[Federal Register Volume 70, Number 238 (Tuesday, December 13, 2005)]
[Notices]
[Pages 73811-73815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7263]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52898; File No. SR-PCX-2005-87]
Self-Regulatory Organizations; The Pacific Exchange, Inc.; Notice
of Filing of Proposed Rule Change, and Amendment No. 1 Thereto,
Relating to the Tracking Order Process
December 6, 2005.
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 July 26, 2005, the Pacific 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. On November 22, 2005, the Exchange
submitted Amendment No. 1 to the proposed rule change.\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\ Amendment No.1, which replaced the original filing in its
entirety, made technical and clarifying changes to the proposed rule
change.
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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 PCX Equities, Inc.
(``PCXE''), proposes to amend its rules governing the Archipelago
Exchange (``ArcaEx''), the equities trading facility of PCXE. With this
filing, the Exchange proposes to replace the existing PCXE rules
describing the current ArcaEx Tracking Order Process \4\ with new
provisions setting forth a simplified price/time execution priority for
the Tracking Order Process. Further, the PCX
[[Page 73812]]
proposes to modify the Tracking Order \5\ for use in the revised
Tracking Order Process.
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\4\ See PCXE Rule 7.37(c).
\5\ See PCXE Rule 7.31(f).
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The text of the proposed rule change, as amended, appears below.
Additions are italicized; deletions are [bracketed].
* * * * *
Rules of PCX Equities, Inc.
Rule 7
Equities Trading; Section 3 Archipelago Exchange-Orders and Modifiers
Rule 7.31(a)-(e)--No Change.
(f) Tracking Order.
An undisplayed, priced round lot order that is eligible for
execution in the Tracking Order Process against orders equal to or less
than the aggregate size of Tracking Order interest available at that
price. If a Tracking Order is executed but not exhausted, the remaining
portion of the order shall be cancelled, without routing the order to
another market center or market participant.
[(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 willing 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 at 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.]
[(7) The Corporation shall suspend the Tracking Order Process for a
security when a locked or crossed market exists in that security. The
Tracking Order Process for that security shall resume when the locked
or crossed market in that security no longer exists.]
[(8) 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)--No Change.
(2) An Odd Lot Dealer may submit an instruction to the Archipelago
Exchange for the parameters of an OLTO at any time during the day. The
parameters shall include: [is a Tracking Order, as described in
paragraph (f), in which:]
(A) The maximum aggregate size [is unlimited;], which is the
unlimited aggregate size of all orders generated in the Odd Lot
Tracking Order Process for a particular security that the Odd Lot
Dealer is willing to trade on that day;
(B) The maximum tradeable size [is] up to 99 shares, which is the
maximum size of any order generated in response to an order entering
the Odd Lot Tracking Order Process that the Odd Lot Dealer is willing
to trade on that day;
(C) The price is set at the NBBO; and
(D) The relevant 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.
(3) Each order generated in a rotation is a limit order in which:
(A) The price is set at the NBBO at the time the unfilled order
enters the Odd Lot Tracking Order Process, based on the Odd Lot
Dealer's parameters; and
(B) The size is (i) equal to the Odd Lot Dealer's maximum tradeable
size; or (ii) equal to the size of the unfilled order if the unfilled
order is smaller than the maximum tradeable size.
(4) An Odd Lot Dealer may modify the parameters of the instruction
for the Odd Lot Tracking Order from time to time, as the Corporation
permits.
(5) The Corporation shall suspend the Odd Lot Tracking Order
Process for a security when a locked or crossed market exists in that
security. The Odd Lot Tracking Order Process for that security shall
resume when the locked or crossed market in that security no longer
exists.
(6) 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 Odd Lot Tracking Order Process. The Odd
Lot Tracking Order Process shall resume when the Corporation determines
that the conditions supporting the suspension no longer exist.
(h)-(hh)--No Change.
* * * * *
Order Execution
Rule 7.37
* * * * *
(a)-(b)--No Change.
(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 price/time priority [the following manner]; provided,
however, any portion of an
[[Page 73813]]
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 be
executed in the Odd Lot Tracking Order Process, as described in
paragraph (2).]
