Document ID: SEC-2007-1511-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, LLC
Posted Date: 2007-11-05T05:00Z

[Federal Register: November 5, 2007 (Volume 72, Number 213)]
[Notices]               
[Page 62506-62508]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05no07-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56718; File No. SR-NYSE-2007-95]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 18 (Compensation in Relation to Exchange System 
Failure)

October 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 October 12, 2007, the New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The NYSE filed the proposal pursuant to Section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Exchange Rule 18 to reduce the 
dollar amount required in order for a member organization to seek 
compensation in the event of an Exchange System failure. The Exchange 
is further seeking to make technical amendments to the rule text.

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 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 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
    Through this filing, the NYSE seeks to amend Exchange Rule 18 to 
reduce the dollar amount required for a member organization to seek 
compensation in the event of an Exchange system failure. Pursuant to 
the proposal, the Exchange seeks to reduce the current requirement that 
a net loss be in the amount of $5,000 or higher in order for a member 
organization to be eligible to make a claim for compensation. Rather, 
the Exchange seeks to lower the net loss requirement to $500.
    Current Exchange Rule 18 (Compensation in Relation to Exchange 
System Failure)
    Today, Exchange Rule 18 sets forth that member organizations that 
sustain a loss in relation to an Exchange system failure \5\ are 
eligible to submit a claim for compensation to the Exchange, if certain 
requirements are met. Pursuant to the current rule, 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

[[Page 62507]]

$5,000 after any profits received in relation to the same incident are 
subtracted.\6\ 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.
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    \5\ 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 of an order or no execution of an 
order that was received in Exchange systems. See Exchange Rule 
18(b).
    \6\ In addition to the net loss requirement, Exchange Rule 18 
requires that the Exchange's Division of Floor Operations (``Floor 
Operations'') determines that: (i) A valid order was accepted by the 
Exchange's systems; and that (ii) an Exchange system failure 
occurred. The member organization is further responsible for 
providing the Floor Operations with verbal notice of the incident by 
the market opening on the next business day following the system 
failure. The member must also provide written notice by the end of 
the third business day following the system failure. See Exchange 
Rule 18(a).
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    Proposed Amendments to Rule 18--Reduction of Net Loss Dollar Amount
    Exchange Rule 18 was put into effect on July 17, 2007.\7\ A newly 
implemented rule, the initial $5,000 threshold for net loss seemed to 
be a reasonable dollar amount at the time. However, as the Exchange has 
gained experience with the administration of the Rule, it has observed 
that over 40% of the sustained net loss amounts were less than $2,000. 
Nearly 12% of the net loss amounts were less than $1,000. As a result, 
only approximately half of the net losses sustained by member 
organizations were eligible to receive compensation.
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    \7\ The operation of the rule was retroactive to September 2006. 
See Securities Exchange Act Release No. 55555 (March 27, 2007), 72 
FR 16841 (April 5, 2007) (SR-NYSE-2007-09).
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    In establishing Exchange Rule 18, the NYSE sought to provide a 
mechanism for member organizations to receive compensation for losses 
sustained in relation to an Exchange system failure. The Exchange seeks 
to have the rule be more inclusive of its member organizations that may 
sustain a loss in the event of an Exchange system failure. In practice 
the requirement that the net loss equal at least $5,000 has resulted in 
the exclusion of approximately half the member organizations that have 
sustained losses in relation to an Exchange system failure from 
qualifying to receive compensation. Accordingly, the Exchange seeks to 
lower the net loss amount to $500. The Exchange believes that $500 is a 
more appropriate threshold. The Exchange believes that this threshold 
amount will be more inclusive and give more member organizations 
opportunities to seek compensation for losses sustained in relation to 
an Exchange system failure.
    Technical Amendments to the Rule
    The Exchange further proposes to make technical,l non-substantive 
amendments to subparagraphs (d), (e), and (f) of Exchange Rule 18. 
Specifically, subparagraph (d) provides that an ``Exchange-designated 
panel'' will be responsible for determining the eligibility of claim 
for payment. The Exchange seeks to amend the rule to state that the 
name of the Exchange-designated panel is the ``Compensation Review 
Panel'' for the sake of specificity and clarity. As such, references to 
this panel have been changed to read ``Compensation Review Panel'' in 
subparagraphs (d), (e), and (f) of the Rule.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act \8\ that an exchange have 
rules that are 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.
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    \8\ 15 U.S.C. 78f(b)(5).
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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

    Because the foregoing rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) become operative for 30 
days after the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    NYSE has requested that the Commission waive the 30-day operative 
delay.\11\ The proposal reduces the minimum threshold amount for a net 
loss sustained in relation to an Exchange system failure, thereby 
providing more opportunities for member organizations to be compensated 
for losses sustained in relation to an Exchange system failure. The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will enable the Exchange to immediately implement the 
proposal so that more member organizations' net loss claims will 
qualify for compensation under the rule. For this reason, the 
Commission designates the proposed rule change to be effective and 
operative upon filing with the Commission.\12\
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    \11\ 17 CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6) also requires 
the self-regulatory organization to give the Commission notice of 
its intent to file the proposed rule change, along with a brief 
description and text of 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 the five-day pre-filing requirement.
    \12\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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 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 rule-comments@sec.gov. Please include 

File Number SR-NYSE-2007-95 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-2007-95. 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

[[Page 62508]]

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 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-2007-95 and should be submitted on or before 
November 26, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-21636 Filed 11-2-07; 8:45 am]

BILLING CODE 8011-01-P