Document ID: SEC-2010-1428-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-09-17T04:00Z

[Federal Register: September 17, 2010 (Volume 75, Number 180)]
[Notices]               
[Page 57090-57091]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se10-141]                         

[[Page 57090]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62892; File No. SR-Phlx-2010-119]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NASDAQ OMX PHLX, Inc. Relating to Limitation of Exchange 
Liability

September 10, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on September 1, 2010 NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to amend Exchange Rule 652, titled 
Limitation of Exchange Liability and Reimbursement of Certain Expenses, 
to require member organizations on the Exchange's trading floor to 
procure and maintain liability insurance.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
at the principal office of the Exchange, on the Commission's website at 
http://www.sec.gov/, 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, 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
    The purpose of the proposed rule change is to amend Rule 652 titled 
Limitation of Exchange Liability and Reimbursement of Certain Expenses 
to require member organizations conducting business on the Exchange's 
trading floor to procure and maintain liability insurance. The Exchange 
is proposing this amendment to limit the liability of the Exchange and 
obtain reimbursement for any action or proceeding brought against the 
Exchange.
    Legal proceedings can significantly divert staff resources away 
from the Exchange's regulatory and business purposes. In addition, 
these proceedings often require the Exchange to secure outside counsel, 
a costly undertaking. The Exchange believes that establishing a rule 
that limits the Exchange's liability may reduce non merit-based or 
vexatious legal proceedings against the Exchange by member litigants 
and help protect against the Exchange's resources being unnecessarily 
diverted from regulatory and business objectives, thus strengthening 
the overall organization.
    Specifically, the Exchange is proposing to require that member 
organizations located on the Exchange's trading floor procure and 
maintain liability insurance. The insurance would provide defense and 
indemnity coverage for the member organization, any person associated 
with the member organization and the Exchange for any action or 
proceeding brought, or claim made, to impose liability upon the member 
organization, associated person or the Exchange which results from the 
member organization's or associated person's conduct.
    The Exchange has a physical trading floor where certain Exchange 
member organizations physically conduct their trading activities. The 
Exchange does not intend this amendment to provide relief associated 
with financial loss related to buying and selling securities. The 
insurance coverage is intended to provide coverage to the Exchange for 
its sole, concurrent, or contributory negligence or other wrongdoing 
connected to a claim arising from the member organization's or 
associated person's conduct.
    The Exchange would require that the member organization name the 
Exchange as an additional insured on the insurance policy by 
endorsement. The Exchange would retain the same rights under the 
insurance coverage as the named insured. The Exchange would be entitled 
to the full policy limits. The member organization would be required to 
maintain insurance with a limit that is not less than $1,000,000 
without erosion by defense costs.\5\ The insurance would indicate that 
it is primary to any insurance maintained by the Exchange.\6\
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    \5\ In other words, the $1,000,000 requirement would be in 
addition to legal costs.
    \6\ This requirement applies to the endorsement on the policy 
and would require coverage to be sought under the member's policy 
prior to any Exchange policy.
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    Finally, each member organization located on the trading floor 
would be required to provide a certificate of insurance to be issued 
directly to the Exchange demonstrating the insurance was procured and 
is maintained. Each member organization would be required to furnish a 
copy of the insurance policy upon request as well.
    The Exchange incurs cost related to the conduct of Exchange member 
organizations utilizing the Exchange's facilities on the trading floor 
to conduct business. The Exchange is seeking to shift the burden 
arising from actions or proceedings brought, or claims made, to impose 
liability on the Exchange back to the member organization.
    The Exchange also proposes to expand the language in Rule 652 to 
apply the rule to individuals of the Exchange, specifically officers, 
directors and employees. The Exchange believes that this language 
serves to clarify that individuals serving as officers, directors or 
employees are also the subject of Rule 652.
    The Exchange proposes to require members to procure such insurance 
by December 31, 2010.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \8\ in particular, in that it is 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, 
by requiring member organizations physically located on the trading 
floor to procure and maintain insurance. The proposed amendment would 
assist the Exchange in limiting its resources [sic] which can be easily 
diverted to defending litigation claims.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that member organizations that are physically 
located

[[Page 57091]]

on the Exchange's trading facilities are already subject to rules and 
procedures that are separate and apart from member organizations that 
are not located on the Exchange's trading floor. While the Exchange 
does have rules which govern a member organization's order and decorum 
while on the Exchange's trading floor, the Exchange believes that 
requiring such member organizations to also obtain insurance coverage 
to protect the Exchange from claims resulting from their own conduct is 
not an undue burden.
    The Exchange's trading floor environment must be free from conduct 
that could distract or interfere with market activity as well as 
conduct which could deplete the Exchange's resources and divert staff 
when dealing with claims and litigation that results from the conduct 
of a member organization or associated person of that member 
organization. The Exchange believes that this proposal will conserve 
Exchange resources and provide additional coverage for member 
organizations as well because they are also subject to the coverage.
    The Exchange believes that amending Rule 652 to add officers, 
directors and employees in addition to the Exchange serves to further 
clarify Rule 652 by making clear that the word Exchange includes such 
individuals.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-119 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-Phlx-2010-119. 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 website (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 website viewing and printing 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 the filing will also be available for inspection and 
copying at the Exchange's principal office. 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 publicly available. All submissions 
should refer to File Number SR-Phlx-2010-119 and should be submitted on 
or before October 8, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-23194 Filed 9-16-10; 8:45 am]
BILLING CODE 8010-01-P