Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change as Modified by Amendments No. 1 and 2 Thereto Relating to Rule 18 (Compensation in Relation to System Failure), 16841-16844 [E7-6376]

Download as PDF Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Notices III. Summary of Comment Received The Commission received one comment letter to the proposed rule change.18 The commenter supported prompt implementation of the proposal and commented specifically on the proposed changes to NYSE Rule 431(e). The NYSE, however, deleted this proposed paragraph in Amendment No. 3, and determined to proceed with the proposed rule change addressing amendments to NYSE Rules 325 and 326 only. No specific comments were received with respect to the proposed amendments to these rules. IV. Discussion and Commission Findings The Commission has carefully reviewed the proposed rule change and comment letter and finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) 19 of the Exchange Act, which requires that the rules of the Exchange be designed to promote just and equitable principles of trade, 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.20 The Commission believes that the proposed amendments are consistent with the requirements of Section 6(b)(5) of the Act in that they align the language in Rules 325 and 326 to reflect the Commission amendments to Rule 15c3– 1 with regard to the alternative method of computing net capital for brokerdealers and they incorporate the CFTC rule amendments for NYSE member firms registered as futures commission merchants. NYSE has requested that the Commission find good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice of Amendment No. 3 in the Federal Register. The Commission notes that the proposal, as modified by Amendment Nos. 1 and 2, was published for notice and comment,21 and that the Commission received one comment letter.22 In Amendment No. 3, NYSE made proposed changes to NYSE Rules 325 and 326 to make conforming changes to CFTC early warning requirements for futures commission merchants and determined not to proceed with 18 See supra note 5. U.S.C. 78f(b)(5). 20 In approving the proposed rule change, as amended, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 21 See supra note 4. 22 See supra note 5. jlentini on PROD1PC65 with NOTICES 19 15 VerDate Aug<31>2005 17:37 Apr 04, 2007 Jkt 211001 amendments to Rule 431(e).23 Accordingly, the Commission does not believe that Amendment No. 3 raises any new or novel issues. Based on the above, the Commission finds good cause to accelerate approval of the proposed rule change, as amended. 16841 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.25 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–6311 Filed 4–4–07; 8:45 am] BILLING CODE 8010–01–P V. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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 rulecomments@sec.gov. Please include File Number SR–NYSE–2005–03 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55555; File No. SR–NYSE– 2007–09] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change as Modified by Amendments No. 1 and 2 Thereto Relating to Rule 18 (Compensation in Relation to System Failure) March 29, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Paper Comments notice is hereby given that on January 26, 2007, the New York Stock Exchange • Send paper comments in triplicate LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with to Nancy M. Morris, Secretary, the Securities and Exchange Securities and Exchange Commission, Commission (‘‘Commission’’) the 100 F Street, NE., Washington, DC proposed rule change as described in 20549–1090. Items I, II, and III below, which Items All submissions should refer to File have been substantially prepared by the Number SR–NYSE–2005–03. This file Exchange. The Exchange filed number should be included on the subject line if e-mail is used. To help the Amendments No. 1 and 2 to the proposal on February 1, 2007, and Commission process and review your March 28, 2007, respectively. The comments more efficiently, please use only one method. The Commission will Commission is publishing this notice to post all comments on the Commission’s solicit comment on the proposed rule change, as amended, from interested Internet Web site (https://www.sec.gov/ persons. rules/sro.shtml). Copies of the submission, all subsequent I. Self-Regulatory Organization’s amendments, all written statements Statement of the Terms of Substance of with respect to the proposed rule the Proposed Rule Change change that are filed with the The Exchange is proposing to adopt Commission, and all written Rule 18, ‘‘Compensation in Relation to communications relating to the Exchange System Failure,’’ which will proposed rule change between the Commission and any person, other than provide a form of compensation to member organizations when a loss is those that may be withheld from the sustained in relation to an Exchange public in accordance with the system failure. The Exchange further provisions of 5 U.S.C. 552, will be proposes to amend Rule 134 available for inspection and copying in (‘‘Differences and Omissions-Cleared the Commission’s Public Reference Room. Copies of such filing also will be Transactions (‘‘QTs’’)’’) to require that profits equal to or greater than $5,000 available for inspection and copying at gained in relation to an Exchange the principal office of NYSE. system failure be remitted to the VI. Conclusion Exchange to be included in funds available for distribution pursuant to It is therefore ordered, pursuant to proposed Rule 18. Section 19(b)(2) of the Act,24 that the The text of the proposed rule change proposed rule change (SR–NYSE–2005– is available on the Exchange’s Web site 03), as amended, be, and hereby is, (https://www.nyse.com), at the approved on an accelerated basis. 