10114 Federal Register / Vol. 74, No. 44 / Monday, March 9, 2009 / Notices 

19 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 15 U.S.C. 78s(b)(3)(A). 

5 17 CFR 240.19b–4(f)(6). 

6See E-mail from Jennifer D. Kim, Counsel, Office 

of the General Counsel, Exchange, to Michou H.M. 

Nguyen, Special Counsel, Division of Trading and 

Markets, Commission, on March 2, 2009. 

7See SR–NYSE–2009–16 (to be filed on February 

17, 2009). 

8See Securities Exchange Act Release No. 58673 

(September 29, 2008), 73 FR 57707 (October 3, 

2008) (SR–NYSE–2008–60 and SR–Amex 2008–62) 

(approving the Merger). 

9 15 U.S.C. 78f. 

10See Securities Exchange Act Release No. 58705 

(October 1, 2008), 73 FR 58995 (October 8, 2008) 

(SR–Amex 2008–63) (approving the Equities 

Relocation). 

11See Securities Exchange Act Release No. 58705 

(October 1, 2008), 73 FR 58995 (October 8, 2008) 

(SR–Amex 2008–63) (approving the Equities 

Relocation); Securities Exchange Act Release No. 

58833 (October 22, 2008), 73 FR 64642 (October 30, 

2008) (SR–NYSE–2008–106) and Securities 

Exchange Act Release No. 58839 (October 23, 2008), 

73 FR 64645 (October 30, 2008) (SR–NYSEALTR– 

2008–03) (together, approving the Bonds 

Relocation); Securities Exchange Act Release No. 

59022 (November 26, 2008), 73 FR 73683 

(December 3, 2008) (SR–NYSEALTR–2008–10) 

(adopting amendments to NYSE Alternext Equities 

Rules to track changes to corresponding NYSE 

Rules); Securities Exchange Act Release No. 59027 

(November 28, 2008), 73 FR 73681 (December 3, 

2008) (SR–NYSEALTR–2008–11) (adopting 

amendments to Rule 62—NYSE Alternext Equities 

to track changes to corresponding NYSE Rule 62). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–4877 Filed 3–6–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59482; File No. SR– 

NYSEALTR–2009–13] 

Self-Regulatory Organizations; NYSE 

Alternext U.S. LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Amending NYSE 

Alternext Equities Rule 17 To Address 

Issues Related to Vendor Liability and 

To Make Amendments and Conforming 

Changes to NYSE Alternext Equities 

Rule 18 

March 2, 2009. 

Pursuant to Section 19(b)(1)1 of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on February 

17, 2009, NYSE Alternext U.S. LLC 

(‘‘Exchange’’ or ‘‘NYSE Alternext’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Exchange filed the 

proposed rule change pursuant to 

Section 19(b)(3)(A) 4 of the Act and Rule 

19b–4(f)(6) thereunder,5 which renders 

the proposal effective upon filing with 

the Commission. 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 

NYSE Alternext Equities Rule 17 (‘‘Use 

of Exchange Facilities’’) to address 

issues related to vendor liability. The 

Exchange also seeks to make 

amendments and conforming changes to 

NYSE Alternext Equities Rule 18 

(‘‘Compensation in Relation to Exchange 

System Failure’’). The text of the 

proposed rule change is available at the 

Exchange, the Commission’s Public 

Reference Room, and http:// 

www.nyse.com. 

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 

self-regulatory organization 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 those 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 proposes to amend 

NYSE Alternext Equities Rule 17 (‘‘Use 

of Exchange Facilities’’) to address 

issues related to vendor liability. 

Specifically, the proposed rule would 

require that member organizations that 

have trading losses due to malfunctions 

of third-party systems provided by the 

Exchange submit such losses to the 

Exchange’s compensation fund prior to 

pursuing legal remedies against the 

third-party vendors that provided these 

systems.6

The Exchange also seeks to make 

amendments and conforming changes to 

NYSE Alternext Equities Rule 18 

(‘‘Compensation in Relation to Exchange 

System Failure’’). Specifically, the 

Exchange seeks to include in the 

definition of ‘‘Exchange system failure’’ 

the malfunction of a third-party system 

or technology provided by the 

Exchange, i.e., vendor and/or 

subcontractor systems and to codify a 

net loss requirement for members or 

member organizations that seek 

compensation for losses sustained from 

an Exchange system failure. 

