Document ID: SEC-2008-1456-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-10-23T04:00Z

[Federal Register: October 23, 2008 (Volume 73, Number 206)]
[Notices]               
[Page 63224-63225]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23oc08-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58779; File No. SR-NYSE-2008-78]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change Amending NYSE Rule 18 To 
Allow NYSE Alternext US LLC To Participate in the Compensation Fund 
Established by NYSE To Reimburse Claimants for Losses Associated With 
NYSE-Operated System Failures

October 14, 2008.

I. Introduction

    On August 26, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change amending NYSE Rule 18 to allow NYSE Alternext US 
LLC (``NYSE Alternext'' \3\) to participate in the compensation fund 
established by NYSE to reimburse claimants for losses associated with 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 (an ``Exchange systems 
malfunction''). The proposed rule change was published for comment in 
the Federal Register on September 9, 2008.\4\ The Commission received 
no comments on the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NYSE Alternext US LLC will be a self-regulatory organization 
distinct from NYSE Euronext's European-market subsidy, NYSE 
Alternext. When used throughout this order, ``NYSE Alternext'' 
refers to NYSE Alternext US LLC.
    \4\ See Securities Exchange Act Release No. 58450 (September 2, 
2008), 73 FR 52439 (September 9, 2008) (SR-NYSE-2008-78) 
(``Notice'').
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II. Description of the Proposal

    Through a series of mergers (the ``Mergers''), the American Stock 
Exchange LLC (``Amex'') has become a subsidiary of NYSE Euronext and 
was renamed NYSE Alternext US LLC.\5\ In connection with the Mergers, 
NYSE Alternext will relocate all equities trading currently conducted 
on or through the Amex legacy trading systems and facilities located at 
86

[[Page 63225]]

Trinity Place, New York, New York, to the NYSE trading systems and 
facilities located at 11 Wall Street, New York, New York (the ``NYSE 
Alternext Trading Systems''), which will be operated by the NYSE on 
behalf of NYSE Alternext (the ``Equities Relocation'').
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    \5\ See Securities Exchange Act Release No. 58284 (August 1, 
2008), 73 FR 46086 (August 7, 2008) (SR-Amex-2008-62) and Securities 
Exchange Act Release No. 58673 (September 29, 2008) (SR-Amex-2008-
62).
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    NYSE Rule 18 establishes a compensation fund and provides a 
procedure for compensating NYSE member claimants in the event of an 
Exchange system failure.\6\ The Commission recently approved Amex's 
proposal to adopt a rule substantially similar to NYSE Rule 18.\7\ This 
rule, NYSE Alternext Equities Rule 18, provides a procedure for 
compensating NYSE Alternext member claimants in the event of an NYSE 
Alternext systems failure. Specifically, under NYSE Alternext Equities 
Rule 18, NYSE Alternext members and member organizations affected by a 
failure of the NYSE Alternext Trading Systems would have the right to 
submit claims for compensation to NYSE Alternext. NYSE Alternext's 
Compensation Review Panel would then decide the validity of NYSE 
Alternext claims.
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    \6\ See Securities Exchange Act Release Nos. 56085 (July 17, 
2007), 72 FR 40348 (July 24, 2007) (SR-NYSE-2007-09) (adopting NYSE 
Rule 18); 56718 (October 29, 2007), 72 FR 62506 (November 5, 2007) 
(SR-NYSE-2007-95) (approving certain amendments to NYSE Rule 18). 
For a complete discussion of Rule 18, see the Notice, supra note 4.
    \7\ See Securities Exchange Act Release No. 34-58705 (October 1, 
2008) 73 FR 58995 (October 8, 2008) (SR-Amex-2008-63).
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    Because NYSE Alternext will operate on the Exchange's trading 
systems after the Equities Relocation, NYSE proposes to amend NYSE Rule 
18 to provide 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 as a result of an Exchange system malfunction.\8\ Thus, after the 
NYSE Alternext Compensation Review Panel has determined the number and 
amount of claims that NYSE Alternext deems valid, NYSE Alternext would 
submit to the NYSE a separate claim for each valid claim made by NYSE 
Alternext members or member organizations, subject to the same 
requirements under NYSE Rule 18 as any other NYSE claimant. NYSE 
Alternext will not, however, be required to provide verbal notice of 
its claims to the Exchange's Division of Floor Operations.
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    \8\ NYSE Alternext members and member organizations would not be 
able to submit their claims directly to the NYSE.
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    In the event that the total amount of valid claims by NYSE members 
and NYSE Alternext exceeds 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.\9\ In the event that a reduction is required, in 
calculating any such reduction, NYSE officials would consider each 
claim submitted by NYSE Alternext as a separate claim, so that all 
claimants from both the Exchange and NYSE Alternext will share 
equitably from the compensation fund.
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    \9\ In the Notice, NYSE stated that it does not anticipate that 
the additional claims by NYSE Alternext would create a substantial 
burden on the fund in the event of a system malfunction in view of: 
(i) The probable volume of trading on NYSE Alternext; (ii) the fact 
that to date, the existing compensation fund has been sufficient to 
pay all valid claims in full; and (iii) the current amount available 
in the supplemental fund. Notice at 52440.
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    NYSE also proposes technical changes to NYSE Rule 18, including 
corrections to the numbering of certain subparagraphs of the Rule.

III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which, 
among other things, requires that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating 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. 
The Commission believes that the proposed amendments to NYSE Rule 18 
provide for a fair and reasonable process by which NYSE Alternext may 
participate in the compensation fund established by the Exchange to 
reimburse claimants for losses suffered due to a malfunction of systems 
operated by the Exchange.
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSE-2008-78) be, and it 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-25319 Filed 10-22-08; 8:45 am]

BILLING CODE 8011-01-P