23 The CFTC rules became effective on September 30, 2004. See 69 FR 49784 (Aug. 12, 2004). 24 15 U.S.C. 78s(b)(2). PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\05APN1.SGM 05APN1 16842 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Notices Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NYSE included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange 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 Statutory Basis for, the Proposed Rule Change jlentini on PROD1PC65 with NOTICES 1. Purpose The Exchange is a self-regulatory organization (‘‘SRO’’) as that term is defined under the Act.3 In its capacity as a SRO the Exchange functions as a quasi-governmental authority and is therefore entitled to immunity from lawsuits.4 NYSE Rule 17 provides that the ‘‘Exchange shall not be liable for any damages sustained by a member, allied member or member organization growing out of the use or enjoyment by such member, allied member or member organization of the facilities afforded by the Exchange, except as provided in the rules.’’ The Exchange proposes to adopt Rule 18, ‘‘Compensation in Relation to Exchange System Failure,’’ in order to establish a procedure to compensate member organizations in relation to Exchange system failures. The Exchange recognizes that the current industry practice of exchanges that function as SROs is to provide a form of compensation for losses sustained in relation to the use of the company’s systems. As such, the Exchange seeks to adopt NYSE Rule 18 in order to conform to current industry practice. a. Claims for Compensation Pursuant to the proposed rule, an Exchange system failure is defined as a malfunction of the Exchange’s physical equipment, devices, and/or programming which results in an incorrect execution or no execution of an order that was received in Exchange systems. Misuse of Exchange systems 3 See 15 U.S.C. 78c(a)(26). DL Capital Group, LLC v. Nasdaq Stock Market, Inc., 409 F.3d 93, 99 (2d Cir. 2005); D’Alessio v. New York Stock Exchange, Inc., 258 F.3d 93, 104–05 (2d Cir. 2001). 4 See VerDate Aug<31>2005 17:37 Apr 04, 2007 Jkt 211001 and delays in order processing as a result of large volume or other capacity issues, commonly known as ‘‘queuing,’’ are not considered Exchange system failures. In order for a member organization to be eligible to receive payment for a claim, it must incur a net loss equal to or greater than $5,000. That is, the loss must total $5,000 after any profits received in relation to the same incident are subtracted. Claims must be submitted on a per incident basis. Member organizations are not permitted to aggregate losses incurred as a result of more than one system failure in order to satisfy the $5,000 minimum claim requirement. In addition to the minimum claim requirement, member organizations are required to informally notify the Exchange’s Division of Floor Operations of a suspected Exchange system failure by the opening of the next business day following an incident. Formal written notice of the suspected Exchange system failure must be provided to the Exchange’s Division of Floor Operations no later than end of the third business day after the incident. Once in receipt of a claim, the Exchange’s Division of Floor Operations will verify that: (i) A valid order was accepted into Exchange’s systems; and (ii) an Exchange system failure occurred during the execution or handling of that order. If all of the criteria for submitting a claim have been met, the claim will be qualified for processing with all other eligible claims at the end of the calendar month in which the incident occurred. b. Exchange Funds Available for Claims Pursuant to proposed Rule 18, the Exchange will allot $500,000 each calendar month (‘‘Monthly Allotment’’) to be used for payments to member organizations that qualify for compensation under the Rule. The Monthly Allotment constitutes the initial amount to be contributed by the Exchange to provide compensation in relation to Exchange system failures for each calendar month regardless of the total dollar amount of claims eligible for payment. The Monthly Allotments do not aggregate, and except as set forth below, the Monthly Allotment for each calendar month is $500,000. In the event that less than $250,000 of the Monthly Allotment is paid out for a given calendar month, $50,000 of that month’s remaining Monthly Allotment (‘‘Supplemental Allotment’’) will be added to a supplemental fund available for payment in subsequent calendar months. For example, if during the first full calendar month of operating under proposed NYSE Rule 18, the total PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 amount paid to member organizations is $100,000, leaving $400,000 remaining from the original Monthly Allotment, the following month, the Exchange will allot the Monthly Allotment of $500,000 and an additional $50,000 will be carried over from the previous calendar month’s remaining balance for a total of $550,000 eligible for payment to member organizations in the second calendar month. This Supplemental Allotment will only be used to pay claims after the Monthly Allotment is exhausted. If claims are satisfied by the Monthly Allotment, the Supplemental Allotment, or any unused portion thereof, will be carried forward every month. Every month that does not pay out more than $250,000 of the Monthly Allotment will result in a Supplemental Allotment to the subsequent Monthly Allotment as described above. If in any calendar month the amount of funds required to pay eligible claims of member organizations is equal to or exceeds $250,000 of the Monthly Allotment, no Supplemental Allotment will be added to the Monthly Allotment for the