These amendments are proposed to 

conform to amendments filed by the 

New York Stock Exchange (‘‘NYSE’’).7

Background 

As described more fully in a related 

rule filing,8 NYSE Euronext acquired 

The Amex Membership Corporation 

(‘‘AMC’’) pursuant to an Agreement and 

Plan of Merger, dated January 17, 2008 

(the ‘‘Merger’’). In connection with the 

Merger, the Exchange’s predecessor, the 

American Stock Exchange LLC 

(‘‘Amex’’), a subsidiary of AMC, became 

a subsidiary of NYSE Euronext called 

NYSE Alternext U.S. LLC, and 

continues to operate as a national 

securities exchange registered under 

Section 6 of the Securities Exchange Act 

of 1934, as amended (the ‘‘Act’’).9 The 

effective date of the Merger was October 

1, 2008. 

In connection with the Merger, on 

December 1, 2008, the Exchange 

relocated all equities trading conducted 

on the Exchange legacy trading systems 

and facilities located at 86 Trinity Place, 

New York, New York, to trading systems 

and facilities located at 11 Wall Street, 

New York, New York (the ‘‘Equities 

Relocation’’). The Exchange’s equity 

trading systems and facilities at 11 Wall 

Street (the ‘‘NYSE Alternext Trading 

Systems’’) are operated by the NYSE on 

behalf of the Exchange.10

As part of the Equities Relocation, 

NYSE Alternext adopted NYSE Rules 1– 

1004, subject to such changes as 

necessary to apply the Rules to the 

Exchange, as the NYSE Alternext 

Equities Rules to govern trading on the 

NYSE Alternext Trading Systems.11 The 

NYSE Alternext Equities Rules, which 

became operative on December 1, 2008, 

are substantially identical to the current 

NYSE Rules 1–1004 and the Exchange 

continues to update the NYSE Alternext 

Equities Rules as necessary to conform 

with rule changes to corresponding 

NYSE Rules filed by the NYSE. 

Proposed Amendments 

Currently, NYSE Alternext Equities 

Rule 17 provides that the Exchange 

shall not be liable for any damages 

sustained by a member or member 

organization growing out of the use or 


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Federal Register / Vol. 74, No. 44 / Monday, March 9, 2009 / Notices 10115 

12An ‘‘Exchange system failure’’ is defined by 

NYSE Alternext Equities Rule 18 as ‘‘a malfunction 

of the Exchange’s physical equipment, devices and/ 

or programming which results in an incorrect 

execution or an order or no execution of an order 

that was received in Exchange systems.’’ 

NYSE Rule 18, Supplemental Material .10 

provides that NYSE Alternext is permitted to file 

claims pursuant to NYSE Rule 18. NYSE Alternext 

shall submit claims for payment on behalf of its 

members to the NYSE for compensation for valid 

claims. NYSE Alternext members are not permitted 

to file claims for payment directly to the NYSE. 

NYSE Alternext will submit a separate claim to the 

NYSE for each claim made by its members. 

13Exchange services that are outsourced to thirdparty vendors but that are part of the core 

functionality of Exchange systems are considered 

‘‘systems and facilities of the Exchange’’ even 

though they are not physically provided by the 

Exchange. By contrast, additional services provided 

to members and member organizations by a thirdparty vendor that are not part of the core 

functionality of the Exchange’s systems and not 

required to function as a member or member 

organization are not considered ‘‘systems and 

facilities’’ of the Exchange. As a result, any 

malfunction of those additional services would 

constitute a third-party vendor system malfunction, 

not an Exchange malfunction. 

14The third-party vendors directly provide their 

services to the member or member organization. 

Therefore, the customers are aware that they are 

using an Exchange system, which is provided 

directly by the Exchange, or a third-party vendor 

system, that also has direct contact with the 

customer. 

15Because NYSE Alternext and NYSE share a 

common trading platform, NYSE Rule 18 provides 

a mechanism for NYSE Alternext itself to seek 

reimbursement from NYSE for the amounts that 

NYSE Alternext undertakes to pay out to NYSE 

Alternext members under NYSE Alternext Equities 

Rule 18. Under that procedure, after the NYSE 

Alternext Compensation Review Panel has 

determined the number and amount of claims that 

NYSE Alternext deems valid, NYSE Alternext 

submits to the NYSE a separate claim for each valid 

claim made by NYSE Alternext members or member 

organizations. If the combined amount of valid 

claims by NYSE members and NYSE Alternext 

exceeded the available funds in the NYSE Rule 18 

compensation fund, NYSE Alternext would receive 

a partial payment of claims pursuant to NYSE Rule 

18(c), and NYSE Alternext’s obligation to 

compensate its members for valid claims would be 

reduced by a like percentage. 

