:
    (1)--No change.
    (2) Make an outbound telephone call to any person for the 
purpose of soliciting the purchase of securities or related services 
without disclosing promptly and in a clear and conspicuous manner to 
the called person the following information:
    (A) the identity of the caller and the ETP Holder[, Equity ASAP 
Holder or ETP Firm];
    (B)-(C)--No change.
    (3) The prohibitions of subsections (b)(1) and (b)(2), above, do 
not apply to telephone calls by any person associated with an ETP 
Holder[, Equity ASAP Holder or ETP Firm,] or another associated 
person acting at the direction of such person for the purpose of 
maintaining and servicing an account of an existing customer of the 
ETP Holder[, Equity ASAP Holder or ETP Firm] under the control of or 
assigned to such associated person if such person places such calls:
    (A)-(C)--No change.
    The scope of this Rule 9.20(b) is limited to the telemarketing 
calls described herein. The terms of this Rule do not otherwise 
expressly or by implication impose on ETP Holders[, Equity ASAP 
Holders or ETP Firms] or participants any additional requirements 
with respect to the relationship between at ETP Holder[, Equity ASAP 
Holder or ETP Firm] or participant and a customer or between a 
person associated with an ETP Holder[, Equity ASAP Holder or ETP 
Firm] or participant organization and a customer. For the purposes 
of subsection (b)(3), the term ``existing customer'' means a 
customer for whom the broker or dealer, or a clearing broker or 
dealer on behalf of such broker or dealer, carries an account.
    (c) Each ETP Holder[, Equity ASAP Holder or ETP Firm] shall make 
and maintain a centralized list of persons who have informed the ETP 
Holder[, Equity ASAP Holder or ETP Firm] or any employee thereof, 
that they do not wish to receive telephone solicitations, and shall 
refrain from engaging in telephone solicitations of persons named on 
that list.
    (d) No ETP Holder[, Equity ASAP Holder or ETP Firm] or person 
associated with an ETP Holder, [Equity ASAP Holder or ETP Firm,] may 
obtain from a customer or submit for payment a check, draft, or 
other form of negotiable paper drawn on a customer's checking, 
savings, share, or similar account, without that person's express 
written authorization, which may include the customer's signature on 
the negotiable instrument. Each ETP Holder[, Equity ASAP Holder or 
ETP Firm] shall maintain the authorization required by this 
subsection (d) for a period of three years.

Commentary

    .01  ETP Holders[, Equity ASAP Holders or ETP Firms] that engage 
in telephone solicitation to market their products and services 
(``telemarketing'' or ``cold calling'') are subject to the 
requirements of the rules of the Federal Communications Commission 
and the Securities and Exchange Commission relating to telemarketing 
practices and the rights of telephone users. This includes, but is 
not limited to, the requirement to make and maintain a list of 
persons who do not want to receive telephone solicitation (a ``do-
not-call'' list).

Section 2. Advertising and Sales Literature

Policy

    Rule 9.21(a). It shall be considered conduct inconsistent with 
just and equitable principals of trade for an ETP Holder, [Equity 
ASAP Holder or ETP Firm,] directly or indirectly, to publish, 
circulate or distribute any advertisement, sales literature or 
market letter that the ETP Holder[, Equity ASAP Holder or ETP Firm] 
knows or has reason to know contains any untrue statement of a 
material fact or is otherwise false or misleading.

Exemptions

    Rule 9.21(b). The following [rules] Rules shall apply to all ETP 
Holders[, Equity ASAP Holders or ETP Firms] of the Corporation 
unless the ETP Holder[, Equity ASAP Holder or ETP Firm] is subject 
to the jurisdiction of

[[Page 78883]]

another national securities exchange or association designated by 
the Board of Directors as having comparable standards.

Advertisements

    Rule 9.22(a). All advertisements prior to publication shall be 
submitted to the Corporation for approval as to form and 
presentation, except such routine advertisements as (1) Business 
cards or so-called tombstone ads, (2) announcements that specific 
securities are bought, sold or quoted, (3) offering literature 
concerning a specific security or securities, (4) announcements 
relating to changes in an ETP Holder, [Equity ASAP Holder or ETP 
Firm,] (5) inclusion of an ETP [Holder, Equity ASAP Holder or ETP 
Firm's] Holder's name in an underwriting advertisement, or (6) 
advertisements complying with any rule or regulations of the 
Securities and Exchange Commission under the Securities Act of 1933, 
or Securities Exchange Act of 1934. Copies of all ads should be 
retained by the ETP Holder[, Equity ASAP Holder or ETP Firm] for at 
least 3 years.

Refer to Pacific Exchange

    Rule 9.22(b). Advertisements by ETP Holders[, Equity ASAP 
Holders or ETP Firms] for insertion in local papers or other media 
should refer to the Archipelago Exchange, a facility of PCX 
Equities, Inc. and the Pacific Exchange, Inc., when a reference is 
made to membership in any securities exchange.

Sales Literature--Market Letters

    Rule 9.23. Each market letter, research report and all sales 
literature prepared and issued by an ETP Holder[, Equity ASAP Holder 
or ETP Firm] for general distribution to customers or the public 
shall be approved in advance by a principal of the firm who has been 
designated such authority. Market letters, research reports and 
sales literature that refer to the market or to companies or 
securities, listed or unlisted, must be retained by the issuing ETP 
Holder[, Equity ASAP Holder or ETP Firm] for at least 3 years. The 
copies retained must contain the name of the individual approving 
its issuance and will be subject to delivery upon request to the 
Corporation and must at all times within the 3 year period be 
readily available. For purposes of this Rule, scripts that are used 
for telemarketing calls as described in Rule 9.20(b), are deemed to 
be ``sales literature.''

Radio, Television, Telephone and Other Reports

    Rule 9.24. ETP Holders[, Equity ASAP Holders, or ETP Firms] for 
which the Corporation is the designated examining authority 
(``DEA'') desiring to broadcast Corporation quotations on radio or 
television programs, or in public telephone market reports, or to 
make use of radio or television broadcasts for any business purpose, 
or to make use of the Internet for the purpose of providing market 
quotations or advertising to the general public, must first obtain 
the consent of the Corporation by submitting an outline of the 
program to the Corporation.
    The text of all commercials and program material (except lists 
of market quotations) about securities or investing sponsored by ETP 
Holders[, Equity ASAP Holders, or ETP Firms] on radio, television or 
public telephone market reports, or the Internet, or program 
material supplied to these media must be sent to the Corporation 
promptly following the program in which it is used.

Standards

    Rule 9.25. The Corporation cannot be responsible for the 
accuracy and completeness of factual information, nor the opinions 
of ETP Holders[, Equity ASAP Holders, or ETP Firms] in 
advertisements, sales literature or radio or television broadcasts. 
However, general policy to be followed in written communications 
with the public should be substantially as follows:
    (a) In making recommendations there should be a reasonable basis 
for the recommendation and the following facts disclosed:
    (1)-(2)--No change.
    (3) If (2) applies, whether the ETP Holder[, Equity ASAP Holder, 
or ETP Firm] intends to buy or sell the securities recommended for 
his or her own account;
    (4)-(5)--No change.
    (6) If material issued refers to past recommendations, all such 
recommendations as to the same type, kind, grade or classification 
of securities made by an ETP Holder[, Equity ASAP Holder, or ETP 
Firm] within the last year should be set forth. Longer periods of 
years may be covered if they are consecutive and include the most 
recent year. The material must name each security recommended, the 
date and nature of recommendation (buy or sell), the price at the 
time, the price range within which to act upon, and if the period 
was one of generally rising or falling markets;
    (7) Material that makes no recommendations, but offers to 
furnish a list of all recommendations made by an ETP Holder[, Equity 
ASAP Holder, or ETP Firm] within the past year or over a longer 
period of consecutive years shall contain same information as stated 
in item (6) above.
    (b)-(d)--No change.
    (e) Claims for research:
    No claim or implication may be made for research or other 
facilities beyond those which the ETP Holder[, Equity ASAP Holder, 
or ETP Firm] actually posses or has reasonable capacity to provide.
    (f)-(g)--No change.

Registration of Options Principals

    Rule 9.26. No ETP Holder[, Equity ASAP Holder, or ETP Firm] 
shall transact any business with the public in option contracts 
unless those persons engaged in the management of the ETP [Holder, 
Equity ASAP Holder, or ETP Firm's] Holder's business pertaining to 
option contracts are registered with and approved by the Corporation 
as Options Principals. No individual ETP Holder [or Equity ASAP 
Holder] shall transact any business directly with the public in 
option contracts unless he or she is registered with and approved by 
the Corporation as an Options Principal. In connection with their 
registration, Options Principals shall file an application with the 
Corporation on a form prescribed by the Corporation and shall be 
required to successfully complete an examination prescribed by the 
Corporation for the purpose of demonstrating an adequate knowledge 
of options trading generally, the Rules of the Corporation 
applicable to trading of option contracts and theRules of the 
Options Clearing Corporation. In the event the employment of any 
Registered Options Principal is terminated or any Registered Options 
Principal ceases to act in such capacity, such fact shall be 
reported promptly to the Corporation together with a brief statement 
of the reason therefore.

Commentary

    .01  Each ETP Holder[, Equity ASAP Holder, or ETP Firm] shall be 
required to designate a Registered Options Principal who is a 
general partner or officer as the person responsible for overall 
supervision and training in areas relating to transactions in option 
contracts.
    .02--No change.