subsequent calendar month. The Exchange shall determine what, if any, maximum dollar amount may accrue over time as part of the Supplemental Allotment. Any and all Exchange determinations as to a maximum dollar amount that may accrue over time as part of the Supplemental Allotment shall be formally reflected in the text of Rule 18. In addition, after a few years of Rule 18’s implementation, Exchange management intends to review both the maximum dollar amount, if any, which may be accrued as part of the Supplemental Allotment and the Monthly Allotment to determine whether they are appropriate. The Exchange understands that it would be required to file a proposed rule change should Exchange management determine to establish or change any maximum dollar amount for the Supplement Allotment or to modify the amount of the Monthly Allotment.5 c. Other Funds Available for Payment of Claims In addition to the Monthly Allotment and Supplemental Allotment, the Exchange proposes to amend Exchange Rule 134.40 to provide that any error transactions in a member organization’s account in relation to an Exchange system failure which results in a profit 5 Telephone conversation between Deanna Logan, Director, Office of the General Counsel, NYSE, and Nathan Saunders, Special Counsel, Division of Market Regulation (‘‘Division’’), Commission, on March 29, 2007. E:\FR\FM\05APN1.SGM 05APN1 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Notices equal to or greater than $5,000 must be remitted to the Exchange (‘‘Profit Contribution’’). Profit Contributions will be added to the Monthly Allotment and any Supplemental Allotment. Currently, pursuant to Exchange Rule 134.40, member organizations must report certain profits to the Exchange, but are not required to remit any part thereof to the Exchange. The Exchange proposes to amend Rule 134.40 to require that profits equal to or greater than $5,000 gained in relation to an Exchange system failure be remitted to the Exchange in order to be applied to payments to member organizations pursuant to proposed NYSE Rule 18. The Profit Contribution will operate similarly to the Supplemental Allotment in that it will only be used for payments after all other funds are exhausted (i.e., Monthly Allotment and any Supplemental Allotment). In the event that the payments to member organizations are satisfied by the Monthly Allotment and any Supplemental Allotment, then the Profit Contribution will carry over each subsequent calendar month until required for the payments of eligible claims. jlentini on PROD1PC65 with NOTICES d. Compensation Payments to Claimants In order to review qualified claims and administer payments, the Exchange will establish a panel consisting of three (3) Floor Governor and three (3) Exchange employees (the ‘‘Compensation Review Panel’’). The Compensation Review Panel will meet and review all the claims that are submitted for a calendar month in order to determine: (i) If each claim satisfies all the criteria for payment; and (ii) the amount to be paid on the claim (‘‘approved claims’’). As part of its determination, the Compensation Review Panel must review the actions of the member organization and its employees before and after the error occurred in order to determine if any of the claimant’s actions contributed to the loss sustained. The Compensation Review Panel may increase or reduce the amount deemed eligible for payment as a result of its review. All decisions by the Compensation Review Panel are final. The determinations of the Compensation Review Panel will be by majority vote. In the event of deadlock, all relevant information about the claim will be sent to the Chief Executive Officer of the Exchange (‘‘CEO’’) or the President or his or her designee who will make a final determination. Like the determinations of the Compensation VerDate Aug<31>2005 17:37 Apr 04, 2007 Jkt 211001 Review Panel, all the determinations of the CEO are final. Once each claim is reviewed and the amount to be paid on each approved claim is decided, the Compensation Review Panel will total the dollar amount of all approved claims for the calendar month under review. If the total dollar amount of approved claims is less than the Monthly Allotment, then the claims will be paid to the claimants in full. If the total amount of approved claims exceeds the Monthly Allotment, then any Supplemental Allotment and/ or Profit Contribution will be added to the Monthly Allotment in order to satisfy approved claims. In the event that the approved claims for a month exceed the sum of the Monthly Allotment, the Supplemental Allotment (if any), and the Profit Contribution (if any), then the approved claims will be paid out to member organizations based upon the proportion that each eligible claim bears to the total amount of all approved claims. e. Retroactivity of Proposed Rule 18 The Exchange further requests to have proposed NYSE Rule 18 function retroactively. Specifically, the Exchange seeks to allow member organizations to submit claims to the Exchange for any alleged Exchange system failures that occurred between September 1, 2006 and the date of Commission approval of the proposed rule. After Commission approval, all other claims must be submitted as prescribed by the rule. The Monthly Allotment will be set aside for each calendar month in the period for which Rule 18 is retroactively effective.6 However, the Supplemental Allotment and Profit Contribution provisions of the rule will not be retroactive, but will begin to accrue the month after Commission approval of proposed Rule 18 in accordance with provisions governing those funds. 