16Related system malfunctions that occur 

repeatedly over the course of the trading day will 

constitute one system malfunction for purposes of 

determining the aggregation of customer claims 

resulting from that system malfunction. Distinct 

and separate malfunctions that originate from 

different system failures are considered unrelated 

malfunctions and are treated as separate system 

malfunctions. 

17Customers may decline to take the gains for 

varied reasons. For example, if the cost to the 

customer of processing the error is greater than the 

amount of the error, the customer will likely tell the 

broker to keep the error. 

enjoyment of the facilities afforded by 

the Exchange, except as provided in 

NYSE Alternext Equities Rule 18. 

Currently, NYSE Alternext Equities Rule 

18 affords members and member 

organizations the recourse to seek 

compensation for losses sustained by an 

Exchange system failure.12

As noted previously, the Exchange 

increasingly offers member 

organizations access to certain systems 

and technologies that are supplied by 

third-party vendors and delivered via 

Exchange systems (e.g., the Exchange 

delivers broker algorithms to brokers on 

the broker handheld device). These 

third-party products are designed to 

enhance the member organizations’ 

ability to execute trades efficiently. 

Notably, the Exchange is acting 

primarily as a facilitator between the 

vendor and the Exchange member using 

the service. Use of these vendorsupplied services is not required, and 

Exchange members can perform their 

respective jobs without using these 

third-party vendor services. If a member 

wishes to use such a service, however, 

the Exchange works with the vendor 

and the member to connect the member 

and to deliver the service from the 

vendor to the user. The Exchange also 

simplifies the negotiation process, in 

that a member does not need to 

separately negotiate with the vendor to 

receive the service. Because the services 

are supplied and supported by a thirdparty vendor, however, they are not 

explicitly ‘‘systems or facilities of the 

Exchange.’’ 13

Currently, NYSE Alternext Equities 

Rules 17 and 18 do not address the issue 

of a member or member organization 

that sustains a loss arising from the 

malfunction of non-core systems or 

technology supplied by third-party 

vendors for use by member 

organizations.14 In light of the increased 

availability of third-party technology to 

provide additional facilities or services 

to the Exchange, the Exchange proposes 

to amend NYSE Alternext Equities 

Rules 17 and 18 to address third-party 

vendor liability, third-party vendor 

system malfunction and the avenue of 

recourse for members and member 

organizations as a result of this thirdparty vendor system malfunction. 

In connection with member or 

member organization use of any thirdparty vendors provided by the Exchange 

to members for the conduct of their 

business on the Exchange, the Exchange 

proposes that NYSE Alternext Equities 

Rule 17 provide 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 a 

third-party electronic system, service, or 

facility provided by the Exchange, 

except as provided in NYSE Alternext 

Equities Rule 18. 

The Exchange further proposes that 

members or member organizations that 

sustain a loss from the use of these 

third-party vendors provided by the 

Exchange may seek compensation from 

the Exchange for their losses in the same 

way they seek compensation for an 

Exchange system failure. Specifically, 

NYSE Alternext Equities Rule 18 would 

permit members or member 

organizations to file a claim with the 

Exchange for losses caused by the thirdparty vendor’s malfunction. These 

claims would be evaluated and 

submitted to the NYSE pursuant to the 

existing procedure set out in NYSE 

Alternext Rule 18 and NYSE Rule 18.15

In the event that claims arising out of 

the use of these third-party vendor 

systems cannot be fully satisfied 

because the aggregated claims exceed 

the funds available for such payment as 

set forth in NYSE Alternext Equities 

Rule 18, the aggrieved member or 

member organization would not be 

precluded from bringing a claim against 

the third-party vendor directly for the 

balance of the loss amount. 

The Exchange also seeks to make a 

conforming amendment to NYSE 

Alternext Equities Rule 18 to include in 

the definition of an Exchange system 

failure ‘‘any malfunction of any thirdparty vendor provided by the Exchange 

that results in an incorrect execution of 

an order or no execution of an order that 

was received in Exchange systems.’’ 

