Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Granting Approval to a Proposed Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. To Amend Its Rules Governing Market-Maker Obligations on the Archipelago Exchange

On October 21, 2003, the Pacific Exchange, Inc. (“PCX” or “Exchange”), through its wholly-owned subsidiary PCX Equities, Inc. (“PCXE”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, a proposed rule change to amend its rules governing Market Maker obligations on the Archipelago Exchange (“ArcaEx”), the equities trading facility of PCXE. The PCX filed Amendment No. 1 to the proposal on December 2, 2003. The proposed rule change, as amended, was published for comment in the Federal Register on December 29, 2003. The Commission received no comment letters on the proposal. This order approves the proposed rule change, as amended.

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 and, in particular, the requirements of Section 6 of the Act and the rules and regulations thereunder. Specifically, the Commission believes that the proposed rule change is consistent with Section 6(b), which, among other things, requires that the PCX's rules be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the PCX's restrictions on Market Makers requiring them to become odd-lot dealers and to maintain cleanup orders in the securities in which they maintain a market currently impose a competitive barrier vis-à-vis other market centers in attracting Market Maker participation on ArcaEx because competing market centers do not impose such requirements. The Commission notes that the Exchange believes that eliminating the aforementioned requirements will facilitate additional Market Maker participation on ArcaEx and will further enhance order interaction, provide greater depth in liquidity, and foster price competition. Moreover, the Exchange believes that the elimination of such requirements will place ArcaEx on a level playing field with other market centers and allow ArcaEx to fairly compete for Market Maker, and that the impact on the system from removing these requirements for Market Makers would be minimal on the ArcaEx.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change and Amendment No. 1 thereto (File No. SR-PCX-2003-59) are approved.