[Federal Register: July 17, 2008 (Volume 73, Number 138)]
[Notices]
[Page 41145-41147]
[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.

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

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<EMAIL_ADDRESS>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