Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to the Prohibition of Trade Shredding, 72492-72493 [E5-6826]

Download as PDF 72492 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Notices Reserve Bank of New York Noon Buying Rate. The Commission also notes that the Trust’s Web site will contain: (1) An intraday indicative value (‘‘IIV’’) per share for the Shares calculated by multiplying the indicative spot price of euro by the quantity of euro backing each Share, on a 5 to 10 second delay basis; (2) a delayed indicative value (subject to a 20 minute delay), which is used for calculating premium/discount information; (3) premium/discount information, calculated on a 20 minute delayed basis; (4) the NAV of the Trust as calculated each business day by the Sponsor; (5) accrued interest per Share; (6) the Basket Euro Amount; and (7) the last sale price (under symbol FXE) of the Shares as traded in the U.S. market, subject to a 20-minute delay, as it is provided free of charge.39 The Commission believes that the wide availability of euro price information and dissemination of information described above will facilitate transparency with respect to the proposed Shares and diminish the risk of manipulation or unfair informational advantage. C. Listing and Trading The Commission finds that the Exchange’s proposed rules and procedures for the listing and trading of the proposed Shares are consistent with the Exchange Act. Shares will trade as equity securities subject to NYSE rules including, among others, rules governing trading halts, responsibilities of the specialist, account opening, and customer suitability requirements. In addition, the Shares will be subject to NYSE listing and delisting rules and procedures governing the trading of ICUs on the NYSE. The Commission believes that listing and delisting criteria for the Shares should help to maintain a minimum level of liquidity and therefore minimize the potential for manipulation of the Shares. Finally, the Commission believes that the Information Memo the Exchange will distribute will inform members and member organizations about the terms, characteristics and risks in trading the Shares, including their prospectus delivery obligations. D. Acceleration The Commission finds good cause for approving the proposed rule change prior to the 30th day after the date of publication of the notice of filing thereof in the Federal Register. The Exchange has requested the Commission to approve the proposal on an accelerated basis, after a 15-day comment period, to enable investors to begin trading the Shares promptly. The Commission notes that the proposed rule change was noticed for a 15-day comment period and no comments were received. Therefore, the Commission finds good cause, consistent with Section 19(b)(2) of the Act,40 to approve the proposal on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,41 that the proposed rule change (SR– NYSE–2005–65) is approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.42 Jonathan G. Katz, Secretary. [FR Doc. E5–6830 Filed 12–2–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52834; File No. SR–Phlx– 2005–63] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to the Prohibition of Trade Shredding November 25, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended, (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 25, 2005, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ 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 Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 707, Conduct Inconsistent with Just and Equitable Principles of Trade, to prohibit members, member organizations and persons associated 40 15 U.S.C. 78s(b)(2). 41 Id. 39 The last sale price of the Shares in the secondary market is available on a real-time basis for a fee from regular data vendors. VerDate Aug<31>2005 17:14 Dec 02, 2005 Jkt 208001 42 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(l). 2 17 CFR 240. 19b–4. 1 15 PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 with or employed by a member or member organization from unbundling orders for execution for the primary purpose of maximizing a monetary or like payment to the member, member organization, or person associated with or employed by a member or member organization. The text of the proposed rule change appears below. Additions are in italics. * * * * * Rule 707 Conduct Inconsistent With Just and Equitable Principles of Trade A member, member organization, or person associated with or employed by a member or member organization shall not engage in conduct inconsistent with just and equitable principles of trade. Commentary: .01 No Change .02 Without limiting the generality of Rule 707, it is conduct inconsistent with just and equitable principles of trade for any member, member organization, or person associated with or employed by a member or member organization to engage in conduct that has the intent or effect of unbundling equity securities orders for execution for the primary purpose of maximizing a monetary or in-kind amount received by the member, member organization, or person associated with or employed by a member or member organization as a result of the execution of such equity securities orders. For purposes of this section, ‘‘monetary or in-kind amounts’’ shall be defined to include commissions, gratuities, payments for or rebate of fees resulting from the entry of such equity securities orders, or any similar payments of value to the member, member organization, or person associated with or employed by a member or member organization. * * * * * 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 Phlx 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 Phlx has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. E:\FR\FM\05DEN1.SGM 05DEN1 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to prohibit ‘‘trade shredding’’ which is the practice of unbundling customer orders for equity securities into multiple smaller orders for the primary purpose of maximizing payments to the member or member organization, and thereby possibly disadvantaging the customer by, for example, charging excessive fees or commissions, or failing to obtain best execution of an equity security order. Such payments may create a conflict of interest between the customer and the member or member organization. For example, as a result of the manner in which market data revenues are calculated, market centers can derive a greater share of market data revenue by increasing the number of trades that they report to the consolidated tape. At the same time, some markets have adopted a practice of sharing these increased revenues with market participants, including non-members, who send in equity securities orders. Thus, the Commission has expressed concern that an incentive exists for market participants receiving rebates to engage in distortive behavior, such as trade shredding, as a means to increase their share of market data revenues. Other economic arrangements between members or member organizations and their customers may create similar incentives to engage in similarly distortive behavior. The Commission has requested that all U.S. self-regulatory organizations implement rule changes to inhibit the practice of trade shredding. The Phlx does not rebate revenues from tape reporting to members or non-members. Thus, there is no incentive in this area for Phlx order providers to engage in trade shredding on orders sent to the Exchange. However, a member or member organization may engage in conduct that has an impact similar to trade shredding, in that it unbundles a customer’s order for the primary purpose of maximizing payments to the member or member organization at the customer’s expense and to the customer’s detriment. In response to the Commission’s request, the Exchange proposes to amend Rule 707 by adding Commentary .02 which prohibits all such practices. Specifically, the new Commentary to Rule 707 would prohibit any member, member organization, or person associated with or employed by a VerDate Aug<31>2005 17:14 Dec 02, 2005 Jkt 208001 member or member organization from unbundling orders for execution for the primary purpose of maximizing a monetary or like payment of a type described in the rule. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act,3 in general, and furthers the objectives of Section 6(b)(5) of the Act,4 in particular, in that 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 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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the proposed rule change will impose no 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 The Exchange has neither solicited nor received comments on this proposal. 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 self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change 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 is consistent with the Act. 3 15 4 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00072 Fmt 4703 Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2005–63 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–Phlx–2005–63. 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 (https://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 offices of Phlx. 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–Phlx–2005–63 and should be submitted on or before December 27, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.5 Jonathan G. Katz, Secretary. [FR Doc. E5–6826 Filed 12–2–05; 8:45 am] BILLING CODE 8010–01–P 55 Sfmt 4703 72493 17 CFR 200.30–3(a)(12). E:\FR\FM\05DEN1.SGM 05DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 232 (Monday, December 5, 2005)]
[Notices]
[Pages 72492-72493]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6826]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52834; File No. SR-Phlx-2005-63]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to the Prohibition of 
Trade Shredding

