Self-Regulatory Organizations; the Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to the Prohibition of Trade Shredding, 13642-13643 [E6-3806]

Download as PDF 13642 Federal Register / Vol. 71, No. 51 / Thursday, March 16, 2006 / Notices At any time within 60 days after the filing of the proposed rule change, the Commission may summarily abrogate the rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.17 Nancy M. Morris, Secretary. [FR Doc. E6–3787 Filed 3–15–06; 8:45 am] 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: SECURITIES AND EXCHANGE COMMISSION wwhite on PROD1PC61 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2006–19 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2006–19. 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 CBOE. 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–CBOE–2006–19 and should be submitted on or before April 6, 2006. VerDate Aug<31>2005 15:48 Mar 15, 2006 Jkt 208001 BILLING CODE 8010–01–P [Release No. 34–53441; File No. SR–CHX– 2006–03] Self-Regulatory Organizations; the Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to the Prohibition of Trade Shredding March 8, 2006. 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 January 24, 2006, the Chicago Stock Exchange, Inc. (‘‘CHX’’ 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 its rules to prohibit ‘‘trade shredding.’’ The text of the proposed rule change appears below. Additions are in italics. ARTICLE IX Trading Rules * * * Breaking Up Orders RULE 18. No Participant shall break customer orders into multiple smaller orders for the primary purpose of maximizing rebates or other payments to the Participant without regard for the customer’s interest. 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 CHX included statements concerning the purpose of, and basis for, the proposed rule change and discussed any 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The CHX 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Commission has expressed concern that participants in the U.S. securities markets may be engaging in the practice of ‘‘trade shredding.’’ ‘‘Trade shredding’’ is the practice of unbundling customer orders for securities into multiple smaller orders for the primary purpose of maximizing payments to the participant or participant firm. The Commission has noted that firms might engage in this practice to maximize the market data rebates available to them from selfregulatory organizations.3 Unbundling customer orders also could have the effect of causing customers to pay (and participant firms to receive) excessive fees or commissions or could result in situations where customer orders are not receiving best execution. The Commission has requested that self-regulatory organizations adopt rules to prohibit the practice of trade shredding.4 Although the Exchange does not currently rebate market data fees to its order-sending firms—and therefore does not believe that its ordersending firms have an incentive to engage in the practice of trade shredding with respect to orders sent to the Exchange—the Exchange believes that it is appropriate to implement a rule that would prohibit this type of inappropriate practice. Specifically, new Rule 18, in Article IX of the Exchange’s Rules, would prohibit an Exchange participant from breaking customer orders into smaller multiple orders for the primary purpose of maximizing rebates or other payments to the participant without regard for the customer’s interest. 3 The Commission has noted that the changes to the market data revenue formulas as a result of Regulation NMS were developed, at least in part, to respond to concerns relating to ‘‘trade shredding.’’ 4 Other self-regulatory organizations have submitted these types of rules in response to the Commission’s request. See e.g., NYSE Rule 123G (approved by Securities Exchange Act Release No. 52683 (October 26, 2005), 70 FR 66480 (November 2, 2005)). E:\FR\FM\16MRN1.SGM 16MRN1 Federal Register / Vol. 71, No. 51 / Thursday, March 16, 2006 / Notices 2. Statutory Basis Electronic Comments The proposed rule change is consistent with Section 6(b) of the Act,5 in general, and furthers the objectives of Section 6(b)(5) of the Act,6 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 by ensuring that Exchange participants, like participants in other markets, are prohibited from engaging in the practice of trade shredding. • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CHX–2006–03 on the subject line. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will impose any burden on competition. 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. 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. wwhite on PROD1PC61 with NOTICES 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: 5 15 6 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Aug<31>2005 15:48 Mar 15, 2006 Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53439; File No. SR–ISE– 2006–11] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to ISE Rule 1100(g) ‘‘Exercise of Options Contracts’’ March 7, 2006. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February All submissions should refer to File 13, 2006, the International Securities Number SR–CHX–2006–03. This file Exchange, Inc. (‘‘ISE’’ or ‘‘Exchange’’) number should be included on the filed with the Securities and Exchange subject line if e-mail is used. To help the Commission (‘‘Commission’’) the Commission process and review your proposed rule change as described in comments more efficiently, please use Items I and II below, which Items have only one method. The Commission will been prepared by the Exchange. On post all comments on the Commission’s March 3, 2006, the ISE filed Internet Web site (http://www.sec.gov/ Amendment No. 1 to the proposed rule rules/sro.shtml). Copies of the change.3 The ISE filed the proposal as submission, all subsequent a ‘‘non-controversial’’ proposed rule amendments, all written statements change pursuant to section 19(b)(3)(A) with respect to the proposed rule of the Act 4 and Rule 19b–4(f)(6) change that are filed with the thereunder,5 which renders it effective Commission, and all written upon filing with the Commission. The Commission is publishing this notice to communications relating to the solicit comments on the proposed rule proposed rule change between the Commission and any person, other than change, as amended, from interested persons. those that may be withheld from the public in accordance with the I. Self-Regulatory Organization’s provisions of 5 U.S.C. 552, will be Statement of the Terms of Substance of available for inspection and copying in the Proposed Rule Change the Commission’s Public Reference The ISE, pursuant to section 19(b)(1) Room. Copies of such filing also will be of the Act 6 and Rule 19b–4 thereunder,7 available for inspection and copying at proposes to amend ISE Rule 1100(g) the principal offices of CHX. All ‘‘Exercise of Options Contracts’’ to add comments received will be posted two additional minutes within which without change; the Commission does one may deliver a contrary exercise not edit personal identifying advice (‘‘CEA’’) 8 or an Advice Cancel to information from submissions. You the Exchange. The proposal is intended should submit only information that to conform ISE Rule 1100(g) to a recent you wish to make available publicly. All change in the closing time for equity submissions should refer to File options and narrow-based index options Number SR–CHX–2006–03 and should be submitted on or before April 6, 2006. 1 15 U.S.C. 78s(b)(1). For the Commission, by the Division of Market Regulation, pursuant to delegated authority.7 Nancy M. Morris, Secretary. [FR Doc. E6–3806 Filed 3–15–06; 8:45 am] BILLING CODE 8010–01–P 7 17 Jkt 208001 13643 PO 00000 CFR 200.30–3(a)(12). Frm 00078 Fmt 4703 Sfmt 4703 2 17 CFR 240.19b–4. No. 1 clarified that the Exchange is requesting that the Commission waive the 5-day pre-filing notice requirement and the 30-day operative delay period and made certain other minor clarifying changes. 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 240.19b–4(f)(6). 6 15 U.S.C. 78s(b)(1). 7 17 CFR 240.19b–4. 8 A CEA is a communication either to not exercise an option that would be automatically exercised pursuant to the Options Clearing Corporation’s (‘‘OCC’’) Exercise-by-Exception (‘‘Ex-by-Ex’’) procedure, or to exercise an option that would not be automatically exercised pursuant to the OCC’s Ex-by-Ex procedure. 3 Amendment E:\FR\FM\16MRN1.SGM 16MRN1

