Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Granting Approval to Proposed Rule Change Relating to Non-Agency Orders in P/COAST

I. Introduction

On November 18, 1999, the Pacific Exchange, Inc. (“PCX” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission” or “SEC”) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change to allow non-agency orders to be routed through and executed in the Pacific Computerized Order Access SysTem (“P/COAST”).

The proposed rule change was published for comment in the Federal Register on February 3, 2000. No comments were received on the proposal. This order approves the proposal.

II. Description of Proposal

The P/COAST system is the Exchange's communication, order routing and order execution system for equity securities. Currently, only agency orders are permitted to be routed through, and executed in, the P/COAST system. In the proposed rule change, the Exchange seeks to abolish the current rule, and allow both agency and principal orders to be routed through and executed in the P/COAST system.

The Exchange is not proposing to change its existing rules regarding the priority of bids and offers, which do not currently distinguish between agency and principal orders. Accordingly, agency and principal orders will be able to be routed and executed through the P/COAST system.

III. Discussion

After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission believes that the proposed rule is consistent with the requirements of Section 6(b)(5) of the Act because it is designed to help perfect the mechanism of a free and open market and is not designed to permit unfair discrimination between customer and brokers or dealers.

Under the Exchange's proposed rule change, non-agency orders may be routed through the P/COAST system for execution. Currently, principal orders are executed manually on the floor of the Exchange. The Commission believes that the proposed rule change should be beneficial because it will allow broker-dealers to take advantage of the increased speed associated with the use of P/COAST, thus providing more efficient execution of their orders. However, according to the PCX, orders of specialists and floor brokers will not be able to be entered into the P/COAST system.

The Commission believes that the Exchange's proposal is consistent with the Act because it does not discriminate between customers, brokers or dealers: all orders in a particular stock will receive the same treatment whether the order is an agency or non-agency order. However, orders of PCX members will still have to comply with Section 11(a) of the Act. Further, the proposal should facilitate transactions on the Exchange because all eligible orders will now be routed automatically by the P/COAST system. This should lead to more timely executions of principal orders.

IV. Conclusion

It Is therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-PCX-99-50) is approved.