Registration of Representatives

    Rule 9.27(a). General. No ETP Holder[, Equity ASAP Holder, or 
ETP Firm] shall be approved to transact business with the public 
until those persons associated with it who are designated as 
Representatives have been registered with and approved by the 
Corporation pursuant to the provisions of Rule [2.23(a)] 2.21(a) 
through Rule [2.23(d)] 2.21(d). Persons who perform duties for the 
ETP Holder[, Equity ASAP Holder, or ETP Firm] which are customarily 
performed by sales representatives, solicitors, customers' men or 
branch office managers shall be designated as Representatives.
    (b) Registered Options Representatives. No person associated 
with an ETP Holder[, Equity ASAP Holder, or ETP Firm] shall transact 
any business with the public in option contracts, unless those 
persons are registered with and approved by the Corporation pursuant 
to the provisions of paragraph (a) of this Section and are 
registered with and approved by the Corporation as Options 
Representatives. In connection with their registration as Options 
Representatives, such persons shall file an application with the 
Corporation on a form prescribed by the Corporation, shall 
successfully complete a training course and an examination for the 
purpose of demonstrating adequate knowledge in the trading of option 
contracts, and shall sign an agreement to abide by the Bylaws, Rules 
and procedures of the Corporation and the Rules of the Options 
Clearing Corporation; provided, however, that representatives of an 
ETP Holder[, Equity ASAP Holder, or ETP Firm] which is a member of 
another national securities exchange or association which has 
standards of approval acceptable to the Corporation may be deemed to 
be registered with and approved by the Corporation, so long as such 
representatives are registered with and approved by the Corporation, 
so long as such representatives are registered with and approved by 
such other exchange or association. An ETP Holder[, Equity ASAP 
Holder, or ETP Firm] whose representatives are deemed registered and 
approved pursuant to the last clause of the preceding sentence shall 
inform their representatives of their obligation to adhere to the 
Bylaws, Rules and procedures of the Corporation and the Rules of the 
Options Clearing

[[Page 78884]]

Corporation. Termination of employment or affiliation of any 
Registered Options Representative in such capacity shall be reported 
promptly to the Corporation together with a brief statement of the 
reason for such termination, pursuant to Rule [2.23(h)] 2.21(h).

Commentary

    .01-.03--No change.

Regulatory Element

    Rule 9.27(c). No ETP Holder[, Equity ASAP Holder or ETP Firm] 
shall permit any registered person to continue to, and no registered 
person shall continue to, perform duties as a registered person, 
unless such person has complied with the continuing education 
requirements of this Rule 9.27(c).
    Each registered person shall complete the Regulatory element of 
the continuing education program on three occasions, after the 
occurrence of their second, fifth and tenth registration anniversary 
dates, or as otherwise prescribed by the Corporation. On each of 
these three occasions, the Regulatory Element must be completed 
within one hundred twenty (120) days after the person's registration 
anniversary date. The content of the Regulatory Element of the 
program shall be prescribed by the Corporation.
    (1) Registered person who have been continuously registered for 
more than ten years as of the effective date of this Rule shall be 
exempt from participation in the Regulatory Element of the 
continuing education program, provided such persons have not been 
subject to any disciplinary action within the last ten (10) years as 
enumerated in subsection [(c)(3)(i)-(ii)](c)(3)(A)-(B) of this Rule. 
Persons who have been currently registered for ten (10) years or 
less as of the effective date of this Rule shall initially 
participate in the Regulatory Element of the continuing education 
program within one hundred twenty days (120) after the occurrence of 
the second, fifth or tenth registration anniversary date, whichever 
anniversary date first applies, and on the applicable registered 
anniversary date(s) thereafter. Such persons will have satisfied the 
requirements of the Regulatory Element of the program after 
participation on the tenth registration anniversary.
    All registered persons who have satisfied the requirements of 
the Regulatory Element shall be exempt from further participation in 
the Regulatory Element of the program, subject to re-entry into the 
program as set forth in subsection (c)(3) of this Rule.
    (2)-(3)--No change.
    Re-entry shall commence with the initial participation within 
120 days of the registered person becoming subject to the statutory 
disqualification, in the case of [(i)] (A) above, or the 
disciplinary action becoming final, in the case of [(ii) (B) or 
[(iii)] (C) above, and on three additional occasions thereafter, at 
intervals of two, five and ten years after re-entry, notwithstanding 
that such person has completed all or part of the program 
requirements based on length of time as a registered person or 
completion of ten years of participation in the program.
    (d) Firm Element
    (1) Persons Subject to the Firm Element--The requirements of 
this Rule 9.27(d) shall apply to any registered person who has 
direct contact with customers in the conduct of the ETP [Holder, 
Equity ASAP Holder or ETP Firm's] Holder's securities sales, trading 
or investment banking activities, and to the immediate supervisors 
of such persons (collectively, ``covered registered persons'').
    (2) Standards.
    (A) Each ETP Holder[, Equity ASAP Holder or ETP Firm] must 
maintain a continuing and current education program for its covered 
registered person to enhance their securities knowledge, skills and 
professionalism. At a minimum, each ETP Holder[, Equity ASAP Holder 
or ETP Firm] shall at least annually evaluate and prioritize its 
training needs and develop a written training plan. The plan must 
take into consideration the ETP [Holder, Equity ASAP Holder or ETP 
Firm's] Holder's size, organizational structure, and scope of 
business activities, as well as regulatory developments and the 
performance of covered registered persons in the Regulatory Element.
    (B) Minimum Standards for Training Programs--Programs used to 
implement an ETP [Holder, Equity ASAP Holder or ETP Firm's] Holder's 
training plan must be appropriate for the business of the ETP 
Holder[, Equity ASAP Holder or ETP Firm] and, at a minimum, must 
cover the following matters concerning securities products, services 
and strategies offered by the ETP Holder[, Equity ASAP Holder or ETP 
Firm]:
    (i)-(iii)--No change.
    (C) Administration of Continuing Education Program--Each ETP 
Holder[, Equity ASAP Holder or ETP Firm] must administer its 
continuing education program in accordance with its annual 
evaluation and written plan and must maintain records documenting 
the content of the programs and completion of the programs by 
covered registered persons.
    (3) Participation in the Firm Element--Covered registered 
persons included in an ETP [Holder, Equity ASAP Holder or ETP 
Firm's] Holder's plan must take all appropriate and reasonable steps 
to participate in continuing education programs as required by the 
ETP Holder[, Equity ASAP Holder or ETP Firm].
    (4) Specific Training Requirements--The Corporation may require 
an ETP Holder[, Equity ASAP Holder or ETP Firm,] either individually 
or as part of a larger group, to provide specific training to its 
covered registered persons in such areas that the Corporation deems 
appropriate. Such a requirement may stipulate the class of covered 
registered persons for which it is applicable, the time period in 
which the requirement must be satisfied and, where appropriate, the 
actual training content.

Commentary

    .01  For purposes of this Rule, the term ``registered person'' 
means any ETP Holder, [Equity ASAP Holder or ETP Firm,] Allied 
Person thereof, registered representative or other person registered 
or required to be registered under the Rules of the Corporation, but 
does not include any such person whose activities are limited solely 
to the transaction of business on the facilities of the Corporation 
with ETP Holders[, Equity ASAP Holders, ETP Firms] or registered 
broker-dealers.
    .02  For purposes of this Rule, the term ``customer'' means any 
natural person or any organization, other than a registered broker 
or dealer, executing transactions in securities or other similar 
instruments with or through, or receiving investment banking 
services from, an ETP Holder[, Equity ASAP Holder or ETP Firm].
    .03  A registered person who has been continuously registered 
for more than ten (10) years as of the date of implementation of 
this Rule who has been subject to a disciplinary action as 
enumerated in subsections [(c)(3)(i)-(ii)] (c)(3)(A)-(B) of the Rule 
within the last ten years, will be required to satisfy the 
requirements of the Regulatory Element of the continuing education 
program by participation for the period from the date of 
implementation of this Rule to ten years after the occurrence of the 
disciplinary action.
    .04-.05--No change.

Advertisements, Market Letters and Sales Literature Relating to Options

    Rule 9.28(a). General Rule. No ETP Holder[, Equity ASAP Holder 
or ETP Firm] or person associated therewith shall utilize any 
advertisement, educational material, sales literature or other 
communications to any customer or member of the public concerning 
options which:
    (1)-(4)--No change.
    (b) Approval by Compliance Registered Option Principal. All 
advertisements, sales literature (except completed worksheets), and 
educational material issued by an ETP Holder[, Equity ASAP Holder or 
ETP Firm] pertaining to options shall be approved in advance by the 
Compliance Registered Options Principal or designee. Copies thereof, 
together with the names of the persons who prepared the material, 
the names of the persons who approved the material and, in the case 
of sales literature, the source of any recommendations contained 
therein, shall be retained by the ETP Holder[, Equity ASAP Holder or 
ETP Firm] and be kept at an easily accessible place for examination 
by the Corporation for a period of three years.
    (c) Approval Required for Options Advertisements. In addition to 
the approval required by paragraph (b) of this Rule, every 
advertisement of an ETP Holder[, Equity ASAP Holder or ETP Firm] 
pertaining to options shall be submitted to the Corporation at least 
ten days prior to use (or such shorter period as the Corporation may 
allow in particular instances) for approval and, if changed or 
expressly disapproved by the Corporation, shall be withheld from 
circulation until any changes specified by the Corporation have been 
made or, in the event of disapproval, until the advertisement has 
been resubmitted for, and has received, Corporation approval. The 
requirements of this paragraph shall not be applicable to:
    (1)--No change.
    (2) advertisements in which the only reference to options is 
contained in a listing of the services of an ETP Holder[, Equity 
ASAP Holder or ETP Firm].
    (d)-(e)--No change.

[[Page 78885]]

Commentary

    .01  The special risks attendant to options transactions and the 
complexities of certain options investment strategies shall be 
reflected in any advertisement, educational material or sales 
literature which discusses the uses or advantages of options. Such 
communications shall include a warning to the effect that options 
are not suitable for all investors. In the preparation of written 
communications respecting options, the following guidelines should 
be observed:
    A. Any statement referring to the potential opportunities or 
advantages presented by options shall be balanced by a statement of 
the corresponding risks. The risk statement shall reflect the same 
degree of specificity as the statement of opportunities, and broad 
generalities should be avoided. Thus, a statement such as ``with 
options, an investor has an opportunity to earn profits while 
limiting his or her risk of loss'', should be balanced by a 
statement such as ``of course, an options investor may lose the 
entire amount committed to options in a relatively short period of 
time.''
    B.-C.--No change.
    .02--No change.
    .03  Written communications (other than advertisements) 
pertaining to options shall conform to the following standards:
    A.-D.--No change.
    E. Options worksheets utilized by ETP Holders, [Equity ASAP 
Holders or ETP Firms,] or associated persons must comply with the 
requirements applicable to sales literature.
    F.--No change.

