55440 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Notices 

6 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(l). 

2 17 CFR 240.19b–4. 

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 

Section, 100 F Street, NE., Washington, 

DC 20549. Copies of such filing also will 

be available for inspection and copying 

at the principal office of NSCC and on 

NSCC’s Web site at http:// 

www.nscc.com. 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–NSCC–

2005–08 and should be submitted on or 

before October 12, 2005. 

For the Commission by the Division of 

Market Regulation, pursuant to delegated 

authority.6

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18765 Filed 9–20–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52435; File No. SR–NYSE–

2005–62] 

Self-Regulatory Organizations; New 

York Stock Exchange, Inc.; Notice of 

Filing of Proposed Rule Change To 

Add Exchange Rule 123G Prohibiting 

Trade Shredding 

September 14, 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 September 9, 2005, the New York 

Stock Exchange, Inc. (‘‘NYSE’’ 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 add NYSE 

Rule 123G to prohibit members, member 

organizations and associated persons 

from unbundling orders for execution 

for the primary purpose of maximizing 

a monetary or like payment to the 

member, member organization or 

associated person without regard for the 

best interests of the customer. 

The text of the proposed rule change 

appears below. Additions are in italics. 

* * * * * 

Order Entry Practices 

Rule 123G 

No member, member organization, 

allied member, approved person or 

registered or non-registered employee of 

a member or member organization may 

engage in conduct that has the intent or 

effect of unbundling orders for 

execution for the primary purpose of 

maximizing a monetary or in-kind 

amount received by the member, 

member organization, allied member, 

approved person or registered or nonregistered employee of a member or 

member organization as a result of the 

execution of such 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 orders, or any similar payments of 

value to the member, member 

organization, allied member, approved 

person or registered or non-registered 

employee of 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 

NYSE 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 NYSE 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 

‘‘Trade shredding’’ is the practice of 

unbundling customer orders for 

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 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 nonmembers, who send in 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 NYSE 

does not rebate revenues from tape 

reporting to members or non-members. 

Thus, there is no incentive in this area 

for NYSE 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 adopt 

a new Rule 123G prohibiting all such 

practices. Specifically, new Rule 123G 

would prohibit a member, member 

organization or any associated person 

from unbundling orders for execution 

for the primary purpose of maximizing 

a monetary or like payment of a type 

described in the rule. 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Notices 55441 

3 15 U.S.C. 78f(b). 

4 15 U.S.C. 78f(b)(5). 5 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Amendment No. 1, which replaced the original 

filing, made technical and clarifying changes to the 

proposed rule change. 

4Amendment No. 2, which replaced Amendment 

No. 1, clarified the execution priority of Passive 

Liquidity orders in PCXE Rule 7.37, as compared 

to other orders that are part of the Display Order 

Process and the Working Order Processes, and as 

compared to Directed Fills in the Display Order 

Process. In addition, Amendment No. 2 made other 

technical and clarifying changes to the proposed 

rule change. 

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. 

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 rulecomments@sec.gov. Please include File 

Number SR–NYSE–2005–62 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-NYSE–2005–62. 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 NYSE. 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-NYSE–2005–62 and should 

be submitted on or before October 12, 

2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.5

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18766 Filed 9–20–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52436; File No. SR–PCX–

2005–53] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change and 

Amendment Nos. 1 and 2 Thereto by 

the Pacific Exchange, Inc. To Create a 

New Order Type—Passive Liquidity 

Orders—for Use in the ArcaEx Trading 

Facility of the PCX 

September 14, 2005. 

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 April 15, 

2005, the Pacific Exchange, Inc. (‘‘PCX’’

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 PCX. On June 3, 2005, 

the PCX filed Amendment No. 1 to the 

proposed rule change.3 On August 26, 

2005, the PCX filed Amendment No. 2 

to the proposed rule change.4 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The PCX, through its wholly-owned 

subsidiary PCX Equities, Inc. (‘‘PCXE’’), 

proposes to amend its rules governing 

the Archipelago Exchange (‘‘ArcaEx’’), 

the equities trading facility of PCXE. 

With this filing, the Exchange proposes 

to add one new order type, the Passive 

Liquidity Order (‘‘PL Order’’). The 

changes described in this rule proposal 

would add new Rule 7.31(h)(4) and 

amend existing Rule 7.37(b). 

The text of the proposed rule change, 

as amended, appears below. Additions 

are in italics. Deleted items are in 

brackets. 

* * * * *