Odd Lot Tracking Order Process
[(2)](1) If the unfilled order is an odd lot, and there is an Odd
Lot Dealer registered in that security, the order shall be matched in
the Odd Lot Tracking Order Process against any OLTOs pursuant to the
following rotation pattern:
Odd Lot Dealers who have submitted an instruction for the
parameters of an Odd Lot 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 Odd Lot Dealers' instructions are
received by the Archipelago Exchange. Within each price level, the
first Odd Lot Dealer to send an instruction for an Odd Lot Tracking
Order will be the first Odd Lot Dealer to be assigned a trade in the
rotation process. For each order that enters the Odd Lot Tracking Order
Process, the Odd Lot Tracking Order Process will rotate once through
the Odd Lot Dealers in the rotation pattern. In each rotation, the Odd
Lot Dealer will be responsible for one trade up to the Odd Lot Dealer's
maximum tradeable size. [described in Rule 7.31(f)(3) for immediate
execution thereafter.]
(2) If there is no Odd Lot Dealer registered in that security, the
odd lot will be routed away pursuant to PCXE Rule 7.37(d).
(d)--No Change.
* * * * *
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 PCX 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
To enhance participation on the ArcaEx facility, the Exchange
proposes to restructure its Tracking Order Process by modifying the
current rule text governing the Tracking Order Process to implement a
simplified price/time priority execution process. In addition, the
Exchange proposes to modify the existing Tracking Order for use in the
revised and simplified Tracking Order Process.
Current ArcaEx Tracking Order Process
Current PCXE Rules 7.31(f) and 7.37(c) describe the Tracking Order
Process. The purpose of the Tracking Order Process is to provide a
final opportunity for execution against any remaining liquidity on the
ArcaEx system before routing to an away market center. As currently
written, Users \6\ of the Tracking Order Process submit a Tracking
Order instruction to ArcaEx based on certain parameters. ArcaEx
generates orders based on these User instructions. Executions occur in
a rotating manner pursuant to PCXE Rule 7.37(c). In general, the first
User to send an instruction for a Tracking Order for each price level
is the first User to be assigned a trade in the rotation process. With
each rotation, a User who has entered a Tracking Order is responsible
for one trade up to the User's maximum tradable size.
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\6\ See PCXE Rule 1.1(yy).
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Proposed Changes to the Tracking Order Process
As proposed, the rule change would modify the current Tracking
Order Process described above and replace it with a new process based
on the submission of orders, rather than instructions, to be executed
in price/time priority. Users would no longer be required to submit and
maintain Tracking Order instructions to participate in the Tracking
Order Process. Instead, Users would simply submit a Tracking Order (as
described below) designed specifically to reside in the modified
Tracking Order Process. ArcaEx would continue to process all orders
residing in the modified Tracking Order Process after it processes
orders entered into the other ArcaEx execution processes.\7\ Within the
Tracking Order Process, the modified Tracking Order would execute based
on its price and time received as opposed to the price and time the
instruction was received.
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\7\ See PCXE Rule 7.37 for a description of the ArcaEx execution
processes that precede the Tracking Order Process. These include the
Directed Process, Display Process and Working Order Process.
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This filing also proposes changes to the existing Odd Lot Tracking
Order Process.\8\ The Odd Lot Tracking Order Process that is currently
available for incoming odd lot orders would continue to exist and would
be distinct from the Tracking Order Process which would be available
for incoming mixed lot and round lot orders. Accordingly, the existing
Tracking Order Process and associated assignment of trades on a price/
time rotating basis would continue to apply to the Odd Lot Tracking
Order Process. The rule text that previously resided in PCXE Rule
7.31(f)(3) would be inserted into PCXE Rule 7.37(c)(1) to describe the
Odd Lot Tracking Order Process and revised to clarify that only Odd Lot
Dealers \9\ may be assigned trades under the Odd Lot Tracking Order
Process.\10\ Also, under the proposal, orders would only participate in
the Odd Lot Tracking Order Process if there is an Odd Lot Dealer
registered in that security. If no such dealer exists, the odd lot
order would be routed away pursuant to PCXE Rule 7.37(d). Further, the
proposal includes clarifying changes that the Odd Lot Tracking Order
Process does not generate partial fills.
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\8\ See PCXE Rule 7.37(c).
\9\ See PCXE Rule 1.1(gg).