2. Statutory Basis The Exchange’s basis under the Act 7 for this proposed rule change is the requirement under Section 6(b)(5) 8 that an Exchange have rules that are designed 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 6 Telephone conversation between Deanna Logan, Director, Office of the General Counsel, NYSE, and Nancy Sanow, Assistant Director, and Nathan Saunders, Special Counsel, Division, Commission, on March 7, 2007. 7 15 U.S.C. 78a. 8 15 U.S.C. 78f(b)(5). PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 16843 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 does not believe that the proposed rule change will impose any 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 written comments on the proposed rule change. 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 Exchange consents, the Commission will: (A) By order approve the 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 rulecomments@sec.gov. Please include File Number SR–NYSE–2007–09 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–NYSE–2007–09. 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 E:\FR\FM\05APN1.SGM 05APN1 16844 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Notices 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 the 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–NYSE–2007–09 and should be submitted on or before April 26, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.9 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–6376 Filed 4–4–07; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55564; File No. SR– NYSEArca-2007–17] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Waive Certain Listing Fees for Dually-Listed Issuers Who Delist During 2007 jlentini on PROD1PC65 with NOTICES March 30, 2007. 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 March 6, 2007, NYSE Arca, Inc. (‘‘NYSE Arca’’ 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 substantially prepared by the Exchange. The Commission is publishing this CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Aug<31>2005 17:37 Apr 04, 2007 Jkt 211001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange, through its whollyowned subsidiary NYSE Arca Equities, Inc. (‘‘NYSE Arca Equities’’), proposes to waive 2007 listing fees for any companies who, as of January 1, 2007, were dually listed on NYSE Arca Equities, on the one hand, and another national securities exchange, on the other hand, and have provided notice by June 30, 2007 to NYSE Arca Equities of their intention to voluntarily withdraw from listing on NYSE Arca. The NYSE Arca schedule of listing fees will be amended to note that, for those issuers dually listed on NYSE Arca Equities on January 1, 2007 and who have given notice by June 30, 2007 to NYSE Arca Equities of their intention to voluntarily withdraw from listing on NYSE Arca (and in fact withdraw during 2007), the 2007 annual listing fees will be waived. The text of the proposed rule change is available on the Exchange’s Web site (https://www.nysearca.com), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8010–01–P 9 17 notice to solicit comments on the proposal from interested persons. In its filing with the Commission, the Exchange 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 III below. The Exchange 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange, through NYSE Arca Equities, proposes to waive 2007 listing fees for any companies who, as of January 1, 2007, were dually listed on NYSE Arca Equities, on the one hand, and another national securities exchange, on the other hand, and have provided notice by June 30, 2007 to NYSE Arca Equities of their intention to voluntarily withdraw from listing on NYSE Arca. The NYSE Arca schedule of listing fees will be amended to note that, PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 for those issuers dually listed on NYSE Arca Equities on January 1, 2007 who have given notice by June 30, 2007 to NYSE Arca Equities of their intention to voluntarily withdraw from listing on NYSE Arca (and in fact withdraw during 2007), the 2007 annual listing fees will be waived. Effective January 1, 2007, the annual listing fees for all companies listed on NYSE Arca Equities were increased.3 Many of the issuers still dually listed on NYSE Arca Equities on January 1, 2007 had indicated to the Exchange their intention to voluntarily withdraw from NYSE Arca. However, because of the dually listed issuers’ administrative or governance processes, some of these dually listed issuers were unable to complete the withdrawal process before the new fees became effective. In this instance, the Exchange believes that it is appropriate to waive the 2007 listing fees for issuers dually listed on NYSE Arca Equities as of January 1, 2007 who have given notice by June 30, 2007 of their intention to voluntarily withdraw during 2007 and in fact withdraw during 2007. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act 4 in general and furthers the objectives of Section 6(b)(5) of the Act 5 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments, and to 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 does not believe that the proposed rule change will impose any 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 Written comments on the proposed rule change were neither solicited nor received. 3 See Securities Exchange Act Release No. 54007 (June 16, 2006), 71 FR 36155 (June 23, 2006) (SR– NYSEArca-2006–16). 4 15 U.S.C. 78f. 5 15 U.S.C. 78f(b)(5). E:\FR\FM\05APN1.SGM 05APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 65 (Thursday, April 5, 2007)]
[Notices]
[Pages 16841-16844]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6376]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55555; File No. SR-NYSE-2007-09]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change as Modified by Amendments No. 
1 and 2 Thereto Relating to Rule 18 (Compensation in Relation to System 
Failure)

