03-28892. Self-Regulatory Organizations; Order Granting Accelerated Approval to Proposed Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. Relating to the Establishment of a New Total Imbalance Indicator on the Archipelago ...

November 10, 2003.

I. Introduction

On September 22, 2003, the Pacific Exchange, Inc. (“PCX”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to amend its rules governing the Archipelago Exchange facility (“ArcaEx”), the equities trading facility of PCX's wholly-owned subsidiary, PCX Equities, Inc. (“PCXE”), in order to add a new Total Imbalance indicator to its Market Order Auction and Trading Halt auction display. On September 30, 2003, the PCX submitted Amendment No. 1 to the proposed rule change.^[3] Notice of the proposed rule change, as amended, was published for comment in the Federal Register on October 16, 2003.^[4] The Commission received no comments in response to the proposal. This order approves the PCX's proposed rule change on an accelerated basis.

II. Description

PCX proposes to amend PCXE Rule 1.1(q) and PCXE Rule 7.35(c) and (d) to add a new order imbalance indicator to the information that is displayed during the ArcaEx Market Order Auction ^[5] and during the Trading Halt Auction.^[6] The new Total Imbalance Indicator would display the total net imbalance of market and limit orders at the “Indicative Match Price.”^[7] This imbalance indicator will be in addition to the existing market order Imbalance indicator that exclusively displays the imbalance of unmatched market orders.

Currently, PCXE Rule 1.1(q) defines the term “Imbalance” as the number of buy or sell shares that cannot be matched with other shares at the Indicative Match Price at any given time. The PCX proposes to amend PCXE Rule 1.1(q) to define two types of order imbalances, Total Imbalance and Market Imbalance. “Total Imbalance” would be defined as the net imbalance of buy (sell) orders at the Indicative Match Price for all orders that are eligible for execution during the Market Order Auction or the Trading Halt Auction. “Market Imbalance” would mean only the imbalance of any buy (sell) Market Orders that are not matched for execution during the applicable auction.

The PCXE's current rules governing the publication of imbalances associated with its Market Order Auction and Trading Halt Auction are set forth in PCXE Rule 7.35. During the Market Order Auction and the Trading Halt Auction, the PCX currently publishes only the unmatched portion of market orders (and not limit orders) as the Imbalance display. The PCX proposes to amend PCXE Rules 7.35(c) and 7.35(d) to establish an indicator that would display the Total Imbalance in addition to the Market Imbalance during the Market Order Auction and Trading Halt Auction.

III. Discussion

After careful review, the Commission finds that the proposed rule change is consistent with Section 6(b) of the Act ^[8] in general and furthers the objectives of Section 6(b)(5) of the Act.^[9] The Commission believes that the proposal is designed to promote just and equitable principles of trade, to facilitate transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market.^[10]

The Commission believes that the dissemination of the aforementioned imbalance Indicators will provide ETP Holders and Sponsored Participants (collectively “Users”) with additional information with which to make trading decisions during Market Order Auctions and Trading Halt Auctions. Accordingly, this enhancement should facilitate improved order interaction and foster price competition. The Commission believes that the proposed rule change will provide a more transparent and efficient market operation, and will enhance the information available to investors.

The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice in the Federal Register. The Commission believes that the proposed rule change will enhance the information available to ArcaEx Users to assist them in making investment decisions during the Opening Session and prior to the re-opening of trading in a security following a trading halt. The Commission further notes that PCX has represented that ArcaEx has already developed the capability to publish the new Total Imbalance indicator.^[11]

IV. Order Granting Accelerated Approval

For the foregoing reasons, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder. Moreover, the Commission finds that there is good cause to grant accelerated approval to the proposed rule change, as amended.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[12] that the proposed rule change, as amended (SR-PCX-2003-48), is approved on an accelerated basis.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.^[13]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Peter D. Bloom, Managing Director, Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated September 29, 2003 (“Amendment No. 1”). In Amendment No. 1, the PCX submitted a new Form 19b-4, which replaced the original filing in its entirety.

4.  See Securities Exchange Act Release No. 48603 (October 8, 2003), 68 FR 59661 (SR-PCX-2003-48). The 21-day comment period expired on November 6, 2003.

5.  See PCXE Rule 7.35(c).

6.  See PCXE Rule 7.35(d).

7.  See PCXE Rule 1.1(r).

8.  15 U.S.C. 78f(b).

9.  15 U.S.C. 78f(b)(5).

10.  In approving this rule, the Commission notes that it has considered the proposal's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

11.  Telephone conversation between Peter Bloom, Regulatory Policy, PCX and Tim Fox, Attorney, Commission on October 30, 2003.

12.  15 U.S.C. 78s(b)(2).

13.  17 CFR 200.30-3(a)(12).