Document ID: SEC-2006-0280-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Pacific Stock Exchange, Inc.
Posted Date: 2006-03-03T05:00Z

[Federal Register: March 3, 2006 (Volume 71, Number 42)]
[Notices]               
[Page 11008-11010]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr06-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53376; File No. SR-PCX-2006-12]

 
Self-Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to Clearly Erroneous 
Executions

February 27, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 23, 2006, the Pacific Stock Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the PCX. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX proposes to amend PCX Equities, Inc. (``PCXE'') Rule 
7.10(e) pertaining to clearly erroneous executions of securities issued 
in initial public offerings. The text of the proposed rule change is 
set forth below.\3\ Brackets indicate deletions; italics indicates new 
text.
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    \3\ The Exchange inadvertently indicated that the title of PCXE 
Rule 7.10 was new text. The Commission corrected this technical 
error in the text of the proposed rule change.
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* * * * *

Rules of the PCX Equities, Inc.

Rule 7

Rule 7.10

Clearly Erroneous Executions

    (a)-(d) No Change.
    (e) Trade Nullification and Price Adjustments for UTP Securities 
that are Subject of Initial Public Offerings (``IPOs''). Pursuant to 
SEC Rule 12f-2, as amended, the Corporation may extend unlisted trading 
privileges to a security that is the subject of an initial public 
offering when at least one transaction in

[[Page 11009]]

the subject security has been effected on the national securities 
exchange or association upon which the security is listed and the 
transaction has been reported pursuant to an effective transaction 
reporting plan. A clearly erroneous error [will] may be deemed to have 
occurred in the opening transaction of the subject security if the 
execution price of the opening transaction on the Corporation is the 
lesser of $1.00 or 10% away from the opening price on the listing 
exchange or association. In such circumstances, the Officer shall 
declare the opening transaction null and void or adjust the transaction 
price to the opening price on the listing exchange or association. 
Clearly erroneous executions of subsequent transactions of the subject 
security will be reviewed in the same manner as the procedure set forth 
in (c)(1). Absent extraordinary circumstances, any such action of the 
Officer pursuant to this subsection (e) shall be taken in a timely 
fashion, generally within thirty (30) minutes of the detection of the 
erroneous transaction. Each party involved in the transaction shall be 
notified as soon as practicable by the Corporation, and the party 
aggrieved by the action may appeal such action to the PCXE CRO in 
accordance with the provisions of subsection (c)(2)-(4) above.
* * * * *

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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

1. Purpose
    The purpose of the proposed rule change is to revise the procedures 
for trade nullifications (``busts'') and price adjustments 
(``adjusts'') for securities issued in initial public offerings 
(``IPOs'') from an automatic to a discretionary basis. Given the unique 
nature of IPOs, public customers have an expectation that the opening 
of the security will be orderly and that the pricing will be reasonable 
for the listing company. Opening execution prices transacted on the 
primary listed exchange (and other market centers) represent the price 
of the stock in the secondary market, which may not necessarily reflect 
the IPO pricing disseminated prior to the start of secondary market 
trading by the underwriters/syndicates. According to the Exchange, 
there may be varying first prices in a security that is issued in an 
IPO because market centers may have different prices at the same 
second.
    Due to the possibility of varying prices at the same second in a 
security issued in an IPO, PCXE staff reviews the openings of IPOs on 
ArcaEx on a best efforts basis. The review of IPO opening prices 
utilizes criteria that also are used to judge erroneous executions 
during the pre-core, core and post-core sessions. IPO trades are 
evaluated for uniformity with the primary listed exchange as well as 
with other market centers' prices. Currently, initial trades on ArcaEx 
that are executed at prices more than $1.00 from the primary listed 
exchange's opening price are automatically busted or adjusted to the 
primary listed exchange's opening price.
    Under the proposed rule, PCXE staff would have the discretion to 
bust or adjust initial trades that are executed more than $1.00 from 
the primary listed exchange's opening price. The Exchange believes that 
the change from automatic to discretionary adjustments or busts is 
necessary because often the primary exchange lists the IPO at multiple 
first prices. Many times, but not always, the first price is not 
indicative of the actual price of the IPO and thus the PCXE staff must 
review all of the first prices to determine if the trade at issue has 
to be adjusted or busted.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \4\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \5\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
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 to and perfect 
the mechanism of a free and open market and a national market system.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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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.

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 Exchange 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form at http://www.sec.gov/rules/sro.shtml.
; or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-PCX-2006-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090

.All submissions should refer to File Number SR-PCX-2006-12. 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

[[Page 11010]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Section. Copies of such filing also will be available for 
inspection and copying at the principal office of the PCX. 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-PCX-2006-12 and should be 
submitted on or before March 24, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-3030 Filed 3-2-06; 8:45 am]

BILLING CODE 8010-01-P