March 29, 2007.
    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 January 26, 2007, the New York Stock Exchange LLC (``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 substantially prepared by the 
Exchange. The Exchange filed Amendments No. 1 and 2 to the proposal on 
February 1, 2007, and March 28, 2007, respectively. The Commission is 
publishing this notice to solicit comment on the proposed rule change, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is proposing to adopt Rule 18, ``Compensation in 
Relation to Exchange System Failure,'' which will provide a form of 
compensation to member organizations when a loss is sustained in 
relation to an Exchange system failure. The Exchange further proposes 
to amend Rule 134 (``Differences and Omissions-Cleared Transactions 
(``QTs'')'') to require that profits equal to or greater than $5,000 
gained in relation to an Exchange system failure be remitted to the 
Exchange to be included in funds available for distribution pursuant to 
proposed Rule 18.
    The text of the proposed rule change is available on the Exchange's 
Web site (https://www.nyse.com), at the

[[Page 16842]]

Exchange's Office of the Secretary, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, NYSE included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is a self-regulatory organization (``SRO'') as that 
term is defined under the Act.\3\ In its capacity as a SRO the Exchange 
functions as a quasi-governmental authority and is therefore entitled 
to immunity from lawsuits.\4\ NYSE Rule 17 provides that the ``Exchange 
shall not be liable for any damages sustained by a member, allied 
member or member organization growing out of the use or enjoyment by 
such member, allied member or member organization of the facilities 
afforded by the Exchange, except as provided in the rules.''
---------------------------------------------------------------------------

    \3\ See 15 U.S.C. 78c(a)(26).
    \4\ See DL Capital Group, LLC v. Nasdaq Stock Market, Inc., 409 
F.3d 93, 99 (2d Cir. 2005); D'Alessio v. New York Stock Exchange, 
Inc., 258 F.3d 93, 104-05 (2d Cir. 2001).
---------------------------------------------------------------------------

