Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. To Impose Additional Obligations on the Exchange Should an Affiliate or Entity that Operates and/or Owns a Trading System or Facility of the Exchange List a Security on the Exchange

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on July 28, 2004, the Pacific Exchange, Inc. (“PCX” or “Exchange”), through its wholly owned subsidiary PCX Equities, Inc. (“PCXE”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On July 30, 2004, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons, and to grant accelerated approval to the proposed rule change, as amended.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange, through PCXE, is proposing to adopt a rule that would place additional reporting requirements on the Exchange should any affiliate of the Exchange or entity that operates and/or owns a trading system or facility of the Exchange list any security on the Exchange. The text of the proposed rule change, as amended, appears below. Proposed new language is in italics.

Rule 5

Listings

General Provisions and Definitions

Rule 5.1(a)-(b)—No Change.

Listing of an Affiliate or Entity That Operates and/or Owns a Trading System or Facility of the Corporation

Rule 5.1(c)—If a security of an affiliate of the Corporation or any entity that operates and/or owns a trading system or facility of the Corporation is listed pursuant to the Rules of the Corporation, then the Corporation shall file a report each month with the Securities and Exchange Commission describing: (1) The Corporation's monitoring of such issuer's compliance with the Corporation's listing standards, including (i) the issuer's compliance with the Corporation's bid price requirement and (ii) the issuer's compliance with each of the quantitative and qualitative maintenance requirements; and (2) the Corporation's monitoring of the trading of the security, which shall include summaries of all related surveillance alerts, complaints, regulatory referrals, busted or adjusted trades, investigations, examinations, formal and informal disciplinary actions, exceptions reports, and the trading data. In addition, once a year, an independent accounting firm shall review the listing standards for the subject security to ensure that the issuer is in compliance with the Corporation's listing requirements, and a copy of the report shall be forwarded promptly to the Securities and Exchange Commission.

In the event the Corporation determines that the subject issuer is non-compliant with any listing standard, the Corporation shall file a report with the Securities and Exchange Commission at the same time the Corporation notifies the issuer of its non-compliance. The report shall identify the date of non-compliance, type of non-compliance, and any other material information conveyed to the issuer in the notice of non-compliance. Within five (5) business days of receipt of a plan of remediation from the issuer, the Corporation shall notify the Securities and Exchange Commission of such receipt, whether the plan of remediation was accepted by the Corporation and the time period provided to regain compliance with the Corporation's listing standards.

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. The text of these statements may be examined at the places specified in Item III 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 Exchange is proposing to add PCXE Rule 5.1(c) in order to place additional reporting requirements on the Exchange should any affiliate of the Exchange or entity that operates and/or owns a trading system or facility of the Exchange list its security on the Exchange. Specifically, if an affiliate or any entity that operates and/or owns a trading system or facility of the Exchange lists its security on the Exchange, then the Exchange would be required to file a monthly report with the Commission describing: (1) The Exchange's monitoring of the issuer's compliance with the Exchange's listing standards; and (2) the Exchange's monitoring of the trading of the security, including summaries of surveillance alerts, complaints, regulatory referrals, busted or adjusted trades, investigations, examinations, disciplinary actions, exception reports and trading data. In addition, once each year the Exchange would be required to have an independent accounting firm review the listing standards for the security of the affiliate or entity that operates and/or owns a trading system or facility of the Exchange to ensure that the issuer is in compliance with the listing requirements. A copy of the report shall be forwarded promptly to the Commission.

If the Exchange determines that the subject issuer is not in compliance with any of the Exchange's listing standards, then the Exchange would be required to notify the Commission of such non-compliance at the same time it notifies the issuer of the non-compliance. Furthermore, within five business days of receipt of a plan of remediation from the issuer, the Exchange would be required to notify the Commission that: (1) It has received such plan; (2) whether the plan has been accepted by the Exchange; and (3) the time period by which the issuer believes it will regain compliance with the listing standards.

The Exchange believes that the addition of these requirements will help provide additional assurance that all securities listed on the Exchange are, and continue to be, in compliance with the Exchange's listing standards. In addition, the Exchange believes that the proposed rule, as amended, will help serve to minimize or eliminate any potential conflict of interest that may exist as a result of the listing on the Exchange of the security of an affiliate of the Exchange or entity that operates and/or owns a trading system or facility of the Exchange.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, in general, and furthers the objectives of Section 6(b)(5), in particular, because it 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 mechanisms of a free and open market and to protect investors and the public interest.

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

No written comments were either solicited or received.

III. 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 rule-comments@sec.gov. Please include File Number SR-PCX-2004-76 on the subject line.

Paper Comments

• Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.

All submissions should refer to File Number SR-PCX-2004-76. 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, 450 Fifth Street, NW., Washington, DC 20549. 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-2004-76 and should be submitted on or before September 7, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change

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. In particular, the Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Act, which requires that the rules of an exchange be 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 mechanisms of a free and open market and to protect investors and the public interest, and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission also finds that the proposed rule change, as amended, is consistent with Section 6(b)(1) of the Act, which requires a national securities exchange to be so organized and have the capacity to be able to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, the rules or regulations thereunder, and the rules of the Exchange.

The listing of securities of an affiliate of the Exchange or any entity that operates and/or owns a trading system or facility of the Exchange could potentially create a conflict of interest between the Exchange's self regulatory responsibility to vigorously oversee the listing and trading of the stock on its market, and its own commercial or economic interests. Such “self-listing” may raise questions as to the Exchange's ability to independently and effectively enforce its rules against an affiliate or the operator/owner of its facility. In addition, such listing has the potential to exacerbate possible conflicts that may arise when the Exchange oversees competitors that may also be listed on the Exchange. The Commission believes that the proposed rule change, as amended, by requiring heightened reporting by the Exchange to the Commission with respect to the Exchange's oversight of the listing and trading on the Exchange of the securities of an affiliate or entity that operates and/or owns a trading system or facility of the Exchange, will help protect against any concern that the Exchange will not effectively enforce its rules with respect to the listing and trading of these securities. In addition, the requirement that an independent accounting firm review such issuer's compliance with the Exchange's listing standards adds a degree of independent oversight to the Exchange's regulation of the listing of these securities, which should help mitigate against any potential or actual conflicts of interest.

In addition, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act, for approving the proposed rule change and Amendment No. 1 prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. The Exchange notes in its filing that Archipelago Holdings, L.L.C. (“Archipelago Holdings”), the operator of ArcaEx, the Exchange's equity trading facility, has filed a registration statement with the Commission to conduct a public offering of its common stock, and an application to list its common stock on the Exchange in the near future pursuant to the Exchange's current listing standards. The Exchange's current listing standards do not contain any provision relating specifically to the listing of the stock of an affiliate or the operator and/or owner of the facility of the Exchange. Accordingly, the Commission believes that granting accelerated approval of the proposed rule change and Amendment No. 1 to implement the additional listing requirements prior to the listing of the common stock of Archipelago Holdings is appropriate and consistent with Sections 6 and 19(b) of the Act.

V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change and Amendment No. 1 (SR-PCX-2004-76), are hereby approved on an accelerated basis.