[Federal Register Volume 73, Number 215 (Wednesday, November 5, 2008)]
[Notices]
[Pages 65901-65903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26278]
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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 [email protected]. 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