    The Exchange proposes to adopt Rule 18, ``Compensation in Relation 
to Exchange System Failure,'' in order to establish a procedure to 
compensate member organizations in relation to Exchange system 
failures. The Exchange recognizes that the current industry practice of 
exchanges that function as SROs is to provide a form of compensation 
for losses sustained in relation to the use of the company's systems. 
As such, the Exchange seeks to adopt NYSE Rule 18 in order to conform 
to current industry practice.
a. Claims for Compensation
    Pursuant to the proposed rule, an Exchange system failure is 
defined as a malfunction of the Exchange's physical equipment, devices, 
and/or programming which results in an incorrect execution or no 
execution of an order that was received in Exchange systems. Misuse of 
Exchange systems and delays in order processing as a result of large 
volume or other capacity issues, commonly known as ``queuing,'' are not 
considered Exchange system failures.
    In order for a member organization to be eligible to receive 
payment for a claim, it must incur a net loss equal to or greater than 
$5,000. That is, the loss must total $5,000 after any profits received 
in relation to the same incident are subtracted. Claims must be 
submitted on a per incident basis. Member organizations are not 
permitted to aggregate losses incurred as a result of more than one 
system failure in order to satisfy the $5,000 minimum claim 
requirement.
    In addition to the minimum claim requirement, member organizations 
are required to informally notify the Exchange's Division of Floor 
Operations of a suspected Exchange system failure by the opening of the 
next business day following an incident. Formal written notice of the 
suspected Exchange system failure must be provided to the Exchange's 
Division of Floor Operations no later than end of the third business 
day after the incident.
    Once in receipt of a claim, the Exchange's Division of Floor 
Operations will verify that: (i) A valid order was accepted into 
Exchange's systems; and (ii) an Exchange system failure occurred during 
the execution or handling of that order. If all of the criteria for 
submitting a claim have been met, the claim will be qualified for 
processing with all other eligible claims at the end of the calendar 
month in which the incident occurred.
b. Exchange Funds Available for Claims
    Pursuant to proposed Rule 18, the Exchange will allot $500,000 each 
calendar month (``Monthly Allotment'') to be used for payments to 
member organizations that qualify for compensation under the Rule. The 
Monthly Allotment constitutes the initial amount to be contributed by 
the Exchange to provide compensation in relation to Exchange system 
failures for each calendar month regardless of the total dollar amount 
of claims eligible for payment. The Monthly Allotments do not 
aggregate, and except as set forth below, the Monthly Allotment for 
each calendar month is $500,000. In the event that less than $250,000 
of the Monthly Allotment is paid out for a given calendar month, 
$50,000 of that month's remaining Monthly Allotment (``Supplemental 
Allotment'') will be added to a supplemental fund available for payment 
in subsequent calendar months. For example, if during the first full 
calendar month of operating under proposed NYSE Rule 18, the total 
amount paid to member organizations is $100,000, leaving $400,000 
remaining from the original Monthly Allotment, the following month, the 
Exchange will allot the Monthly Allotment of $500,000 and an additional 
$50,000 will be carried over from the previous calendar month's 
remaining balance for a total of $550,000 eligible for payment to 
member organizations in the second calendar month.
    This Supplemental Allotment will only be used to pay claims after 
the Monthly Allotment is exhausted. If claims are satisfied by the 
Monthly Allotment, the Supplemental Allotment, or any unused portion 
thereof, will be carried forward every month. Every month that does not 
pay out more than $250,000 of the Monthly Allotment will result in a 
Supplemental Allotment to the subsequent Monthly Allotment as described 
above. If in any calendar month the amount of funds required to pay 
eligible claims of member organizations is equal to or exceeds $250,000 
of the Monthly Allotment, no Supplemental Allotment will be added to 
the Monthly Allotment for the subsequent calendar month.
    The Exchange shall determine what, if any, maximum dollar amount 
may accrue over time as part of the Supplemental Allotment. Any and all 
Exchange determinations as to a maximum dollar amount that may accrue 
over time as part of the Supplemental Allotment shall be formally 
reflected in the text of Rule 18. In addition, after a few years of 
Rule 18's implementation, Exchange management intends to review both 
the maximum dollar amount, if any, which may be accrued as part of the 
Supplemental Allotment and the Monthly Allotment to determine whether 
they are appropriate. The Exchange understands that it would be 
required to file a proposed rule change should Exchange management 
determine to establish or change any maximum dollar amount for the 
Supplement Allotment or to modify the amount of the Monthly 
Allotment.\5\
---------------------------------------------------------------------------

    \5\ Telephone conversation between Deanna Logan, Director, 
Office of the General Counsel, NYSE, and Nathan Saunders, Special 
Counsel, Division of Market Regulation (``Division''), Commission, 
on March 29, 2007.
---------------------------------------------------------------------------

c. Other Funds Available for Payment of Claims
    In addition to the Monthly Allotment and Supplemental Allotment, 
the Exchange proposes to amend Exchange Rule 134.40 to provide that any 
error transactions in a member organization's account in relation to an 
Exchange system failure which results in a profit