Rule 10

Disciplinary Proceedings, Other Hearings, and Appeals

Disciplinary Jurisdiction

    Rule 10.1.
    (a) An ETP Holder[, ETP Firm, Equity ASAP Holder,] or associated 
person of an ETP [Firm or Equity ASAP] Holder who is alleged to have 
violated or aided and abetted a violation of any provision of the 
Securities Exchange Act of 1934, as amended, the rules and 
regulations promulgated thereunder, any provision of the 
Corporation's Bylaws or Rules or any commentary thereof, any 
resolution of the Board of Directors of the Corporation regulating 
the conduct of business of the Corporation, or any policy or 
procedure of the Corporation shall be subject to the disciplinary 
jurisdiction of the Corporation under this Rule, and after notice 
and opportunity for a hearing may be appropriately disciplined by 
cancellation of trading privileges, suspension, limitation of 
activities, functions, and operations, suspension or bar from 
association with an ETP [Firm or Equity ASAP] Holder, fine, censure 
or any other fitting sanction, in accordance with the provisions of 
this Rule. An ETP [Firm or Equity ASAP] Holder may be charged with 
any violation committed by its employees or [its ETP Holder or] 
other person who is associated with such ETP [Firm or Equity ASAP] 
Holder, as though such violation were its own.
    (b) Any ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder shall 
continue to be subject to the disciplinary jurisdiction of the 
Corporation following suspension or cancellation of ETP [or Equity 
ASAP] trading privileges or termination of association with an ETP 
[Firm or Equity ASAP] Holder with respect to matters that occurred 
prior to such termination, provided that written notice of the 
commencement of an inquiry into such matters is given by the 
Corporation to such former ETP Holder[, ETP Firm, Equity ASAP 
Holder,] or associated person of an ETP [Firm or Equity ASAP] Holder 
within one year of receipt by the Corporation of written notice of 
the termination of such person's status as an ETP Holder[, ETP Firm, 
Equity ASAP Holder,] or associated person of an ETP [Firm or Equity 
ASAP] Holder.

Investigations and Regulatory Cooperation

    Rule 10.2(a). The Corporation's Chief Regulatory Officer and his 
or her delegees will function independently of the commercial 
interest of the Corporation and the commercial interests of the ETP 
Holders[, ETP Firms and Equity ASAP Holders] and the Chief 
Regulatory Officer or his or her delegees will have the discretion 
to investigate, and will investigate, possible violations within the 
disciplinary jurisdiction of the Corporation. The Regulatory Staff 
may consult as necessary with the PCX Parent Regulatory Staff. No 
member of the Board of Directors or non-Regulatory Staff may 
interfere with or attempt to influence the process or resolution of 
any pending investigation or disciplinary proceeding.
    (b)--No change.
    (c) An ETP Holder[, ETP Firm, Equity ASAP Holder,] or associated 
person of an ETP Firm or Equity ASAP Holder is entitled to be 
represented by counsel during any investigation by the Corporation.
    (d) No ETP Holder, [ETP Firm, Equity ASAP Holder,] associated 
person of an ETP [Firm or Equity ASAP] Holder, or other person or 
entity over whom the Corporation has jurisdiction pursuant to Rule 
10.1 may impede or delay a regulatory investigation with respect to 
possible violations within the disciplinary jurisdiction of the 
Corporation nor refuse to furnish testimony, documentary materials 
or other information requested by the Corporation during the course 
of its investigation. Failure to furnish such testimony, documentary 
materials, or other information requested by the Corporation 
pursuant to this Rule on the date or within the time period required 
by the Corporation will be considered obstructive of an inquiry or 
investigation and subject to formal disciplinary action.
    (e) An ETP Holder[, ETP Firm, Equity ASAP Holder,] or associated 
person of an ETP [Firm or Equity ASAP] Holder must submit such trade 
data elements specified in Commentary .01 below in such automated 
format as may be prescribed by the Corporation from time to time, in 
regard to such transactions or transactions as may be the subject of 
a particular request for information made by the Corporation. 
Failure to submit such data in the required format will be 
considered obstructive of an inquiry or investigation and subject to 
formal disciplinary action.

Commentary

    .01(A) If the transaction [was] were a proprietary transaction 
effected or caused to be effected by the ETP Holder[, ETP Firm or 
Equity ASAP Holder] for any account in which such ETP [Holder, ETP 
Firm, Equity ASAP] Holder or associated person of an ETP [Firm or 
Equity ASAP] Holder is directly or indirectly interested, such ETP 
[Holder, ETP Firm, or Equity ASAP] Holder shall submit or cause to 
be submitted the following information:
    (i) Clearing house number(s), or alpha symbol(s), as used by the 
ETP Holder[, ETP Firm, or Equity ASAP Holder] submitting the data;
    (ii) Clearing house number(s), or alpha symbol(s) as may be used 
from time to time, of the ETP Holder(s)[, ETP Firm(s), or Equity 
ASAP Holder(s)] on the opposite side of the transaction;
    (iii)-(viii)--No change.
    (B) If the transaction [was] were effected or caused to be 
effected by the ETP [Holder, ETP Firm, or Equity ASAP] Holder for 
any customer account, such ETP [Holder, ETP Firm, or Equity ASAP] 
Holder shall submit or cause to be submitted the following 
information:
    (i)-(ii)--No change.
    (iii) If the transaction [was] were effected for a customer of a 
broker-dealer, whether the broker-dealer was acting as principal or 
agent on the transaction that is the subject of the Corporation's 
request.
    (C) In addition to the above trade data elements, an ETP 
[Holder, ETP Firm, or Equity ASAP] Holder shall submit such other 
information in such automated format as may be prescribed by the 
Corporation, as may from time to time be required.
    (D)--No change.
    (f) No ETP Holder, [ETP Firm, Equity ASAP Holder,] associated 
person of an ETP [Firm or Equity ASAP] Holder, or other person or 
entity over whom the Corporation has jurisdiction pursuant to Rule 
10.1 may refuse to appear and testify before another exchange or 
self-regulatory organization in connection with a regulatory 
investigation, examination, or disciplinary proceeding or refuse to 
furnish documentary materials or other information or otherwise 
impede or delay such investigation, examination or disciplinary 
proceeding if the Corporation requests such information or testimony 
in connection with any inquiry resulting from an agreement entered 
into by the Corporation or its self-regulatory organization. The 
requirements of this Rule 10.2(f) will apply regardless of whether 
the Corporation has initiated an investigation pursuant to Rule 
10.2(a) or a disciplinary proceeding pursuant to Rule 10.4.

Commentary

    .01-.02--No change.

Ex Parte Communications

    Rule 10.3(a). Prohibited Communications. Unless on adequate 
notice and reasonable opportunity for all parties to participate:
    (1) No person who is a subject of a pending investigation by the 
Corporation (``Subject'')

[[Page 78886]]

or a Respondent in a pending disciplinary proceeding, or counsel for 
a representative of the Subject or the Respondent, or any interested 
Corporation staff, with knowledge of a pending investigation or 
disciplinary proceeding, may make or knowingly cause to be made an 
ex parte communication, as defined below, relevant to the facts or 
allegations of the investigation or the disciplinary proceeding to: 
(a) a member of the Board of Directors; (b) a person who advises the 
Board of Directors; (c) any member of the Corporation's Regulatory 
Staff that is not participating in the resolution of the 
investigation or the disciplinary proceeding; (d) a member of the 
Business Conduct Committee or Board Appeals Committee; or (e) a 
member of the PCX Board of Governors.
    (2) No person who is a member of the Business Conduct Committee 
or Conduct Panel with knowledge of a pending investigation or 
disciplinary proceeding, or any interested Corporation staff, may 
make or knowingly cause to be made an ex parte communication, as 
defined below, relevant to the facts or allegations of the 
investigation or the disciplinary proceeding to: (a) a member of the 
Board of Directors; (b) a person who advises the Board of Directors; 
(c) any member of the Corporation's Regulatory Staff; (d) the 
Subject of a pending investigation by the Corporation or a 
Respondent in a pending disciplinary proceeding, or counsel for or a 
representative of the Subject or the Respondent; or (e) a member of 
the PCX Board of Governors.
    (3) No person who is a member of the Board of Directors, or any 
person who advises the Board of Directors, or any interested 
Corporation staff, with knowledge of a pending investigation or 
disciplinary proceeding, may knowingly make or cause to be made an 
ex parte communication, as defined below, relevant to the facts or 
allegations of the investigation or the disciplinary proceeding to: 
(a) any member of the Corporation's Regulatory Staff; (b) the 
Subject to a pending investigation by the Corporation or a 
Respondent in a pending disciplinary proceeding, or counsel for or a 
representative of the Subject or the Respondent; (c) a member of the 
Business Conduct Committee; or (d) a member of the PCX Parent Board 
of Governors.
    (b) Disclosure of Prohibited Communications. Any person who 
receives, makes or knowingly causes to be made a communication 
prohibited by this Rule must promptly submit to the Regulatory Staff 
for inclusion in the record of the investigation or disciplinary 
proceeding:
    (1) all such written communications;
    (2) memoranda stating the substance of all such oral 
communications; and
    (3) all written responses and memoranda stating the substance of 
any oral responses to such communications.
    (c) Remedies. Any ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder who made or 
knowingly caused to be made [a] an ex parte communication prohibited 
by subsection (a) will be subject to disciplinary action. 
Furthermore, the Business Conduct Committee, to the extent 
consistent with the interests of justice, may issue to the ETP 
Holder, [ETP Firm, Equity ASAP Holder,] or associated person of an 
ETP [Firm or Equity ASAP] Holder, or interested Corporation staff, 
responsible for the communication or who benefited from the 
communication an order to show cause why the claim, defense or 
interest of the ETP Holder, [ETP Firm, Equity ASAP Holders,] or 
associated person of an ETP [Firm or Equity ASAP] Holder, or 
interested Corporation staff, should not be adversely affected by 
reason of such ex parte communication, including but not limited to 
the entry of an adverse summary decision. All parties to a 
disciplinary proceeding and the Regulatory Staff will be provided 
with adequate notice and a reasonable opportunity to respond to any 
allegations or contentions contained in the prohibited communication 
and any responses will be included in the record of the 
investigation or disciplinary proceeding.
    (d) Permitted Communications. Nothing in this Rule prohibits the 
members of a disciplinary committee or the Regulatory Staff from 
discussing a pending investigation or disciplinary proceeding at a 
meeting of the committee in connection with: (1) the adjudication of 
the investigation pursuant to the Minor Rule Plan; (2) the 
determination of whether to impose informal discipline; (3) the 
determination of whether to authorize a complaint or take no further 
action; or (4) the determination of whether to accept an offer of 
settlement.
    (e) No member of the Business Conduct Committee or Conduct 
Panel, as defined in Rule 10.5(a), may participate in a matter 
governed by Rule 10.3(c) as to which that person has a conflict of 
interest or bias, or if circumstances otherwise exist where his or 
her fairness might reasonably be questioned. In such a case, the 
person shall recuse himself or herself or shall be disqualified as 
follows:
    (1) The Chief Regulatory Officer shall have the authority to 
direct the disqualification of the interested member of the Business 
Conduct committee or Conduct Panel.
    (2) The Chief Executive Officer shall have the authority to 
direct the disqualification of the Chief Regulatory Officer.

