Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Granting Approval to a Proposed Rule Change and Amendments No. 1 and 2 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3 Thereto Relating to Clearly Erroneous Executions on the Archipelago Exchange

I. Introduction

On July 28, 2004, the Pacific Exchange, Inc. (“PCX” or “Exchange”), through its wholly-owned subsidiary PCX Equities, Inc. (“PCXE” or “Corporation”), 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 proposal to amend the rules setting forth the procedures that an ETP Holder would be required to follow when seeking relief for clearly erroneous executions (“CEE”) on the Archipelago Exchange (“ArcaEx”), the equities trading facility of PCXE. PCX filed Amendment No. 1 to the proposed rule change on December 29, 2004, and filed Amendment No. 2 to the proposed rule change on February 15, 2005. The proposed rule change and Amendments No. 1 and 2 were published for comment in the Federal Register on March 1, 2005. The Commission received no comments on the proposal, as amended. PCX filed Amendment No. 3 with the Commission on April 22, 2005. This order approves the proposed rule change and Amendments No. 1 and 2 and grants accelerated approval to and solicits comment on Amendment No. 3.

II. Description of Proposed Rule

The Exchange proposes to implement a revised appeal process for determinations on CEE, to be set forth in proposed PCXE Rule 7.10(c)(2)-(4). The Exchange's proposal would allow a party affected by the determination to request an appeal to the Clearly Erroneous Execution Panel (“CEE Panel”) to review the determination made by an Exchange officer under proposed PCXE Rule 7.10(c)(1). The CEE Panel will be comprised of the PCXE Chief Regulatory Officer (“CRO”), or a designee of the CRO, and representatives from two (2) ETP Holders. Requests for appeal must be made via facsimile or e-mail within thirty (30) minutes after the party requesting the appeal is given notification of the initial determination. Thereafter, the CEE Panel shall review the information and may overturn or modify the action taken by the Exchange officer within the time frame prescribed by the Corporation. The revised process is intended to provide a timely appeal for ETP Holders in place of the lengthy general appeal process provided in PCXE Rule 10.13 (Hearings and Review of Decisions by the Corporation).

In addition, the Exchange proposes several other minor changes, as well as several organizational and stylistic changes, to PCXE's rules governing CEE, including combining PCXE Rules 7.10 and 7.11 into one rule, PCXE Rule 7.10, entitled “Clearly Erroneous Executions.”

III. Commission Findings and Order Granting Approval

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange. In particular, the Commission finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act, which requires that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The proposed rule changes provide for a revised appeals process for CEE on the Archipelago Exchange that is faster in comparison to the Exchange's general appeal process for disputes among members, which previously governed such disputes. The Commission believes that this revised appeals procedure for CEE is designed to help ensure that the Exchange's rules are exercised in a fair and reasonable manner.

The Commission finds good cause for approving Amendment No. 3 to the proposed rule change prior to the thirtieth day after its publication in the Federal Register, pursuant to Section 19(b)(2) of the Act. Amendment No. 3 revises the proposal to specify an implementation date of May 16, 2005. Amendment No. 3 does not propose any substantive changes to the proposal as published for notice and comment, and thus the Commission believes it is appropriate to accelerate approval of Amendment No. 3.

IV. Solicitation of Comments Concerning Amendment No. 3

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 3, including whether it 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-2004-72 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-2004-72. 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 Exchange. 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-2004-72 and should be submitted on or before June 3, 2005.

V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-PCX-2004-72), as amended, be approved, and that Amendment No. 3 thereto be approved on an accelerated basis.