Document ID: SEC-2008-0605-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations:  International Securities Exchange, LLC; Limitation of Liability
Posted Date: 2008-04-23T04:00Z

[Federal Register: April 23, 2008 (Volume 73, Number 79)]
[Notices]               
[Page 21996]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ap08-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57675; File No. SR-ISE-2008-15]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving a Proposed Rule Change Relating to Limitation of 
Liability

April 17, 2008.

I. Introduction

    On March 5, 2008, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposal to amend ISE Rule 705, ``Limitation of 
Liability,'' to codify that the ISE may compensate Members for losses 
resulting directly from the malfunction of the ISE's physical 
equipment, devices, and/or programming. The proposed rule change was 
published for comment in the Federal Register on March 17, 2008.\3\ The 
Commission received no comments regarding 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\ See Securities Exchange Act Release No. 57450 (March 7, 
2008), 73 FR 14290.
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II. Description of the Proposal

    ISE Rule 705(a) provides, in general, that the Exchange is not 
liable for any losses arising from the use of the Exchange's 
facilities, systems, or equipment. The ISE notes, however, that, from a 
customer service perspective, the Exchange may compensate a Member for 
certain identified losses. Accordingly, the ISE proposes to amend ISE 
Rule 705 to codify that the ISE may compensate Members, in both its 
stock and options markets, for losses resulting directly from the 
malfunction of the ISE's physical equipment, devices, and/or 
programming.\4\ Under the proposal, the ISE's payments for the 
aggregate of all claims related to the use of the ISE on a single 
trading day would not exceed $250,000, and this amount would be 
allocated proportionally among all claims if the claims arising on a 
single trading day exceeded $250,000.\5\ Claims for compensation under 
the rule must be submitted in writing no later than the opening of 
trading on the business day following the day on which the use of the 
Exchange gave rise to the claim.\6\ Once in receipt of a claim, the ISE 
will verify that: (i) A valid order was accepted into the Exchange's 
systems; and (ii) an Exchange system failure occurred during the 
execution or handling of that order.\7\ The ISE represents that the 
determination to compensate a Member will be made on an equitable and 
non-discriminatory basis without regard to the status of the Member, 
i.e., whether the Member is a Primary Market Maker, a Competitive 
Market Maker, or an Electronic Access Member of the Exchange.
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    \4\ See ISE Rule 705(d).
    \5\ See ISE Rule 705(d)(1) and (2).
    \6\ See ISE Rule 705(d)(3).
    \7\ See ISE Rule 705(d)(3).
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ In 
particular, the Commission finds that the proposal is consistent with 
section 6(b)(5) of the Act,\9\ which requires, in part, that the rules 
of a national securities exchange be 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. Specifically, 
the proposal will amend ISE Rule 705 to codify the ISE's policies with 
respect to compensating Members for losses resulting directly from the 
malfunction of the ISE's physical equipment, devices, and/or 
programming. The Commission believes that the codification of these 
policies should add greater transparency to the ISE's rules. In 
addition, the Commission notes that the ISE's rule is similar to rules 
adopted by other exchanges.\10\
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ See, e.g., Nasdaq Rule 4626(b) and NYSE Arca Rules 14.2(b) 
and (c).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-ISE-2008-15) is 
approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-8735 Filed 4-22-08; 8:45 am]

BILLING CODE 8010-01-P