Commentary

    .01  ``Ex parte communication'' means an oral or written 
communication made without notice to all parties, i.e., the 
Corporation's Regulatory Staff and the Subjects of investigations or 
Respondents in disciplinary proceedings. A written communication is 
ex parte unless a copy has been previously or simultaneously 
delivered to all interested parties. An oral communication is ex 
parte unless it is made in the presence of all interested parties 
except those who, on adequate prior notice, declined to be present.
    .02  A disciplinary proceeding will be considered to be pending 
from the date that a Complaint has been issued pursuant to Rule 10.4 
until the proceeding, including any appeals, becomes final.

Complaints

    Rule 10.4(a). The Chief Regulatory Officer and his or her 
delegee(s) have the authority to determine whether there is probable 
cause for finding that a violation within the disciplinary 
jurisdiction of the Corporation has occurred and if further 
proceedings are warranted. If the Regulatory Staff, on behalf of the 
Corporation, (``the Complainant'' ) determines that further 
proceedings are warranted, [the] then the Corporation will initiate 
a formal disciplinary action by preparing a statement of charges 
(``the Complaint'') against any ETP Holder, [ETP Firm, Equity ASAP 
Holder,] or associated person of an ETP [Firm or Equity ASAP] Holder 
alleged to have committed a violation (``the Respondent'') 
specifying the acts in which the Respondent is alleged to have 
engaged in, or which the Respondent is alleged to have omitted, and 
alleging the specific provisions of the Bylaws, Rules, policies or 
procedures of the Corporation, or the rules, regulations and 
procedures promulgated under the Securities Exchange Act of 1934, of 
which such acts or omissions are alleged to be in violation.
    (b)-(c)--No change.

Commentary

    .01--No change.

Hearing

    Rule 10.5
    (a)-(c)--No change.
    (d) At the hearing, both the Complainant and the Respondent 
shall be entitled to be heard in person and to present any relevant 
matter. Any witnesses, testimony or evidence offered by the 
Complainant or the Respondent shall be subject to cross-examination 
by the other party. The Conduct Panel shall determine all questions 
concerning the admissibility of evidence and shall otherwise 
regulate the conduct of the hearing. Formal rules of evidence shall 
not apply. The charges shall be presented by the Corporation, who 
along with Respondent and any other party, may present evidence and 
produce witnesses who shall testify under oath and are subject to 
being questioned by the Conduct Panel and other parties. The Conduct 
Panel, upon its own motion or the motion of the Complainant or 
Respondent, may request the production of documentary materials and 
witnesses. No ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder shall 
refuse to furnish relevant testimony, documentary materials or other 
information requested by the Conduct Panel during the course of the 
hearing. The Respondent and intervening parties are entitled to be 
represented by counsel who may participate fully in the hearing. A 
transcript of the hearing shall be made and shall become part of the 
record.
    (e)--No change.
    Rule 10.6-10.7--No change.

Review

    Rule 10.8(a)--No change.
    (b) The Board Appeals Committee may appoint a Board Appeals 
Committee Panel (``Appeals Panel'') to conduct reviews of 
disciplinary proceedings, or may decide to conduct review 
proceedings on its own. The composition of the Appeals Panel will be 
determined by the Board Appeals Committee in accordance with Rule 
3.3. The body conducting the review, either the Board Appeals 
Committee itself or the Appeals

[[Page 78887]]

Panel, is referred to herein as ``the Review Board.'' Unless the 
Review Board shall decide to open the record for the introduction of 
new evidence or to hear argument, such review shall be based solely 
upon the record and the written exceptions filed by the parties. The 
standard of review shall be de novo. Based upon such review, the 
Review Board may affirm, reverse or modify in whole or in part, the 
decision of the Conduct Panel. Such modification may include an 
increase or decrease of the sanction. The decision of the Review 
Board shall be in writing and, shall become fifteen (15) calendar 
days after notifying the parties; provided, however, that if a 
request for review of such determination is filed pursuant to Rule 
10.8(c) or Rule 10.8(d) below, the penalty shall be stayed pending 
the outcome of that review.
    Each Review Board member shall be required to disclose to the 
Board Appeals Committee any circumstances which might preclude such 
Review Board member from rendering an objective and impartial 
determination. Prior to the commencement of the first hearing 
session, the Board Appeals Committee may remove a Review Board 
member who discloses such information. The Board Appeals Committee 
shall also inform the parties of any information disclosed pursuant 
to this section, if the Review Board member who disclosed the 
information is not removed.
    In the event that any Review Board member, after the 
commencement of the Review, but prior to the rendition of the 
decision, should become disqualified, resign, die, refuse or be 
unable to perform or discharge his or her duties, the Board Appeals 
Committee, upon such proof as they deem satisfactory, shall either 
(a) appoint a new member to the Review Board to replace such member; 
or (b) direct that the review proceed without the substitution of a 
new member.
    (c)-(e)--No change.

Judgment and Penalty

    Rule 10.9(a). An ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder shall be 
subject to appropriate discipline by the Corporation for violations 
under this Rule including: cancellation or suspension of trading 
privileges, limitation of activities, functions and operations, 
suspension or bar from association with an ETP Holder, [ETP Firm or 
Equity ASAP Holder,] fine, censure, or any other fitting sanction.
    (b)-(c)--No change.

Miscellaneous Provisions

    Rule 10.10--No change.

Appeal of [Floor Citations and] Minor Rule Plan Sanctions

    Rule 10.11(a). This Section provides the following procedures 
for persons aggrieved by action taken by the Corporation pursuant to 
the provisions of the Bylaws and Rules of the Corporation for which 
action an ETP Holder, [ETP Firm, Equity ASAP Holder,] or associated 
person of an ETP [Firm or Equity ASAP] Holder has been sanctioned 
[via floor citation or] pursuant to Rule 10.12 (the Minor Rule 
Plan), and applies for an opportunity to make an oral presentation 
or to have the matter reviewed on the papers alone. (This Section 
shall not apply to disciplinary action taken pursuant to Rule 10.4 
herein, non-disciplinary action taken pursuant to Rule [10.14] 10.13 
herein, or to an action in Arbitration.)
    (b) Submission of Application to Corporation. Any ETP Holder, 
[ETP Firm, Equity ASAP Holder,] or associated person of an ETP [Firm 
or Equity ASAP] Holder who is aggrieved by any action of the 
Corporation within the scope of this Section and who desires the 
opportunity to make an oral presentation with respect to such action 
or to have such action reviewed on the papers alone shall file a 
written application with the Business Conduct Committee within five 
(5) business days after notification that such action has been 
taken. The notification submitted by the Corporation shall state the 
specific grounds for the action taken by the Corporation, and shall 
notify the party of the party's right to make an oral presentation 
or to have the matter reviewed on the papers alone. The application 
shall contain: (1) An identification of the Corporation action over 
which the review is being requested; (2) the reason(s) why the 
applicant disagrees with such action; and (3) the relief sought. In 
addition, the application shall indicate whether the applicant 
desires to make an oral presentation, in which event it shall be 
considered a ``request for a hearing,'' or to proceed only upon the 
existing and/or any additional documents or materials, in which 
event it shall be considered a ``request for a review on the 
papers.'' Hereinafter, the terms ``hearing'' and ``review on the 
papers'' shall be referred to jointly as the ``Proceeding(s).''
    (c)--No change.
    (d) Procedure Following Application for Hearing and/or Review on 
the Papers.
    (1)-(2)--No change.
    (3) Conduct of the Proceeding. Whether the Proceeding is a 
hearing or a review on the papers alone, the Conduct Panel shall 
determine all questions concerning the admissibility of evidence and 
shall otherwise regulate the conduct of the Proceeding. The formal 
rules of evidence shall not apply. In the event of a hearing, each 
of the parties shall be permitted to make an opening statement, 
present witnesses pursuant to paragraph (d)(2), present documentary 
evidence, cross-examine witnesses and present closing arguments. The 
Conduct Panel shall have the right to question all parties and 
witnesses to the Proceeding. The Conduct Panel may also request the 
production of documentary evidence and witnesses. No ETP Holder, 
[ETP Firm, Equity ASAP Holder,] or associated person of an ETP [Firm 
or Equity ASAP] Holder shall refuse to furnish relevant testimony, 
documentary materials or other information requested by the Conduct 
Panel during the course of the Proceeding. All parties are entitled 
to be represented by counsel who may participate fully in the 
Proceeding. In the event of a hearing, a transcript of the hearing 
shall be made and shall become part of the record.
    (4)--No change.
    (5) If after a hearing or review on the papers pursuant to 
subsection (d) of this Rule, the Conduct Panel determines that an 
ETP Holder, [ETP Firm, Equity ASAP Holder,] or associated person of 
a ETP [Firm or Equity ASAP] Holder has violated one or more rules of 
the Corporation, as alleged, the Conduct Panel: (i) may impost any 
one or more of the disciplinary sanctions authorized by the 
Corporation's Bylaws and Rules; and (ii) shall impose a forum fee 
against the person charged in the amount of two hundred fifty 
dollars ($250) if the determination was reached based on a review of 
the papers, or in the amount of five hundred dollars ($500) if a 
hearing was conducted. However, notwithstanding the foregoing, in 
the event that the Conduct Panel determines that the ETP Holder, 
[ETP Firm, Equity ASAP Holder,] or associated person of an ETP [Firm 
or Equity ASAP] Holder has violated one or more Rules of the 
Corporation, as alleged, and the sole disciplinary sanction imposed 
by the Conduct Panel for such rule violation(s) is a fine which is 
less than the total fine initially imposed by the Regulatory Staff 
for the subject violation(s), the Conduct Panel shall have the 
discretion to waive the imposition of a forum fee.
    (6)--No change.
    (e)-(f)--No change.

