03-30939. Self-Regulatory Organizations; Order Granting Approval to Proposed Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. Relating to the Establishment of a Cross-and-Post Order Type

December 8, 2003.

I. Introduction

On July 23, 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 implement a new order type, the “Cross-and-Post Order,” for use on the Archipelago Exchange (“ArcaEx”). On September 25, 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 29, 2003.^[4] The Commission received no comments in response to the proposal. This order approves the PCX's proposed rule change.

II. Description

The PCX, through its wholly owned subsidiary, PCX Equities, Inc. (“PCXE”) proposed to adopt a new order type called a “Cross-and-Post Order.” The Cross-and-Post Order would be an order that is executed pursuant to the existing “Cross Order” rules ^[5] while allowing for any residual portion of the Cross Order to be displayed in the Arca Book. Further, the ArcaEx trading system would cancel a Cross-and-Post Order at the time of order entry if: (i) The cross price would cause an execution at a price that trades through the NBBO; or (ii) the cross price is between the BBO and does not improve the BBO by the minimum price improvement increment (“MPII”) pursuant to PCXE Rule 7.6(a), Commentary .06.^[6]

III. Discussion

After careful review, the Commission finds that the proposed rule change is consistent with section 6(b) of the Act ^[7] in general and furthers the objectives of section 6(b)(5) of the Act.^[8] The Commission believes that the proposed rule change 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 mechanism of a free and open market.^[9]

The Commission believes that Cross-and-Post Orders will facilitate order interaction on ArcaEx and increase investor choices with respect to executing orders. Currently on ArcaEx, any portion of a Cross Order that remains unexecuted is canceled. Customers must then re-enter the residual portion of the order if they wish to have it posted in the Arca Book. The Commission believes that the Cross-and-Post Order will enable automatic electronic posting of the residual portion of the Cross-and-Post Order.

IV. Order Granting 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.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[10] that the proposed rule change, as amended (SR-PCX-2003-38), is approved.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.^[11]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  Amendment No. 1 replaced the original filing in its entirety.

4.  See Securities Exchange Act Release No. 48676 (October 21, 2003), 68 FR 61711 (SR-PCX-2003-38).

5.  A “Cross Order” is a two-sided order with instructions to match the identified buy-side with the identified sell-side at a specified price (the “cross price”). See PCXE Rule 7.31(s).

6.  The MPII on ArcaEx is equal to $0.01 or 10% of the NBBO spread, whichever is greater. See PCXE Rule 7.6(a), Commentary .06. Under current PCXE rules, the MPII requirements must be satisfied in the execution of Cross Orders. See PCXE Rule 7.31(s).

7.  15 U.S.C. 78f(b).

8.  15 U.S.C. 78f(b)(5).

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

10.  15 U.S.C. 78s(b)(2).

11.  17 CFR 200.30-3(a)(12).