Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 68503 

13 17 CFR 240.15c3–1. 

14 15 U.S.C. 78a. 

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

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaced and superseded the 

original filing in its entirety. 

4See Securities Exchange Act Release No. 52472 

(September 20, 2005), 70 FR 56762. 

of securities to hedge option series that 

have one-dollar strike intervals has 

unintentionally become more 

restrictive. 

The proposed rule change will 

remove the two-dollar standard exercise 

price interval limitation for listed 

options and the definition of ‘‘in-or-atthe-money.’’ As proposed, Rule 

431(f)(2)(J) would require permitted 

offset transactions be effected for 

specialist or market-making purposes 

such as hedging, risk reduction, 

rebalancing of positions, liquidation, or 

accommodation of customer orders, or 

other similar specialist or marketmaking purposes, while prohibiting 

trading in an underlying security that is 

not related to specialist or market 

making option activities, or that does 

not constitute a reasonable hedge. 

Since clearing firms have risk 

monitoring systems that alert them to 

unhedged positions and haircut 

requirements pursuant to Rule 15c3–113

of the Exchange Act 14 perform a similar 

function as NYSE margin requirements 

relative to providing adequate risk 

coverage to broker-dealers, the Exchange 

believes that the elimination of the twodollar standard exercise price limitation 

and definition of ‘‘in-or-at-the-money’’

will not diminish the ‘‘safety and 

soundness’’ protections that Rule 431 

provides. 

2. Statutory Basis 

The basis for the proposed rule 

change is the requirement under section 

6(b)(5) 15 of the Exchange Act that the 

rules of the Exchange be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. In addition, section 

6(b)(5) of the Exchange Act requires the 

rules of an exchange to foster 

cooperation and coordination with 

persons engaged in regulating 

transactions in securities. 

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 Exchange Act 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

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 reason for so finding or (ii) 

as to which the self-regulatory 

organization consents, the Commission 

will: 

(a) By order approve the proposed 

rule change, or 

(b) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as amended, is consistent with 

the Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2004–39 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–NYSE–2004–39. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Section, 100 F Street, NE., Washington, 

DC 20549. Copies of the filing also will 

be available for inspection and copying 

at the principal office of the Exchange. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2004–39 and should 

be submitted on or before December 1, 

2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority. 

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22454 Filed 11–9–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52719; File No. SR–PCX–

2005–73] 

Self-Regulatory Organizations; Pacific 

Exchange, Inc.; Order Approving 

Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

the Establishment of a Portfolio 

Crossing Service on the Archipelago 

Exchange 

November 2, 2005. 

I. Introduction 

On June 7, 2005, the Pacific Exchange, 

Inc. (‘‘PCX’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to establish an after-hours 

Portfolio Crossing Service (‘‘PCS’’). The 

PCX filed Amendment No. 1 to the 

proposed rule change on September 14, 

2005.3 The proposed rule change, as 

amended, was published for comment 

in the Federal Register on September 

28, 2005.4 The Commission received no 

comments from the public in response 

to the proposed rule change. This order 

68504 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 

5See PCXE Rule 1.1(n). 

6See PCXE Rule 1.1(a). 

7See proposed PCXE Rule 7.65(a)(4)(a) for 

definition of ‘‘PCS Order.’’

8See PCXE Rule 7.31(s). 

9The New York Stock Exchange’s Crossing 

Session II (‘‘NYSE CS II’’) is another after hours 

session which allows member firms the ability to 

cross a portfolio of orders. The NYSE CS II, 

however, does not accept orders until after the close 

of regular trading. 

10Since shares and dollar amounts will be 

calculated on a aggregate basis, volume and price 

information will not be available at an individual 

security level. 

11ArcaEx represented that it would coordinate 

with SIAC to ensure it would be able to receive 

messages from ArcaEx reflecting aggregate PCS 

executions. See infra note 14. 

12Nasdaq is the securities information processor 

for Nasdaq-listed securities. Section 11 of the 

Nasdaq Unlisted Trading Privileges Plan deals with 

trade reporting for Nasdaq securities after 6:30 p.m. 

Eastern Time. 

13 15 U.S.C. 78ee. 

14The Commission notes that Rule 11Aa3–1 has 

been redesignated as Rule 601 of Regulation NMS. 

17 CFR 242.601. 

15 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

16 15 U.S.C. 78f(b)(5). 

17See PCXE Rule 7.34(a)(3). 

18 15 U.S.C. 78s(b)(2). 

19 17 CFR 200.30–3(a)(12). 

approves the proposed rule, as 

amended. 