Agencies

[Federal Register Volume 71, Number 51 (Thursday, March 16, 2006)]
[Notices]
[Pages 13642-13643]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-3806]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53441; File No. SR-CHX-2006-03]


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

March 8, 2006.
    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 January 24, 2006, the Chicago Stock Exchange, Inc. 
(``CHX'' 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)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules to prohibit ``trade 
shredding.'' The text of the proposed rule change appears below. 
Additions are in italics.

ARTICLE IX

Trading Rules

    * * *

Breaking Up Orders

    RULE 18. No Participant shall break customer orders into multiple 
smaller orders for the primary purpose of maximizing rebates or other 
payments to the Participant without regard for the customer's interest.

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 CHX included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received regarding the proposal. The text of 
these statements may be examined at the places specified in Item IV 
below. The CHX 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has expressed concern that participants in the U.S. 
securities markets may be engaging in the practice of ``trade 
shredding.'' ``Trade shredding'' is the practice of unbundling customer 
orders for securities into multiple smaller orders for the primary 
purpose of maximizing payments to the participant or participant firm. 
The Commission has noted that firms might engage in this practice to 
maximize the market data rebates available to them from self-regulatory 
organizations.\3\ Unbundling customer orders also could have the effect 
of causing customers to pay (and participant firms to receive) 
excessive fees or commissions or could result in situations where 
customer orders are not receiving best execution.
---------------------------------------------------------------------------

    \3\ The Commission has noted that the changes to the market data 
revenue formulas as a result of Regulation NMS were developed, at 
least in part, to respond to concerns relating to ``trade 
shredding.''
---------------------------------------------------------------------------

    The Commission has requested that self-regulatory organizations 
adopt rules to prohibit the practice of trade shredding.\4\ Although 
the Exchange does not currently rebate market data fees to its order-
sending firms--and therefore does not believe that its order-sending 
firms have an incentive to engage in the practice of trade shredding 
with respect to orders sent to the Exchange--the Exchange believes that 
it is appropriate to implement a rule that would prohibit this type of 
inappropriate practice. Specifically, new Rule 18, in Article IX of the 
Exchange's Rules, would prohibit an Exchange participant from breaking 
customer orders into smaller multiple orders for the primary purpose of 
maximizing rebates or other payments to the participant without regard 
for the customer's interest.
---------------------------------------------------------------------------

    \4\ Other self-regulatory organizations have submitted these 
types of rules in response to the Commission's request. See e.g., 
NYSE Rule 123G (approved by Securities Exchange Act Release No. 
52683 (October 26, 2005), 70 FR 66480 (November 2, 2005)).

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[[Page 13643]]

2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\5\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\6 \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 by ensuring that Exchange 
participants, like participants in other markets, are prohibited from 
engaging in the practice of trade shredding.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition.

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. 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CHX-2006-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2006-03. 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 offices of CHX. 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-CHX-2006-03 and should be submitted on or before April 6, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7 \
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-3806 Filed 3-15-06; 8:45 am]
BILLING CODE 8010-01-P