Document ID: SEC-2008-0997-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-07-17T04:00Z

[Federal Register: July 17, 2008 (Volume 73, Number 138)]
[Notices]               
[Page 41145-41147]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jy08-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58137; File No. SR-NYSE-2008-55]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Amending Rule 17 To Address Issues Related to Vendor Liability

 July 10, 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 July 7, 2008, New York Stock Exchange LLC (``NYSE'' 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. The Exchange filed the proposal as 
a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) thereunder,\4\ which 
renders the proposal 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 proposes to amend NYSE 17 to address issues related to 
vendor liability. The text of the proposed rule change is available at 
the Exchange, the Commission's Public Reference Room, and http://
www.nyse.com.

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. NYSE 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 Exchange proposes to amend NYSE Rule 17 to address issues 
related to vendor liability.
Background
    Currently, NYSE Rule 17(a) provides:

    The Exchange shall not be liable for any damages sustained by a 
member, allied member or member organization growing out of the use 
or enjoyment by such member, allied member or member organization of 
the facilities afforded by the Exchange, except as provided in the 
rules.\5\
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    \5\ See NYSE Rule 18 (Compensation in Relation to Exchange 
System Failure), which provides for compensation by the Exchange to 
members and member organizations for a loss sustained as a result of 
an NYSE systems failure, as defined by the Rule.

    NYSE Rule 17 does not specifically address liability for any loss 
sustained by a member or member organization arising from use of any 
systems, services or facilities provided by a vendor to the Exchange.
    Due to the highly diversified nature of the Exchange business and 
trading operations, the Exchange retains the services of various 
vendors in its regular course of business. Through this amendment, the 
Exchange proposes to amend NYSE Rule 17 to permit the Exchange to 
expressly provide in the contract with any vendor that it and/or its 
subcontractors of electronic systems, services or facilities are not 
liable for any loss sustained by a member or member organization 
arising from use of the vendor and/or subcontractor systems, services 
or facilities. The proposed amendment to NYSE Rule 17 would further 
require members and member organizations to indemnify the Exchange and 
its vendors and/or subcontractors.

[[Page 41146]]

Proposed Amendment to NYSE Rule 17
    In recent years, especially since the adoption of Regulation 
National Market System (``Reg. NMS''),\6\ customers have demanded, and 
thus exchanges have prioritized, the delivery of faster and 
increasingly more innovative products for order entry and execution and 
the dissemination of market information. In order to provide this 
service, exchanges have made significant investments in technology, 
including an increase in the use of third-party facilities and 
services. Exchanges have increasingly come to rely on third-party 
vendors to provide additional facilities or services. Third-party 
vendors often provide similar facilities or services directly to 
broker-dealers and other customers under contracts that limit or 
indemnify the vendor's liability for use of its facilities or services. 
The use of vendors enables exchanges to increase their capacity to 
deliver faster and more efficient trading tools to market, with the 
ultimate beneficiaries being the investing public. In order for 
exchanges to remain competitive and provide a marketplace that removes 
impediments to, and perfects the mechanism of, a free and open market, 
it is imperative to have the ability to use third-party vendor 
services.
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    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 (June 29, 2005) (File No. S7-10-04).
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    The Exchange believes that, where vendors provide the facilities 
and services directly to an exchange and not directly to the actual 
users, i.e., the exchange members, vendors may find themselves exposed 
to a greater risk of liability from exchange members. The possibility 
of liability to end-users with whom they have no contractual 
relationship could result in vendors being unwilling to enter into 
agreements to provide their services to exchanges.
    The Exchange therefore proposes to amend NYSE Rule 17 to 
incorporate as paragraph (b) of the Rule the provisions of American 
Stock Exchange (``Amex'') Rule 60--AEMI \7\ (``Vendor Liability 
Disclaimer''), which provides as follows:
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    \7\ Amex Rule 60, Commentary.03 sets forth the original Vendor 
Liability Disclaimer language that has been incorporated into Amex 
Rule 60--AEMI. AEMI (``Auction & Electronic Market Integration'') is 
Amex's Hybrid Market Structure for equities and exchange-traded 
funds. The Exchange notes that on January 17, 2008, it announced 
that it had entered into a definitive agreement to acquire the Amex. 
On June 17, 2008, the Exchange and the Amex announced that members 
of the Amex Membership Corporation [bs] (``AMC'') 
approved the adoption of the merger agreement between AMC and NYSE 
Euronext and certain of their subsidiaries. See NYSE News Release, 
January 17, 2008; see also NYSE News Release, June 17, 2008.

    In connection with member or member organization use of any 
electronic system, service, or facility provided by the Exchange to 
members for the conduct of their business on the Exchange (i) the 
Exchange may expressly provide in the contract with any vendor 
providing all or part of such electronic system, service, or 
facility to the Exchange, that such vendor and its subcontractors 
shall not be liable to the member or member organization for any 
damages sustained by a member or member organization growing out of 
the use or enjoyment thereof by the member or member organization, 
and (ii) members and member organizations shall indemnify the 
Exchange and any vendor and subcontractor covered by subsection (i) 
above (and their directors, officers, employees and agents) with 
regard to any and all judgments, damages, costs, or losses of any 
kind (including reasonable attorneys' fees and expenses), as a 
result of any claim, action, or proceeding that arises out of or 
relates to the member or member organization's use of such 
electronic system, service, or facility.\8\
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    \8\ Amex Rule 60-AEMI.

    The Exchange believes that the proposed amendment to NYSE Rule 17 
will allow the Exchange to continue to improve its services to its 
investors by allowing the Exchange to contract the services of premiere 
third-party vendors.
    The Exchange also proposes to make a stylistic change to paragraph 
(a) of NYSE Rule 17 dealing with Exchange Liability. Specifically, the 
Exchange seeks to replace the reference to ``the rules'' with ``NYSE 
Rule 18,'' which directly addresses the issue of Exchange Liability.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ in particular, in that it 
is 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. The Exchange believes the proposed rule promotes just 
and equitable principles of trade and protects investors and the public 
interest. Furthermore, the proposed vendor liability rule removes 
impediments to and perfects the mechanism of a free and open market by 
providing disclaimer liability to vendors that assist the Exchange in 
providing faster delivery and increasingly more innovative facilities 
and services to Exchange customers. The Exchange believes that the 
provision of liability protection to third-party vendors and 
subcontractors of electronic systems, services, or facilities from 
liability for any damages sustained by a member or member organization 
arising from use of their systems will allow the Exchange to provide 
faster delivery and increasingly more innovative facilities and 
services to Exchange customers.
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    \9\ U.S.C. 78f(b).
    \10\ 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 would 
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 solicited or received with respect to the 
proposed rule change.

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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days after the date of filing (or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest), the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay and designate the proposed 
rule change operative upon filing. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest. Because this filing proposes vendor 
liability provisions substantively identical to an Amex rule that has 
previously been approved by

[[Page 41147]]

the Commission,\14\ the proposal does not appear to present any novel 
regulatory issues. Therefore, the Commission designates the proposal 
operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii). The Exchange has satisfied the 
five-day pre-filing requirement of Rule 19b-4(f)(6)(iii).
    \14\ See supra, note 8.
    \15\ For purposes only of waiving the operative delay of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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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 the 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-2008-55 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-NYSE-2008-55. 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 such 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-NYSE-2008-55 and should be 
submitted on or before August 7, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-16349 Filed 7-16-08; 8:45 am]

BILLING CODE 8010-01-P