Finally, the Exchange seeks to codify 

its existing policy regarding the netting 

of losses prior to submitting claims 

under NYSE Alternext Equities Rule 18. 

Specifically, the Exchange is codifying 

its understanding that if members and 

member organizations retain profits 

from a system malfunction, then they 

are required to net these profits against 

their losses from the same malfunction 

before submitting any claims under 

NYSE Alternext Rule 18.16

For example, a broker enters orders 

for Customer #1 and Customer #2. As a 

result of a system malfunction, 

Customer #1 derives a profit that would 

have occurred but for the malfunction 

and Customer #2 derives a loss. The 

broker passes along the gain to 

Customer #1, and files a claim with the 

Exchange with respect to Customer #2’s 

loss. The broker would not be required 

to net the gain against the loss. 

Brokers are required to offer profitable 

errors to their customers; in certain 

circumstances, however, customers may 

decline to take the error in which case 

the error position is retained by the 

brokers.17 If Customer #1 declines to 

accept the profit, as is the customer’s 

option, then the broker would retain the 

profit and must net is against the loss 

incurred on behalf of Customer #2. 


dwashington3 on PROD1PC60 with NOTICES
10116 Federal Register / Vol. 74, No. 44 / Monday, March 9, 2009 / Notices 

18 15 U.S.C. 78f(b). 

19 15 U.S.C. 78f(b)(5). 

20 15 U.S.C. 78s(b)(3)(A). 

21 In addition, Rule 19b–4(f)(6)(iii) requires a selfregulatory organization to give the Commission 

written notice of its intent to file the proposed rule 

change at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. The 

Exchange has satisfied this requirement. 17 CFR 

240.19b–4(f)(6)(iii). 

22Amex Rule 60—AEMI (‘‘Vendor Liability 

Disclaimer’’). AEMI (‘‘Auction & Electronic Market 

Integration’’) System was Amex’s Hybrid Market 

Structure for equities and exchange-traded funds 

prior to the merger with NYSE. 23 17 CFR 200.30–3(a)(12). 

The Exchange proposes these 

amendments to conform the rules of 

NYSE Alternext regarding third-party 

vendor liability, third-party vendor 

system malfunction and the avenue of 

recourse for members and member 

organizations as a result of this thirdparty vendor system malfunction to the 

rules of its affiliated Exchange, the New 

York Stock Exchange LLC. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,18 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,19

in particular, in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. The Exchange believes 

that the proposed rule change promotes 

just and equitable principles of trade 

and protects investors and the public 

interest because it creates a mechanism 

that adequately addresses issues of 

liability for all parties concerned. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change would 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 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The proposed rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) of the Act.20 The Exchange 

asserts that the proposed rule change (i) 

will not significantly affect the 

protection of investors or the public 

interest, (ii) will not impose any 

significant burden on competition, and 

(iii) by its terms, will not become 

operative for 30 days after the date of 

this filing, or such shorter time as the 

Commission may designate, if 

consistent with the protection of 

investors and the public interest.21

The Exchange believes that the instant 

filing is non-controversial. The 

Commission has approved a third-party 

vendor liability provision that was filed 

by the American Stock Exchange which 

required members and member 

organizations to indemnify the 

Exchange and its vendors and/or 

subcontractors and provided that such 

vendor and its subcontractors shall not 

be liable to the member or member 

organization for any damages sustained 

by a member or member organization 

from use of these third-party vendor 

systems.22 The Exchange submits that 

its proposed rule change is less 

expansive that Amex Rule 60—AEMI 

and affords a member or member 

organization the ability to recover from 

a loss sustained by use of a third-party 

vendor system. The proposed rule 

change offers its members and member 

organizations two layers of recourse in 

the event of a third-party vendor system 

malfunction, i.e., filing a claim pursuant 

to NYSE Alternext Equities Rule 18 and 

then filing a claim directly against the 

third-party vendor for any remaining 

balance of the loss amount. Therefore, 

the Exchange submits that this proposed 

rule filing, in light of the more 

restrictive vendor liability disclaimer 

rules previously approved by the 

Commission, is non-controversial. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

such 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 Exchange Act. 

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–NYSEALTR–2009–13 on 

the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEALTR–2009–13. 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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSEALTR–2009–13 and 

should be submitted on or before March 

30, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–4873 Filed 3–6–09; 8:45 am] 

BILLING CODE 8011–01–P 


dwashington3 on PROD1PC60 with NOTICES