Minor Rule Plan

    Rule 10.12.
    (a) In lieu of initiating a formal disciplinary action or 
proceeding, the Corporation may, subject to the requirements set 
forth in this Rule, impose a fine not to exceed five thousand 
dollars ($5,000) on any ETP Holder[, ETP Firm, Equity ASAP Holder,] 
or associated person of an ETP [Firm or Equity ASAP] Holder, for any 
violation of a Rule of the Corporation that has been determined to 
be minor in nature.
    (b) Whenever it appears that an ETP Holder, [ETP Firm, Equity 
ASAP Holder,] or associated person of an ETP [Firm or Equity ASAP] 
Holder has violated a [rule] Rule under this Minor Rule Plan, the 
Corporation shall serve on such person or organization a written 
statement setting forth (i) the Rule(s) alleged to have been 
violated; (ii) the act or omission constituting each such violation; 
and (iii) notice that such person or organization may submit a 
written statement to a designated committee for its consideration.
    (c)-(e)--No change.
    (f) Nothing in this Rule shall require the Corporation to impose 
a fine for a violation of any [rule] Rule under this Minor Rule 
Plan. If the Corporation determines that any violation is not minor 
in nature, the Corporation may, at its discretion, proceed under 
Rule 10.4 rather than under this Rule.
    [(g) Floor Citations. A Trading Official may issue a Floor 
Citation to any ETP Holder, ETP Firm, or associated person of an ETP 
Firm, when it appears to such Official(s) that a Minor Rule Plan 
violation specified in subsection (h) or (i) of this Rule has 
occurred. In issuing a Floor Citation, the Trading Official shall:
    (1) Apprise the person cited of the alleged violation;
    (2) Ask the person cited to indicate by signature on the 
citation acknowledgement of receipt of the citation; provided that 
the

[[Page 78888]]

requested signature is for receipt purposes only and a failure or 
unwillingness to sign is not to be considered as invalidating the 
issuance of the citation;
    (3) Give the top copy of the citation to the person alleged to 
have committed the violation; and
    (4) Give the remaining copies of the citation to the appropriate 
staff person, who will then forward such copies of the Regulatory 
Staff for processing.]
    [Except as provided in Rule 10.13 (the Summary Sanction 
Procedure), the] The circumstances underlying the issuance of each 
[floor] citation shall be reviewed by the Business Conduct Committee 
for a determination of whether the evidence is sufficient to find a 
violation of any Rules of the Corporation.
    [(h)] (g) Minor Rule Plan: [Floor Decorum and] Minor Trading 
Rule Violations.
    [(1)-(8)--Deleted.]
    [(9)] (1) Short Sale Rules. (Rule [7.40] 7.16)
    [(10) Dissemination of Quotations in Local Issues. (EFPA 2-B)]
    [(11)] (2) Failure to follow the provisions of the rules and 
regulations governing the use of the Intermarket Trading System 
(``ITS''). (Rules [7.67-7.69)] 7.55-7.57)
    [(12) failure to Clear the Post Properly. (EFPA 1-B)]
    [(i)] (h) Minor Rule Plan: Record Keeping and Other Minor rule 
Violations.
    (1)-(3)--No change.
    (4) Failure to notify the Corporation of any change of address 
where notices may be served. (Rule [2.18(b))] 2.16(b))
    (5)-(6)--No change.
    [(j)] (i) Minor Rule Plan: Recommended Fine Schedule.

------------------------------------------------------------------------
                                                   Fines
                                  --------------------------------------
                                       1st          2nd          3rd
                                    violation    violation    violation
------------------------------------------------------------------------
(1) [Floor Decorum and] Minor
 Trading Rule Violations \1\
[1.-.8--Deleted.]
[9] 1. Short Sale Rules. (Rule         $500.00    $1,000.00    $2,500.00
 [7.40)] 7.16)...................
[10. Dissemination of Quotations   ...........  ...........      $100.00
 in Local Issues (EFPA 2-B))]....
[11] 2. Failure to follow the          $500.00    $1,000.00    $2,000.00
 provisions of the rules and
 regulations governing the use of
 the Intermarket Trading System
 (``ITS''). (Rules 7.55-7.57)
 [7.67-7.69)]....................
[12. Failure to Clear the Post        Official      $250.00      $500.00
 Properly. (EFPA 1-B))...........     Warning]
(2) Record Keeping and Other
 Minor Rule
1. Failure to submit trade data        $250.00      $500.00      $750.00
 to the [Exchange] Corporation in
 a timely manner. (Rule 10.2(e)).
2. Failure to file a Securities        $500.00    $1,000.00    $1,500.00
 Investor Protection Corporation
 form and assessment in a timely
 manner. (Rule 4.11(b))..........
3. Failure to furnish in a timely      $250.00      $500.00      $750.00
 manner [books,] records or other
 requested information or
 testimony in connection with an
 examination of financial
 responsibility and/or
 operational conditions. (Rule
 4.11(c))........................
4. Failure to notify the               $250.00      $500.00      $750.00
 Corporation of a change of
 address where notices may be
 served. (Rule [2.18(b))]
 2.16(b))........................
5. Failure to file a financial         $250.00      $500.00      $750.00
 report or financial information
 in the type, form, manner and
 time prescribed by the
 [Exchange] Corporation. (Rule
 4.11(a))........................
6. Delaying, impeding or failing       $500.00    $1,000.00   $2,000.00
 to cooperate in [an Exchange] a
 Corporation investigation. (Rule
 10.2(d))........................
------------------------------------------------------------------------
\1\ Fines for multiple violations of [Equity Floor Decorums and] Minor
  Trading Rules are calculated on a running two-year basis, except that
  violations denoted with an asterisk are calculated on a running one-
  year basis.

[Summary Sanction Procedure]

    [Rule 10.13--Deleted.]

Hearings and Review of Decisions by the Corporation

    Rule [10.14] 10.13.
    (a) General Provisions. This Rule provides the procedure for 
persons aggrieved by any of the following actions taken by the 
Corporation to apply for an opportunity to be heard and to have the 
action reviewed. These actions are:
    (1) the denial of an ETP [or Equity ASAP];
    (2) the barring of any person from becoming associated with an 
ETP [Firm or Equity ASAP] Holder;
    (3) the suspension or cancellation of ETP trading privileges [or 
Equity ASAP trading privileges];
    (4) the prohibition or limitation with respect to access to 
services provided by the Corporation, or the access to services of 
any ETP [Firm or Equity ASAP] Holder taken pursuant to the Bylaws, 
or Rules or procedures of the Corporation; or
    (5) actions taken by the Corporation pursuant to Rule 7.22, 
including the denial of the application for, or the termination or 
suspension of, a Market Maker's registration in a security or 
securities;
    [(5)] (6) actions taken by the Corporation pursuant to [rule 
7.22] Rule 7.23 [and 7.29];
    [(6)] (7) actions taken by the Corporation pursuant to Rule 
7.25, including the denial of the application for, or the 
termination or suspension of, an Odd Lot Dealer's registration in a 
security or securities. [denial of an applicant specialist for the 
appointment as a registered specialist].
    The provisions of this Rule shall not apply to reviews of the 
following:
    (A)-(C)--No change.
    For purposes of this Section, a person must be ``aggrieved'' in 
an economic sense.
    (b)--No change.
    (c) Extension of Time. An application not filed within the time 
specified in Rule [10.14(b)] 10.13(b) shall not be considered by the 
Board Appeals Committee, unless an extension of time is allowed by 
the Board Appeals Committee upon a showing of good cause. In order 
to obtain an extension of time within which to file an appeal, the 
applicant must, within the time specified in Rule [10.14(b)] 
10.13(b) file with the Secretary of the Corporation a request for an 
extension of time within which to submit the application. The 
request for extension will be ruled upon by the Board Appeals 
Committee, whose ruling will be given in writing. Rulings on 
requests for extension of time are not subject to appeal under Rule 
10.
    (d)-(m)--No change.

Miscellaneous Provision

    Rule [10.15] 10.14.--No change.

Rule 11

Cancellation, Suspension and Reinstatement

Notice of Expulsion or Suspension

    Rule 11.1(a) An ETP Holder[, ETP Firm, or Equity ASAP Holder] 
which is expelled or suspended from any self-regulatory 
organization, encounters financial difficulty or operating 
inadequacies, fails to perform contracts, or become insolvent shall 
give prompt written notification to the Corporation of any such 
occurrence.
    (b) An ETP [Firm or Equity ASAP] Holder shall give prompt 
written notification to the Corporation with respect to the 
expulsion or suspension of any [nominee or any other] associated 
person of such ETP [Firm or Equity ASAP] Holder by any self-
regulatory organization.