[[Page 16843]]

equal to or greater than $5,000 must be remitted to the Exchange 
(``Profit Contribution''). Profit Contributions will be added to the 
Monthly Allotment and any Supplemental Allotment.
    Currently, pursuant to Exchange Rule 134.40, member organizations 
must report certain profits to the Exchange, but are not required to 
remit any part thereof to the Exchange. The Exchange proposes to amend 
Rule 134.40 to require that profits equal to or greater than $5,000 
gained in relation to an Exchange system failure be remitted to the 
Exchange in order to be applied to payments to member organizations 
pursuant to proposed NYSE Rule 18.
    The Profit Contribution will operate similarly to the Supplemental 
Allotment in that it will only be used for payments after all other 
funds are exhausted (i.e., Monthly Allotment and any Supplemental 
Allotment). In the event that the payments to member organizations are 
satisfied by the Monthly Allotment and any Supplemental Allotment, then 
the Profit Contribution will carry over each subsequent calendar month 
until required for the payments of eligible claims.
d. Compensation Payments to Claimants
    In order to review qualified claims and administer payments, the 
Exchange will establish a panel consisting of three (3) Floor Governor 
and three (3) Exchange employees (the ``Compensation Review Panel''). 
The Compensation Review Panel will meet and review all the claims that 
are submitted for a calendar month in order to determine: (i) If each 
claim satisfies all the criteria for payment; and (ii) the amount to be 
paid on the claim (``approved claims'').
    As part of its determination, the Compensation Review Panel must 
review the actions of the member organization and its employees before 
and after the error occurred in order to determine if any of the 
claimant's actions contributed to the loss sustained. The Compensation 
Review Panel may increase or reduce the amount deemed eligible for 
payment as a result of its review. All decisions by the Compensation 
Review Panel are final.
    The determinations of the Compensation Review Panel will be by 
majority vote. In the event of deadlock, all relevant information about 
the claim will be sent to the Chief Executive Officer of the Exchange 
(``CEO'') or the President or his or her designee who will make a final 
determination. Like the determinations of the Compensation Review 
Panel, all the determinations of the CEO are final.
    Once each claim is reviewed and the amount to be paid on each 
approved claim is decided, the Compensation Review Panel will total the 
dollar amount of all approved claims for the calendar month under 
review. If the total dollar amount of approved claims is less than the 
Monthly Allotment, then the claims will be paid to the claimants in 
full. If the total amount of approved claims exceeds the Monthly 
Allotment, then any Supplemental Allotment and/or Profit Contribution 
will be added to the Monthly Allotment in order to satisfy approved 
claims. In the event that the approved claims for a month exceed the 
sum of the Monthly Allotment, the Supplemental Allotment (if any), and 
the Profit Contribution (if any), then the approved claims will be paid 
out to member organizations based upon the proportion that each 
eligible claim bears to the total amount of all approved claims.
e. Retroactivity of Proposed Rule 18
    The Exchange further requests to have proposed NYSE Rule 18 
function retroactively. Specifically, the Exchange seeks to allow 
member organizations to submit claims to the Exchange for any alleged 
Exchange system failures that occurred between September 1, 2006 and 
the date of Commission approval of the proposed rule. After Commission 
approval, all other claims must be submitted as prescribed by the rule. 
The Monthly Allotment will be set aside for each calendar month in the 
period for which Rule 18 is retroactively effective.\6\ However, the 
Supplemental Allotment and Profit Contribution provisions of the rule 
will not be retroactive, but will begin to accrue the month after 
Commission approval of proposed Rule 18 in accordance with provisions 
governing those funds.
---------------------------------------------------------------------------

    \6\ Telephone conversation between Deanna Logan, Director, 
Office of the General Counsel, NYSE, and Nancy Sanow, Assistant 
Director, and Nathan Saunders, Special Counsel, Division, 
Commission, on March 7, 2007.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange's basis under the Act \7\ for this proposed rule 
change is the requirement under Section 6(b)(5) \8\ that an Exchange 
have rules that are designed 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78a.
    \8\ 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 change will 
impose any 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 written comments on 
the proposed rule change.

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 Exchange consents, the Commission will:
    (A) By order approve the 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-NYSE-2007-09 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-NYSE-2007-09. 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

[[Page 16844]]

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 the 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-
NYSE-2007-09 and should be submitted on or before April 26, 2007.
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-6376 Filed 4-4-07; 8:45 am]
BILLING CODE 8010-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.