November 25, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended, (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on October 25, 2005, the Philadelphia Stock Exchange, 
Inc. (``Phlx'' 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 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240. 19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Rule 707, Conduct Inconsistent with 
Just and Equitable Principles of Trade, to prohibit members, member 
organizations and persons associated with or employed by a member or 
member organization from unbundling orders for execution for the 
primary purpose of maximizing a monetary or like payment to the member, 
member organization, or person associated with or employed by a member 
or member organization.
    The text of the proposed rule change appears below. Additions are 
in italics.
* * * * *

Rule 707 Conduct Inconsistent With Just and Equitable Principles of 
Trade

    A member, member organization, or person associated with or 
employed by a member or member organization shall not engage in conduct 
inconsistent with just and equitable principles of trade.
    Commentary:
    .01 No Change
    .02 Without limiting the generality of Rule 707, it is conduct 
inconsistent with just and equitable principles of trade for any 
member, member organization, or person associated with or employed by a 
member or member organization to engage in conduct that has the intent 
or effect of unbundling equity securities orders for execution for the 
primary purpose of maximizing a monetary or in-kind amount received by 
the member, member organization, or person associated with or employed 
by a member or member organization as a result of the execution of such 
equity securities orders. For purposes of this section, ``monetary or 
in-kind amounts'' shall be defined to include commissions, gratuities, 
payments for or rebate of fees resulting from the entry of such equity 
securities orders, or any similar payments of value to the member, 
member organization, or person associated with or employed by a member 
or member organization.
* * * * *

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 Phlx 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 Phlx has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 72493]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to prohibit ``trade 
shredding'' which is the practice of unbundling customer orders for 
equity securities into multiple smaller orders for the primary purpose 
of maximizing payments to the member or member organization, and 
thereby possibly disadvantaging the customer by, for example, charging 
excessive fees or commissions, or failing to obtain best execution of 
an equity security order. Such payments may create a conflict of 
interest between the customer and the member or member organization. 
For example, as a result of the manner in which market data revenues 
are calculated, market centers can derive a greater share of market 
data revenue by increasing the number of trades that they report to the 
consolidated tape. At the same time, some markets have adopted a 
practice of sharing these increased revenues with market participants, 
including non-members, who send in equity securities orders. Thus, the 
Commission has expressed concern that an incentive exists for market 
participants receiving rebates to engage in distortive behavior, such 
as trade shredding, as a means to increase their share of market data 
revenues. Other economic arrangements between members or member 
organizations and their customers may create similar incentives to 
engage in similarly distortive behavior.
    The Commission has requested that all U.S. self-regulatory 
organizations implement rule changes to inhibit the practice of trade 
shredding. The Phlx does not rebate revenues from tape reporting to 
members or non-members. Thus, there is no incentive in this area for 
Phlx order providers to engage in trade shredding on orders sent to the 
Exchange. However, a member or member organization may engage in 
conduct that has an impact similar to trade shredding, in that it 
unbundles a customer's order for the primary purpose of maximizing 
payments to the member or member organization at the customer's expense 
and to the customer's detriment.
    In response to the Commission's request, the Exchange proposes to 
amend Rule 707 by adding Commentary .02 which prohibits all such 
practices. Specifically, the new Commentary to Rule 707 would prohibit 
any member, member organization, or person associated with or employed 
by a member or member organization from unbundling orders for execution 
for the primary purpose of maximizing a monetary or like payment of a 
type described in the rule.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\3\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\4\ in particular, in that 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 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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
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

    The Exchange has neither solicited nor received comments on this 
proposal.

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 self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2005-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-Phlx-2005-63. 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 (https://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 offices of Phlx. 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-Phlx-2005-63 and should be submitted on or before December 27, 2005.
---------------------------------------------------------------------------

    \5\ 5 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6826 Filed 12-2-05; 8:45 am]
BILLING CODE 8010-01-P

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