Procedures for Suspension

    Rule 11.2(a) This Rule sets forth the procedures for certain 
suspensions, cancellations, bars, limitations and

[[Page 78889]]

prohibitions on access to the Corporation's services.
    (1) Summary Suspension. In accordance with Section 6(d)(3) of 
the Exchange Act, the Board of Directors of the Corporation or a 
committee thereof may summarily:
    (i) suspend the trading privileges of an ETP Holder, [ETP Firm, 
Equity ASAP Holder,] or associated person of an ETP [Firm or Equity 
ASAP] Holder who has been and is expelled or suspended from any 
self-regulatory organization or barred or suspended from being 
associated with a member of any self-regulatory organization;
    (ii) suspend the trading privileges of an ETP Holder, [ETP Firm, 
Equity ASAP Holder,] who is in such financial or operating 
difficulty that the Corporation determines and so notifies the 
Commission that such suspension is necessary for the protection of 
the investors, creditors, ETP [Holders, ETP Firms, Equity ASAP] 
Holders or the Corporation;
    (iii) suspend the trading privileges of an ETP Holder, [ETP 
Firm, Equity ASAP Holder,] or associated person of an ETP [Firm or 
Equity ASAP] Holder who is found in violation of any of the 
prohibited acts as specified in Rule 6.2(a)-(f) that are violations 
of Rules of the Corporation; or
    (iv) limit or prohibit any person with respect to access to 
services offered by the Corporation if subparagraph (i) or (ii) is 
applicable to such person or, in the case of a person who is not an 
ETP Holder, [ETP Firm or Equity ASAP Holder,] if the Corporation 
determines that such person does not meet the qualification 
requirements or prerequisites for such access with safety to 
investors, creditors, ETP [Holders, ETP Firms, Equity ASAP] Holders 
or the Corporation.
    (2) Non-Summary Suspension. The Corporation also may take the 
following actions, after written notice, after the passage of any 
grace period and/or applicable cure period, and after opportunity 
for hearing:
    (i) cancel ETP trading privileges of an ETP Holder [or ETP Firm] 
that becomes ineligible for ETP trading privileges, or that 
continues to be associated with an ineligible person, or suspend or 
bar a person from continuing to be associated with an ETP Holder [or 
ETP Firm] because such person is or becomes ineligible for 
association under Rule [2.21(a)] 2.19(a);
    [(ii)--Deleted.]
    [(iii)](ii) suspend or cancel trading privileges of an ETP 
[Holder, ETP Firm or Equity ASAP] Holder for failure to pay any 
fees, charges, assessments, or fines to the Corporation under Rule 
3.8; or failure to comply with an arbitration award or settlement 
agreement related to an arbitration or mediation under Rule 12;
    [(iv)](iii) cancel trading privileges of an ETP [Holder, ETP 
Firm, or Equity ASAP] Holder for failure to file or submit or 
request any report, document, or other information required to be 
filed with or requested by the Corporation under Rule 10.2(d); or
    [(v)](iv) limited or prohibit any ETP [Holder, ETP Firm, Equity 
ASAP] Holder, or associated person of an ETP [Firm or Equity ASAP] 
Holder or other person with respect to access to services offered by 
the Corporation, if the Corporation determines that such person does 
not meet the qualification requirements or prerequisites for such 
access or such person cannot be permitted to continue to have access 
with safety to investors, creditors, ETP [Holders, ETP Firms, Equity 
ASAP] Holders or the Corporation.
    (b)--No change.
    (c) Any action taken pursuant to Rule 11.2(a)(1) or (2) shall 
also be subject to the applicable provisions of Rule [10.14]10.13.

Commentary

    .01--No change.

Effect of Suspension or Cancellation

    Rule 11.3. When an ETP Holder, [ETP Firm, Equity ASAP Holder,] 
or associated person of an ETP [Firm or Equity ASAP] Holder has its 
trading privileges suspended or canceled by the Corporation for any 
reason specified in Rule 11.2(a)(1) or (2), such a person or 
organization shall be deprived during the term of the suspension of 
all rights and trading privileges conferred by the ETP [or Equity 
ASAP], except as otherwise provided in the Rules of the Corporation. 
The person or organization having trading privileges suspended or 
canceled shall remain subject to the disciplinary power of the 
Corporation with respect to any disciplinary action as provided by 
the Rules of the Corporation.

Disciplinary Measures During Suspension

    Rule 11.4. An ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder whose 
trading privileges are suspended under the provisions of Rule 
11.2(a)(1) or (2) may be disciplined pursuant to the Rules of the 
Corporation for any offense committed either before or after the 
announcement of the suspension, in all respects as if no suspension 
were in effect.

Investigation Following Summary Suspension

    Rule 11.5. Every ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder whose 
trading privileges are suspended under the provisions of Rule 
11.2(a)(1) shall immediately afford every facility required by the 
Corporation for the investigation of its affairs as required by the 
Board of Directors and shall, after the notification of the 
suspension, file with the Corporation a written statement covering 
all information required by the Corporation.

Grounds for Cancellation

    Rule 11.6. If an ETP Holder, [ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder has had 
privileges suspended under the provisions of Rule 11.2(a)(1) and 
such person or organization does not request a hearing within thirty 
(30) calendar days to review such suspension or at such hearing it 
is determined that the suspension was properly imposed, and such 
person or organization, has not within forty-five (45) calendar days 
after the suspension remedied the reason for such suspension and has 
not applied for reinstatement, the Board may cancel the trading 
privileges of such person or organization. If application for 
reinstatement is made within forty-five (45) calendar days of 
suspension as provided in this Rule, and such application is 
disapproved, the Board may cancel the trading privileges of such 
[the] person or organization.

Reinstatement

    Rule 11.7. When an ETP Holder, [ETP Firm, Equity ASAP Holder,] 
or associated person of an ETP [Firm or Equity ASAP] Holder has had 
trading privileges suspended under the provisions of Rule 11.2(a)(1) 
or (2) applies for reinstatement, it must be demonstrated to the 
satisfaction of the Corporation that the problem or problems 
responsible for such suspension have been satisfactorily resolved. 
If such problem involves financial difficulty or operating 
inadequacies, the person or organization shall furnish to the 
Corporation comprehensive financial and operating reports in a form 
and manner to be prescribed by the Corporation. If the ETP Holder[, 
ETP Firm, Equity ASAP] Holder, or associated person of an ETP [Firm 
or Equity ASAP] Holder furnishes satisfactory proof of a resolution 
of the problem or problems responsible for such suspension, the 
Corporation shall notify in writing all ETP [Holders, ETP Firms, and 
Equity ASAP] Holders of the application for reinstatement and that a 
meeting of the Board to consider it will be held on a designated 
date which shall be not less than ten (10) business days subsequent 
to such notice. At such meeting at which a quorum is present the ETP 
Holder, [ETP Firm, Equity ASAP Holder,] or associated person of an 
ETP [Firm or Equity ASAP] Holder may be reinstated provided not less 
than a majority of the Directors voting approve the application.

Failure To Obtain Reinstatement

    Rule 11.8. If an ETP Holder[, ETP Firm, Equity ASAP Holder,] or 
associated person of an ETP [Firm or Equity ASAP] Holder whose 
trading privileges have been suspended under the provisions of this 
Rule fails or is unable to apply for reinstatement in accordance 
with Rule 11.7, or fails to obtain reinstatement as therein 
provided, trading privileges conferred by an ETP [or Equity ASAP] 
will terminate.

Rule 12

Arbitration

Matters Subject to Arbitration

    Rule 12.1. For purposes of this Rule, the following definitions 
apply:
    (a) [the term ``ETP'' shall mean both ETP and Equity ASAP 
permits.]
    [(b)] the terms ``service'' or ``serve'' shall mean effecting 
the delivery of a document to persons via first class mail, 
overnight delivery, hand delivery, or facsimile.
    [(c)] (b) the term ``associated person'' shall also include 
``affiliated'' person ``approved person'' and ``allied person''.
    [(d)] (c) the term ``Director of Arbitration'' shall mean any 
person appointed or designated by the Corporation's Chief Executive 
Officer to direct the Corportion's arbitration program.
    Rule 12.2.
    (a) Any dispute, claim or controversy between parties who are 
ETP Holders [,ETP

[[Page 78890]]

Firms] or associated persons arising in connection with the 
securities business of such parties shall, at the request of any 
such party, be submitted for arbitration in accordance with this 
Rule.
    (b)--No change.
    (c) Any dispute, claim or controversy between a customer or non-
ETP Holder and an ETP Holder[, ETP Firm] and/or associated person 
arising in connection with the securities business of such ETP 
Holder[, ETP Firm] and/or associated person shall be arbitrated 
under this Rule as provided by any duly executed and enforceable 
written agreement, or upon the request of the customer or non-ETP 
Holder.
    (d)--No change.
    (e) Class Action Claims
    (1)-(2)--No change.
    (3) No ETP Holder[, ETP Firm] or associated person shall seek to 
enforce any agreement to arbitrate against a customer that has 
initiated in court a putative class action or is a member of a 
putative or certified class with respect to any claims encompassed 
by the class action unless and until: (i) the class certification is 
denied; (ii) the class is decertified; (iii) the customer is 
excluded from the class by the court; or (iv) the customer elects 
not to participate in the putative or certified class action or, if 
applicable, has complied with any conditions for withdrawing from 
the class prescribed by the court.
    (4) No ETP Holder[, ETP Firm] and/or associated person shall be 
deemed to have waived any of its rights under this Rule or under any 
agreement to arbitrate to which it is party except to the extent 
stated in this paragraph (e).
    (f)-(g)--No change.
    (h) It may be deemed conduct inconsistent with just and 
equitable principles of trade for an EPT Holder or [an ETP Firm, or] 
a person associated with an ETP Holder [or an ETP Firm] to fail to 
submit to arbitration on demand under the provisions of this Rule, 
or to fail to appear or to provide any document in his or her or its 
possession or control as directed pursuant to the provisions of this 
Rule or to fail to honor an award of arbitrators properly rendered 
pursuant to the provisions of this Rule where a timely motion has 
not been made to vacate or modify such award pursuant to applicable 
law.
    (i)--No change.
    (j) For purposes of this Rule, the terms ETP Holder, [ETP Firm,] 
associated person and employee of an ETP Holder [or ETP Firm] shall 
be deemed to encompass those persons who were ETP Holders, [ETP 
Firms] or associated persons or employees thereof at the time the 
circumstances occurred which gave rise to the controversy.

Simplified Arbitration for Public Customers

    Rule 12.3(a). Any dispute, claim or controversy arising between 
a public customer(s) and an ETP Holder[, an ETP Firm] and/or person 
associated with an ETP Holder [or an ETP Firm] required to be 
arbitrated under the Bylaws and Rules of the Corporation and 
involving a dollar amount not exceeding $10,000, exclusive of 
attendant costs and interest, shall upon demand of the customer(s) 
or by written consent of the parties be arbitrated as hereinafter 
provided.
    (b)-(1)--No change.
    Rule 12.4-12.8--No change.

Designation of Number of Arbitrators

    Rule 12.9.
    (a)--No change.
    (b In arbitration matters involving public customers and where 
the amount in controversy exceeds $30,000, or where the matter in 
controversy does not involve or disclose a money claim, the Director 
of Arbitration shall appoint an arbitration panel which [consist] 
consists of no fewer than three (3) arbitrators, nor more than five 
(5), at least a majority of whom shall not be from the securities 
industry, unless the public customer requests a panel consisting of 
at least a majority from the securities industry.
    (c) An arbitrator will be deemed as being from the securities 
industry if he or she:
    (1) is a person associated with an ETP Holder, [ETP Firm,] 
broker/dealer, government securities broker, government securities 
dealer, municipal securities dealer or registered investment 
advisor, or
    (2)-(4)--No change.
    (d)--No change.
    (e) ETP Holder Controversies. In all arbitration matters not 
involving public customers, the Director of Arbitration shall assign 
the matter to a panel consisting of ETP Holders [or ETP Firm] 
representatives. Such members of the arbitration panel shall not be 
affiliated with any of the parties to the controversy or have any 
interest in the matter to be heard. For controversies involving an 
amount of $10,000 or less, the panel shall consist of one (1) ETP 
Holder [or ETP Firm] representative. For all other controversies, 
the panel shall consist of three (3) ETP [Holders or ETP Firm] 
Holder representatives.
    (f)-(g)--No change.
    Rule 12.10-12.13--No change.