II. Description 

The PCX, through its wholly-owned 

subsidiary PCX Equities, Inc. (‘‘PCXE’’), 

proposed to establish the PCS, a new 

transaction and trade reporting 

mechanism for Equity Trading Permit 

Holders (‘‘ETP Holders’’) 5 to allow the 

execution and reporting of portfolio 

trades in equity securities on the 

Archipelago Exchange (‘‘ArcaEx’’). In 

order to use PCS, ETP Holders would 

input a basket of individual cross 

orders, each with a basket number 

identifier tying it to the other orders in 

the basket. These baskets of individual 

cross orders would not interact with 

other orders residing in the Arca Book.6

Each side of an individual coupled 

order in a basket entered into PCS 

would execute without regard to the 

priority of other orders entered into 

PCS. 

To be eligible for PCS, orders must be 

part of a basket of individual cross 

orders comprised of at least 15 

securities and with a total market value 

of at least $1,000,000.7 All symbols 

eligible for trading on ArcaEx would be 

eligible for trading on PCS. If a basket 

of orders meets the standards as set 

forth in proposed Rule 7.65, the basket 

would be referred to as a ‘‘PCS Order.’’

Each individual component of a PCS 

Order must be appended with a basket 

number identifier tying it to the other 

order components of the PCS Order. 

This identifier would be used to 

distinguish the individual components 

of any PCS Order from an ordinary 

Cross Order 8 destined for ArcaEx. 

ETP Holders would be able to enter 

PCS Orders at any time during the 

Exchange’s trading day.9 When the 

Exchange receives a PCS Order, it 

would hold such order until the end of 

trading, currently 5 p.m. Pacific Time. 

All PCS Orders received during any 

particular trading day would be 

executed simultaneously in PCS at least 

one minute after the close of trading on 

the Exchange, but in no event later than 

8:59 p.m. Pacific Time. Each individual 

order component of a PCS Order would 

not interact with other PCS Orders or 

other orders residing in the Arca Book 

in any way. Furthermore, trading halts 

occurring during the normal market 

hours in one or more individual stocks 

would not affect the execution of PCS 

Orders. However, if there is a marketwide halt in a symbol that remains in 

effect at 1 p.m. Pacific Time, the 

Exchange would halt trading in such 

symbol through its PCS. 

The Exchange would handle trade 

reporting for PCS executions in one of 

two different ways, depending on 

whether a particular PCS component 

execution involved exchange-listed or 

Nasdaq-listed securities. With respect to 

exchange-listed securities, the system 

would calculate the total shares and 

total dollar amounts 10 of all exchangelisted symbols executed in PCS on any 

particular trading day. The Exchange 

would then transmit this total as an 

administrative message over the high 

speed line to The Securities Industry 

Automation Corporation (‘‘SIAC’’).11

The Exchange would not consolidate 

the exchange-listed volume attributable 

to PCS with the volume in those 

securities occurring in the non-PCS 

trading session occurring on ArcaEx. 

With respect to Nasdaq-listed securities, 

the Exchange would report symbols 

individually to Nasdaq as regular 

transactions as of the following 

morning.12

All PCS executions, whether 

exchange-listed or Nasdaq securities, 

will be ‘‘covered sales’’ occurring on the 

Exchange for the purposes of Section 31 

of the Act.13 The Exchange will report 

PCS activity to the Commission in Part 

II of Form R31 under the Act. 

In addition, the Exchange has 

requested exemptive relief from the 

requirement in Rule 11Aa3–1 under the 

Act 14 that the Exchange disseminate on 

a consolidated basis trading volume for 

each of the component securities 

executed on the Exchange’s PCS. In 

addition, the Exchange has requested 

clarification from the Commission with 

respect to the application of Rule 10a–

1 under the Exchange Act and 

Regulation SHO. 

III. Discussion 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.15 In 

particular, the Commission finds that 

the proposal, as amended, is consistent 

with the provisions of Section 6(b)(5) of 

the Act,16 which requires, among other 

things, that a national securities 

exchange’s rules be designed to prevent 

fraud and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to remove 

impediments to and to perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

The Commission believes that the 

establishment of PCS appears to be 

reasonably designed to promote a free 

and open market and the national 

market system by offering ETP Holders 

the opportunity to enter crossing 

portfolio orders to be executed against 

each other following the conclusion of 

the ArcaEx Late Trading Session.17 The 

establishment of the PCS also appears to 

be reasonably designed to enhance order 

execution opportunities on ArcaEx by 

providing investors and ETP Holders 

with greater opportunities for executing 

large portfolio trades. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,18 that the 

proposed rule change (SR–PCX–2005–

73), as amended, be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.19

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22415 Filed 11–9–05; 8:45 am] 

BILLING CODE 8010–01–P