Document ID: SEC-2008-1509-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2008-11-05T05:00Z

[Federal Register: November 5, 2008 (Volume 73, Number 215)]
[Notices]               
[Page 65901-65903]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05no08-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58872; File No. SR-BATS-2008-008]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Limitation of Liability

October 28, 2008.
    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 20, 2008, BATS Exchange, Inc. (``BATS'' or ``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 prepared by the Exchange. BATS has designated the proposed 
rule change as constituting a non-controversial rule change under Rule 
19b-4(f)(6) under the Act,\3\ which renders the proposal effective upon 
filing with the Commission. BATS has requested that the Commission 
waive the 5-day notice requirement and the 30-day pre-operative waiting 
period contained in Rule 19b-4(f)(6)(iii) under the Act.\4\ If such 
waivers are granted by the Commission, the Exchange will implement this 
rule proposal immediately upon commencement of its operations as a 
national securities 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.
    \3\ 17 CFR 240.19b-4(f)(6).
    \4\ Id.
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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 BATS Rule 11.16, entitled 
``LIMITATION OF LIABILITY,'' to codify that it may provide a form of 
compensation for losses sustained in relation to an Exchange system 
failure or a negligent act or omission of an Exchange employee.
    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.com, at the principal office of the 
Exchange, 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 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 parts 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 Rule 11.16 to establish a procedure 
to compensate Members \5\ in relation to Exchange systems failures or a 
negligent act or omission of an Exchange employee. The Exchange 
recognizes that the current industry practice of exchanges that 
function as SROs is to provide a form of compensation for losses 
sustained in relation to the use of the exchanges' systems, and that 
some exchanges also provide a form of compensation for negligence by 
the exchanges' employees. As such, the Exchange seeks to amend BATS 
Rule 11.16 to conform to current industry practice.
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    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    Pursuant to the proposed amendment to Rule 11.16, the Exchange 
would compensate Members for losses resulting directly from: (i) The 
malfunction of the Exchange's physical equipment, devices, and/or 
programming, or (ii) the negligent acts or omissions of the Exchange's 
employees.\6\ Under this proposed rule change, for such malfunctions or 
negligence, the Exchange would cap its liability: (i) To a single 
Member at the greater of $100,000 or the amount recovered under any 
applicable insurance policy on a single trading day, (ii) to all 
Members at the greater of $250,000 or the amount recovered under any 
applicable insurance policy on a single trading day, and (iii) to all 
Members at the greater of $500,000 or the amount recovered under any

[[Page 65902]]

applicable insurance policy in a single calendar month.
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    \6\ The Exchange represents that the determination as to whether 
a Member is compensated or not will be made on an equitable and non-
discriminatory basis without regard to the status of that Member, 
e.g., regardless of whether that Member is registered as a Market 
Maker with the Exchange.
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    To the extent that all claims resulting from systems failures or 
negligence by Exchange employees cannot be fully satisfied because in 
the aggregate they exceed the applicable maximum amount of liability 
provided for, then the Exchange proposes to allocate the maximum amount 
among all such claims arising on a single trading day or during a 
single calendar month, as applicable, based on the proportion that each 
such claim bears to the sum of all such claims.
    In order for a Member to be eligible to receive payment, claims 
must be made in writing and must be submitted no later than the opening 
of trading on the next business day following the day on which the use 
of the Exchange gave rise to such claims. Once in receipt of a claim, 
the Exchange will verify that: (i) A valid order was accepted into the 
Exchange's systems; and (ii) an Exchange system failure or a negligent 
act or omission of an Exchange employee occurred during the execution 
or handling of that order. If all the criteria for submitting a claim 
have been met, the claim will be qualified for processing with all 
other claims at the end of the calendar month in which the incident 
occurred.
2. Statutory Basis
    The Exchange believes the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b).\7\ In particular, for the 
reasons described above, the proposed change is consistent with Section 
6(b)(5) of the Act,\8\ because it would promote just and equitable 
principles of trade, remove impediments to, and perfect the mechanism 
of, a free and open market and a national market system, and, in 
general, protect investors and the public interest, by providing more 
certainty as to the Exchange's potential liability resulting from 
systems problems and negligence by Exchange employees.
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    \7\ 15 U.S.C. 78(f)(b).
    \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 imposes 
any burden on competition.

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.

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

    Because the foregoing proposed 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 from the date on which it was filed, or 
such shorter time as the Commission may designate, the proposed rule 
change 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). Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to provide the Commission with written 
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 
Commission deems this requirement to have been satisfied.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. The Exchange 
requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay \11\ is 
consistent with the protection of investors and the public interest. 
Given that the Exchange's proposed rule change is substantially similar 
to the rules of other exchanges previously approved by the 
Commission,\12\ the proposal does not appear to present any novel 
regulatory issues. Moreover, the proposal would make more certain the 
Exchange's potential liability for such losses upon commencement of its 
operation as an exchange. Therefore, the Commission designates the 
proposal operative upon filing.
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    \11\ For 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).
    \12\ See NYSE Arca Equities Rule 13.2, NASDAQ Rule 4626, and ISE 
Rule 705.
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    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 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-BATS-2008-008 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2008-008. 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 the 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-BATS-2008-008 and should be 
submitted on or before November 26, 2008.

[[Page 65903]]

    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. E8-26278 Filed 11-4-08; 8:45 am]

BILLING CODE 8011-01-P