Initiation of Proceedings

    Rule 12.14. Except as otherwise provided herein, an arbitration 
proceeding under this Rule shall be instituted as follows:
    (a)-(b)--No change.
    (c) Service and Filing with the Director of Arbitration
    (1)--No change.
    (2) If an ETP [Firm] Holder and a person associated with the ETP 
[Firm] Holder are named parties to an arbitration proceeding at the 
time of the filing of the Statement of Claim, service on the 
associated person may be made by service on the named ETP [Firm] 
Holder and the ETP [Firm] Holder shall then perfect service upon the 
associated person. If the ETP [Firm] Holder does not undertake to 
represent the associated person, the ETP [Firm] Holder shall serve 
the associated person with the Statement of Claim, shall advise all 
parties and the Director of Arbitration of that fact, and shall 
provide such associated person's current address.
    (d) Joining and Consolidation
    (1) Permissive Joinder. All persons may join in one action as 
claimants if they assert any right to relief jointly, severally, or 
arising out of the same transaction, occurrence or series of 
transactions or occurrences and if any questions of law or fact 
common to these claimants will arise in the action.
    All persons may be joined in one action as respondents if there 
is asserted against them jointly or severally, any right to relief 
arising out of the same transaction, occurrence or series [or] of 
transactions or occurrences and if any questions of law or fact 
common to all respondents will arise in the action.
    A claimant or respondent need not assert rights to or defend 
against all the relief demanded. Judgment may be given for one or 
more claimants according to their respective rights to relief, and 
against one or more respondents according to their respective 
liabilities.
    (2)-(4)--No change.
    Rule 12.15-12.21--No change.

Power To Direct Appearances and Production of Documents

    Rule 12.22. The arbitrators shall be empowered without resort to 
the subpoena process to direct the appearance of any person employed 
or associated with any ETP Holder [or ETP Firm] and/or direct the 
production of any records in the possession or control of such 
persons, ETP Holders [or ETP Firms]. Unless the arbitrator(s) direct 
otherwise, the party requesting the appearance of a person or the 
production of documents under this section shall bear all reasonable 
costs of such appearance and/or production.
    Rule 12.23-12.31--No change.

Schedule of Fees

    Rule 12.32(a)-(i)--No change.
    (j) In an industry or clearing controversy, where the ETP Holder 
[or ETP Firm] claim or controversy does not involve or disclose a 
money claim, or is unspecified, the filing fee will be $300 and the 
hearing session deposit shall be $1,000 per hearing session.

Schedule of Fees

                        Public Customer Claimant
         (E.g., public customer v. ETP [Firm and/or ETP] Holder)
------------------------------------------------------------------------
                                                 Hearing session deposit
 Amount in dispute (exclusive of               -------------------------
      interest and expenses)        Filing fee   Documents   Hearing w/1
                                                    only      arbitrator
------------------------------------------------------------------------
$.01-$1,000.00...................          $15          $15          $15

[[Page 78891]]

 
$1,000.01-$2,500.00..............           25           25           25
$2,500.01-$5,000.00..............           50           75          100
$5,000.01-$10,000.00.............           75           75          200


------------------------------------------------------------------------
                                                 Hearing session deposit
                                               -------------------------
                                                    One
 Amount in dispute (exclusive of    Filing fee   arbitrator
      interest and expenses)                      or pre-       Three
                                                  hearing    arbitrators
                                                 conference
------------------------------------------------------------------------
$10,000.01-$30,000.00............         $100         $300         $400


------------------------------------------------------------------------
                                                 Hearing session deposit
 Amount in dispute (exclusive of               -------------------------
      interest and expenses)        Filing fee  Pre-hearing     Three
                                                 conference  arbitrators
------------------------------------------------------------------------
$30,000.01-$50,000.00............          120        *$300          400
$50,000.01-$100,000.00...........          150        **300          500
$100,000.01-$500,000.00..........          200        **300          750
$500,000.01-$5,000,000.00........          250        **300        1,000
Above $5,000.00..................          300        **300        1,500
------------------------------------------------------------------------


                       Industry/Clearing Claimant
                 (E.g., ETP Holder [or Firm] v. customer
------------------------------------------------------------------------
                                                 Hearing session deposit
 Amount in dispute (exclusive of               -------------------------
      interest and expenses)        Filing fee   Documents   Hearing w/1
                                                    only      arbitrator
------------------------------------------------------------------------
$01-$10,000.00...................         $500          $75         $300


------------------------------------------------------------------------
                                                 Hearing session deposit
 Amount in dispute (exclusive of               -------------------------
      interest and expenses)        Filing fee      One         Three
                                                 arbitrator  arbitrators
------------------------------------------------------------------------
$10,000.01-$30,000.00............         $500        *$300         $600
$30,000.01-$100,000.00...........          500        **300          600


------------------------------------------------------------------------
                                                 Hearing session deposit
 Amount in dispute (exclusive of               -------------------------
      interest and expenses)        Filing fee  Pre-hearing     Three
                                                 conference  arbitrators
------------------------------------------------------------------------
$100,000.01-$500,000.00..........         $500       **$300         $750
$500,000.01-$5,000,000.00........          500        **300        1,000
Above $5,000,000.00..............          500        **300       1,500
------------------------------------------------------------------------
* This would apply to the following cases:
(a) where parties elect to have claims between $10,000 and $30,000
  resolved by a single arbitrator pursuant to Rule 12.9.
(f) pre-hearing conferences with a single arbitrator in cases where a
  three person panel has been appointed.
** For pre-hearing conferences only.


                                     ETP Holder [or ETP Firm] Controversies
                               (E.g., associated person v. ETP Holder [ or Firm])
----------------------------------------------------------------------------------------------------------------
                                                                                     Hearing session deposit
                                                                             --------------------------------------
     Amount in dispute (exclusive of interest and expenses)       Filing fee                            Hearing
                                                                                  One         Three          l
                                                                               arbitrator  arbitrators  arbitrator
------------------------------------------------------------------------------------------------------ ------------
$.01-$10,000.00................................................         $100         $200         -NA-
$10,000.01-$100,000............................................          200         -NA-         $750
$100,000.01 or more............................................          300         -NA-        1,000
----------------------------------------------------------------------------------------------------------------


[[Page 78892]]

ETP Holder Surcharge

    Rule 12.33(a). Each ETP Holder[, ETP Firm] or associated person 
who is named a party to an arbitration proceeding, whether in a 
claim, counterclaim, third-party claim, or cross-claim shall be 
assessed a non-refundable surcharge pursuant to the schedule in Rule 
12.33(c) when the Arbitration Department perfects service of the 
claim naming the ETP Holder[, ETP Firm] or associated person on any 
party to the proceeding.
    For each associated person who is named, the surcharge shall be 
assessed against the ETP Holder(s) [or ETP firm(s)] which employed 
the associated person at the time of the events which gave rise to 
the dispute, claim or controversy.
    No ETP Holder [or ETP Firm] shall be assessed more than a single 
surcharge in any arbitration proceeding. The surcharge shall not be 
subject to reimbursement under rule 12.32.
    (b) For purposes of this Rule, service is perfected when the 
Arbitration Department properly serves the Respondent(s) to the 
arbitration proceeding under Rule 12.14(c).
    (c) Schedule of Surcharge Rates:

------------------------------------------------------------------------
                      Amount in dispute                        Surcharge
------------------------------------------------------------------------
$0.01 to $10,000............................................        $100
$10,000.01 to $50,000.......................................         200
$50,000.01 to $100,000......................................         300
$100,000.01 to $500,000.....................................         350
About $500,000..............................................         500
------------------------------------------------------------------------

Requirements when Using Pre-Dispute Arbitration Agreements With 
Customers

    Rule 12.34--No change.

Rule 13

Liability of Directors and Corporation

Liability of Directors

    Rule 13.1. Any provision of the [Articles] Certificate of 
Incorporation, Bylaws, or the Rules of the Corporation that provides 
or purports to provide that the members of the Board of Directors 
shall not be liable to the Corporation or its ETP Holders[, Equity 
ASAP Holders, and ETP Firms] for monetary damages for breach of 
fiduciary duty as a Director shall not be applied in any instance in 
which such liability arises directly or indirectly as a result of a 
violation of federal securities laws.