\10\ Similarly, the rule text that describes the generation of
Tracking Orders in PCXE Rule 7.31(f) and that also applies to Odd
Lot Tracking Orders would be inserted in PCXE Rule 7.31(g). PCXE
Rule 7.31(g) would also be further modified, as necessary, to
accommodate such insertion.
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The Tracking Order
The rule proposal modifies an existing order type, the Tracking
Order, for use in the revised Tracking Order Process. Currently, a User
submits a Tracking Order instruction that includes specific parameters
that must be entered including maximum aggregate size and maximum
tradeable size. The revised Tracking Order is an undisplayed, priced
order with a specified size that would be eligible for execution
against other ArcaEx orders that have already been exposed to other
ArcaEx execution processes and have not been executed in full. The
Tracking Order would execute in the revised Tracking Order Process
against an incoming order only if the size of the incoming order is
less than or equal to the aggregate Tracking Order interest available
at the price of the incoming order and the incoming order is not an odd
lot order. If the size of any contra order exposed to the revised
Tracking Order Process is greater than
[[Page 73814]]
the size of the aggregate Tracking Order interest residing in the
Tracking Order Process at the executable price, such Tracking Orders
would not execute against the contra order. For example, if a Tracking
Order was entered for 300 shares and a contra order with a size of 301
shares was exposed to the Tracking Order Process (after being exposed
to all other ArcaEx execution processes), the contra order would not
execute against the Tracking Order and would route out of ArcaEx.
Tracking Orders would execute only if the price of the Tracking
Order is equal to or better than prices found at away markets (and
would therefore execute at the price of the NBBO at the time of
execution or better).\11\ If a Tracking Order is executed but not
exhausted, the remaining portion of the Tracking Order shall be
cancelled, without routing to another market center or market
participant. Tracking Orders residing in the Tracking Order Process
would be sorted and executed against in price/time priority. Tracking
Orders may only be entered as round lots and are not displayed to any
Users. However, mixed lot contra orders exposed to a Tracking Order
would be eligible for execution against such Tracking Order (assuming
the size of the contra order is equal to or less than the size of the
Tracking Order).\12\ An odd lot contra order would be exposed to an Odd
Lot Tracking Order and eligible for execution against such Odd Lot
Tracking Order as described above. In the circumstance when a Tracking
Order receives a partial fill, the unexecuted portion of the Tracking
Order would be cancelled. Because Tracking Orders may be cancelled and
are only executed against once, the current provision in PCXE Rule
7.31(f)(8) that enables ArcaEx to suspend the Tracking Order Process
because of an influx of orders, a system malfunction, or other unusual
circumstances is no longer relevant and would be removed. In addition,
the current provision in PCXE Rule 7.31(f)(7) is no longer relevant
because the new Tracking Order Process would be integrated into
existing order book processing, which is not suspended in the instance
of a locked or crossed market. Accordingly, PCXE Rule 7.31(f)(7) would
not be incorporated into the modified Tracking Order Process. Tracking
Orders would not route to other market centers, would not be eligible
for execution against other Tracking Orders, and would not execute
against incoming ITS orders.
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\11\ See PCXE Rule 7.37 which states that ``for an execution to
occur in any Order Process, the price must be equal to or better
than the NBBO.''
\12\ PCX clarified that a contra order would be eligible for
execution against such Tracking Order if the size of the contra
order is equal to or less than the size of the Tracking Order.
Telephone conversation between Bridget M. Farrell, Director,
Strategy PCX/ArcaEx and Johnna B. Dumler, Attorney, Division of
Market Regulation, Commission, on December 1, 2005.
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The Exchange believes that the implementation of the aforementioned
rule changes relating to ArcaEx order processing would enhance order
execution opportunities on ArcaEx. In particular, the Exchange believes
the revisions to the Tracking Order Process and Tracking Order would
simplify the Tracking Order Process and encourage order interaction on
ArcaEx.
2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with section 6(b) of the Act,\13\ in general, and furthers
the objectives of section 6(b)(5) of the Act \14\ 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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The PCX 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 such proposed rule change, as amended, or
(B) Institute proceedings to determine whether the proposed rule
change, as amended, 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 at (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-PCX-2005-87 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-PCX-2005-87. 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 Room. 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-2005-87 and
should be submitted on or before January 3, 2006.
[[Page 73815]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. E5-7263 Filed 12-12-05; 8:45 am]
BILLING CODE 8010-01-P