Liability of Corporation

    Rule 13.2(a). Except as otherwise expressly provided in these 
[rules] Rules, neither the Corporation nor its Directors, officers, 
committee members, employees or agents shall be liable to the ETP 
Holders[, Equity ASAP Holders, and ETP Firms] of the Corporation or 
to persons associated therewith for any loss, expense, damages or 
claims that arise out of the use or enjoyment of the facilities or 
services afforded by the Corporation, any interruption in or failure 
or unavailability of any such facilities or services, or any action 
taken or omitted to be taken in respect to the business of the 
Corporation except to the extent such loss, expense, damages or 
claims are attributable to the willful misconduct, gross negligence, 
bad faith or fraudulent or criminal acts of the Corporation or its 
officers, employees or agents acting within the scope of their 
authority. The limitation of liability set forth in this paragraph 
shall not apply to violations of federal securities laws.
    Without limiting the generality of the foregoing and subject to 
the same exception, the Corporation shall have no liability to any 
person for any loss, expense, damages or claims that result from any 
error, omission or delay in calculating or disseminating any current 
or closing index value, or any reports of transactions in or 
quotations for securities traded on the Corporation.
    The Corporation makes no warranty, express or implied, as to 
results to be obtained by any person or entity from the use of any 
data transmitted or disseminated by or on behalf of the Corporation 
or any reporting authority designated by the Corporation, including 
but not limited to reports of transactions in or quotations for 
securities traded on the Corporation, or reports index values or 
related data, and the Corporation makes no express or implied 
warranties of merchantability or fitness for a particular purpose or 
use with respect to any such data. The foregoing limitations of 
liability and disclaimers shall be in addition to, and not in 
limitation of, any other provisions of the Bylaws or Rules.
    (b) Whenever custody of an unexecuted order is transmitted by an 
ETP Holder[, Equity ASAP Holder, or ETP Firm] to or through the 
Corporation's order routing systems, electronic book or automatic 
executions systems or to any other automated facility of the 
Corporation whereby the Corporation assumes responsibility for the 
transmission or execution of the order, provided that the 
Corporation has acknowledged receipt of such order, the 
Corporation's liability for the negligent acts or omissions of its 
employees or for the failure of its systems or facilities shall not 
exceed the limits provided in this paragraph (b), and no assets of 
the Corporation shall be applied or shall be subject to such 
liability in excess of the following limits:
    (1) As to any one or more claims made by a single ETP Holder[, 
Equity ASAP Holder, or ETP Firm] growing out of the use or 
[employment] enjoyment of the facilities afforded by the Corporation 
on a single trading day, the Corporation shall not be liable in 
excess of the larger of $100,000, or the amount of any recovery 
obtained by the Corporation under any applicable insurance 
maintained by the Corporation;
    (2) As to the aggregate of all claims made by all ETP Holders[, 
Equity ASAP Holders, and ETP Firms] growing out of the use or 
[employment] enjoyment of the facilities afforded by the Corporation 
on a single trading day, the Corporation shall not be liable in 
excess of the larger of $250,000 or the amount of the recovery 
obtained by the Corporation under any applicable insurance 
maintained by the Corporation.
    (3) As to the aggregate of all claims made by all ETP Holders[, 
Equity ASAP Holders, and ETP Firms] growing out of the use or 
enjoyment of the facilities afforded by the Corporation during a 
single calendar month, the Corporation shall not liable in excess of 
the larger of $500,000, or the amount of the recovery obtained by 
the Corporation under any applicable insurance maintained by the 
Corporation.
    (c)--No change.

Legal Proceedings Against Directors, Officers, Employees or Agents

    Rule 13.3. No ETP Holder[, Equity ASAP Holder, ETP Firm], or any 
other associated person shall institute a lawsuit or other legal 
proceeding against any Director, officer, employee, agent or other 
official of the Corporation or any subsidiary of the Corporation, 
for actions taken or omitted to be taken in connection with the 
official business of the Corporation or any subsidiary, except to 
the extent such actions or omissions constitute violations of 
federal securities laws for which a private right of action exists 
and except with respect to the Directors of the Corporation, to the 
extent inconsistent with the [Articles] Certificate of 
Incorporation. This Rule shall not apply to appeals of disciplinary 
actions or other actions by the Corporation as provided for in the 
Rules.

Corporation's Costs of Defending Legal Proceedings

    Rule 13.4. Any ETP Holder[, Equity ASAP Holder, ETP Firm,] or 
any other associated person who fails to prevail in a lawsuit or 
other legal proceeding instituted by such person against the 
Corporation or any of its Directors, officers, committee members, 
employees or agents, and related to the business of the Corporation, 
shall pay to the Corporation all reasonable expenses, including 
attorney's fees, incurred by the Corporation in the defense of such 
proceeding, but only in the event that such expenses exceed Fifty 
Thousand Dollars ($50,000.00). This provision shall not apply to 
disciplinary actions by the Corporation, to administrative appeals 
of actions of the Corporation or in any specific instance where the 
Board of Directors has granted a waiver of this Rule.

Rule 14

Plan of Delegation of Functions by the Pacific Exchange, Inc. to PCX 
Equities, Inc.

Pacific Exchange, Inc.

    Rule 14.1. The Pacific Exchange, Inc. (``PCX''), the registered 
national securities exchange, is the parent company of the wholly-
owned subsidiary PCX Equities Inc. (``PCX Equities). The term 
``Exchange'' shall refer to the PCX and PCX Equities collectively.
    (a) Functions and Authority of the PCX. The PCX shall have 
ultimate responsibility for the rules and regulations of the 
Exchange and its operation and administration. As set forth below in 
Rule 14.2(a), the PCX has delegated certain authority and functions 
to PCX Equities. Actions taken pursuant to delegated authority, 
however, remain subject to review, ratification or rejection by the 
PCX Board of Governors (``PCX Board'') in accordance with procedures 
established by that Board. Any function or responsibility as a 
registered national securities exchange under the Securities 
Exchange Act of 1934 (``Act''), or as set forth in the 
[Certification]

[[Page 78893]]

Certificate of Incorporation, the Constitution or the PCX Rules is 
hereby reserved, except as expressly delegated to PCX Equities. In 
addition, the PCX expressly retains the following authority and 
functions:
    (1)-(9)--No change.
    (b) Access to and Status of Officers, Directors, Employees, 
Books, Records, and Premises of PCX Equities. Notwithstanding the 
delegation of authority to PCX Equities, as set forth in Rule 
14.2(a) below, the staff, books, records, premises, officers, 
directors, employees and agents of the PCX Equities are subject to 
the oversight of the PCX pursuant to the Act, and all officers, 
directors, employees, and agents of PCX Equities are officers, 
directors, employees, and agents of the PCX for purposes of the Act. 
The books and records of PCX Equities shall be subject at all times 
to inspection and copying by the PCX.

PCX Equities Inc. (``PCX Equities'')

    Rule 14.2(a) Delegation of Functions and Authority.
    (1) Subject to Rule 14.1(a)(9), the PCX hereby delegates to PCX 
Equities and its subsidiary Pacific Clearing Corporation and PCX 
Equities assumes the following responsibilities and functions with 
respect to the equities business of the Exchange:
    (A) To establish and interpret rules and regulations and provide 
exemptions for ETP Holders[, ETP Firms, Equity ASAP Holders] or 
associated persons including, but not limited to trading rules, 
fees, access to and use of system facilities and arbitration 
procedures.
    (B) To determine regulatory and trading policies, including the 
development and adoption of necessary or appropriate rule changes, 
relating to the business conduct and trading activities of ETP 
Holders[, ETP Firms, Equity ASAP Holders] and associated persons. 
This includes, but is not limited to,
    (i) arbitration of disputes among and between ETP Holders[, ETP 
Firms, Equity ASAP Holders] and associated persons and customers 
arising from transactions on the facility;
    (ii)--No change.
    (iii) qualifications for ETP Holders[, ETP Firms, Equity ASAP 
Holders] and associated persons;
    (iv) clearance and settlement of securities transactions and 
other financial responsibility and operational matters affecting ETP 
Holders[, ETP Firms, Equity ASAP Holders] and associated persons in 
general and securities traded on PCX Equities;
    (v)-(vi)--No change.
    (C) To take necessary or appropriate action to assure compliance 
with the [rules] Rules and procedures of PCX Equities, the federal 
securities laws, and other laws, rules and regulations that the PCX 
Equities has the authority to administer or enforce, through 
examination, surveillance, investigation, enforcement, disciplinary, 
and other programs.
    (D) To administer programs and systems for the surveillance and 
enforcement of rules governing ETP Holders[, ETP Firms, Equity ASAP 
Holders] and associated persons' conduct and trading activities on 
PCX Equities.
    (E) To examine and investigate ETP Holders[, ETP Firms, Equity 
ASAP Holders] and associated persons to determine if they have 
violated the [rules] Rules or procedures of PCX Equities, the 
federal securities laws, and other laws, rules, and regulations that 
the Exchange has the authority to administer, interpret, or enforce.
    (F)-(G)--No change.
    (H) To determine whether ETP Holder [and Equity ASAP Holder] 
applicants have met the requirements established by PCX Equities for 
holding an ETP [or Equity ASAP].
    (I) To determine whether persons seeking to register as 
associated persons of ETP Holders[, ETP Firms or Equity ASAP 
Holders] have met such qualifications for registration as may be 
established by PCX Equities, including whether statutorily 
disqualified persons will be permitted to associate with particular 
ETP Holders[, ETP Firms or Equity ASAP Holders] and the conditions 
of such association.
    (J) To place restrictions on the business activities of ETP 
[Holders, ETP Firms, Equity ASAP] Holders and associated persons 
consistent with the public interest, the protection of investors, 
and the federal securities laws.
    (K) To establish and assess fees and other charges on ETP 
Holders, [ETP Firms, Equity ASAP Holders,] associated persons, 
issuers and others using the products, services or facilities of PCX 
Equities.
    (L)-(O)--No change.
    (P) To develop and adopt [rules] Rules, interpretations, 
policies, and procedures and provide exemptions to maintain and 
enhance the integrity, fairness, efficiency, and competitiveness of 
PCX Equities.
    (Q)--No change.
    (R) To develop, adopt, administer and enforce policies and 
[rules] Rules of PCX Equities governing listing standards applicable 
to securities traded on PCX Equities and the issuers of those 
securities.
    (S)-(U)--No change.
    (2)-(c)--No change.

Archipelago Exchange, L.L.C., and Archipelago Holdings, L.L.C.

    Rule 14.3(a) Access to and Status of Books, Records, Premises, 
Officers, Directors, Agents and Employees of Archipelago Exchange, 
L.L.C. The books, records, premises, officers, directors, agents and 
employees of Archipelago Exchange, L.L.C., shall be deemed to be the 
books, records, premises, officers, directors, agents and employees 
of PCX and PCX Equities for purposes of and subject to oversight 
pursuant to the Securities Exchange Act. The books and records of 
Archipelago Exchange, L.L.C., shall be subject at all times to 
inspection and copying by the PCX, PCX Equities and the SEC.
    (b) Access to and Status of Officers and Directors of 
Archipelago Holdings, L.L.C. All officers and directors of 
Archipelago Holdings, L.L.C., shall be deemed to be officers and 
directors of PCX and PCX Equities for purposes of and subject to 
oversight pursuant to the Securities Exchange Act.
    (c) Paragraphs (a) and (b) above shall not be deemed to create 
any rights or benefits for any person or entity other than the SEC.

[PCX Equities, Inc.]

[Equity Floor Procedure Advices]

[1-A--3-A--Deleted.]

[FR Doc. 00-30518 Filed 12-14-00; 8:45 am]
BILLING CODE 8010-01-P