80 FR 29121 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Limitation of Liability
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 97 (May 20, 2015)
Federal Register Volume 80, Issue 97 (May 20, 2015)
| Page Range | 29121-29127 | |
| FR Document | 2015-12148 |
[Federal Register Volume 80, Number 97 (Wednesday, May 20, 2015)] [Notices] [Pages 29121-29127] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-12148] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-74969; File No. SR-CBOE-2015-042] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Limitation of Liability May 14, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on May 5, 2015, Chicago Board Options Exchange, Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange Commission (the ``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)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 15 U.S.C. 78s(b)(3)(A)(iii). \4\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- [[Page 29122]] I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend its Rule 6.7 governing Exchange liability and payments to Trading Permit Holders in connection with certain types of losses that Trading Permit Holders may allege arose out of business conducted on or through the Exchange or in connection with the use of the Exchange's facilities. The Exchange also proposes conforming changes to Rules 2.24 and 6.7A, and the elimination of Rule 7.11. The text of the proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the Secretary, 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 these 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 aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose CBOE proposes to amend Rule 6.7 to eliminate any implication of liability with respect to the Exchange and its subsidiaries or affiliates, or any of their directors, officers, committee members, other officials, employees, contractors, or agents, (including the Exchange, collectively, ``Covered Persons'') for losses arising out of the use or enjoyment of Exchange facilities. The proposed rule change is consistent with and supplements existing law, and would ensure that self-regulatory organizations (``SROs'') can operate within the sphere of their regulatory duties without fear of endless, costly litigation and potential catastrophic loss.\5\ As discussed below, the proposed rule change is also consistent with the rules of other exchanges limiting exchange liability (see, e.g., EDGA Exchange, Inc. (``EDGA'') Rule 11.14, BOX Options Exchange, LLC (``BOX'') Rule 7230, International Securities Exchange, LLC (``ISE'') Rule 705, and New York Stock Exchange LLC (``NYSE'') Rule 18). --------------------------------------------------------------------------- \5\ Courts have recognized the importance of protecting exchanges from such loss in deciding that SROs must be absolutely immune from civil actions for losses arising out of the SRO function. See Dexter v. Depository Trust & Clearing Corp., 406 F. Supp. 2d 260, 263 (S.D.N.Y. 2005) (absolute immunity possessed by SROs ``is an integral part of the American system of self- regulation''), aff'd 219 F. App'x 91 (2d Cir. 2007). Without such protection, an SRO's ``exercise of its quasi-governmental functions would be unduly hampered by disruptive and recriminatory lawsuits.'' D'Alessio v. NYSE, 258 F.3d 93, 105 (2d Cir. 2001). It is critical that SROs, which stand in the shoes of the SEC in performing their quasi-governmental regulatory function, be free from ``the fear of burdensome damage suits that would inhibit the exercise of their independent judgment.'' Dexter, 406 F.Supp. 2d at 263. --------------------------------------------------------------------------- Under CBOE's proposal, although the Exchange would not be liable for losses, it would have the discretion to compensate Trading Permit Holders for losses alleged to have resulted from the Exchange's failure to correctly process an order or quote due to the acts or omissions of the Exchange or due to the failure of its systems or facilities (each, a ``Loss Event''), up to specified limits. The proposed rule change would also establish timeframes within which Trading Permit Holders would be required to bring requests for compensation (and provide supporting documentation), provide factors the Exchange may consider in determining whether to provide compensation in response to such requests, and establish that the Exchange's determinations on compensation are final and not appealable. The proposed rule change would also provide that claims arising under a previous version of Rule 6.7 for losses occurring more than one year prior July 1, 2015 (the ``Effective Date'') would not be considered valid, and that claims for any losses occurring prior to the Effective Date must be brought within one month of the Effective Date to be considered valid. Specific changes to Exchange Rules are discussed below.\6\ --------------------------------------------------------------------------- \6\ The Exchange notes that Rule 6.7 is cross-referenced in several places throughout the Exchange Rules including, for example, in Rules 20.5, Limitation of Liability of Exchange and of Reporting Authority, 22.5, Limitation of Liability of Exchange and of Reporting Authority, and 50.6, Liability and Legal Proceedings, as well as Appendix A of Chapters XLVII-XLIX and Appendix A of Chapters L-LIV, and generally as part of the Chapter VI cross-references contained in the Introductions to Chapters XX-XXIX. The Exchange also notes that, in accordance with Rule 50.6, the provisions of Rules 2.24, 6.7, and 6.7A apply to the CBOE Stock Exchange, LLC (``CBSX,'' CBOE's stock execution facility) to the same extent that they apply to CBOE and references in those rules to the Exchange are also deemed to be references to CBSX. --------------------------------------------------------------------------- Proposed Amendment to Rule Title The proposed rule change would change the title of Rule 6.7 from ``Exchange Liability'' to ``Exchange Liability Disclaimers and Limitations.'' The proposed amendment to the Rule title would clarify that the Rule does not impose liability on the Exchange, but rather disclaims Exchange liability for any losses that arise out of the use or enjoyment of the facilities afforded by the Exchange, any interruption in or failure or unavailability of any such facilities, or any action taken or omitted to be taken in respect to the business of the Exchange, the calculation or dissemination of specified values, or quotes or transaction reports for options or other securities (the ``General Disclaimer'').\7\ --------------------------------------------------------------------------- \7\ Cross-references to Rule 6.7 contained in Appendix A of Chapters XLVII-XLIX and Appendix A of Chapters L-LIV are also proposed to be updated to reflect the new title. In addition Appendix A of Chapters L-LIV is proposed to be updated to delete an unnecessary reference to Rule 24.4 and to include a cross-reference to Rule 50.6. --------------------------------------------------------------------------- Proposed Amendments to Scope of General Disclaimer Proposed amendments to Rule 6.7(a) would clarify that ``contractors'' are included within the term ``Covered Persons,'' and are therefore included within the General Disclaimer. This proposed change is needed because the Exchange at times contracts with outside firms to provide products and services to the Exchange for use by Trading Permit Holders in connection with regulated business conducted on or through the Exchange and that arise out of the use or enjoyment of the facilities afforded by the Exchange and/or the calculation or dissemination of specified values, or quotes or transaction reports for options or other securities. The Exchange notes that this proposed rule change is consistent with the exclusion from liability for contractors found in EDGA Rule 11.14, BOX Rule 7230 and ISE Rule 705. Proposed amendments to Rule 6.7(a) would also clarify that ``other officials'' of the Exchange or ``any subsidiaries or affiliates of the Exchange'' are included within the term ``Covered Persons,'' and are therefore included within the General Disclaimer. We note that this proposed rule change to include other officials and subsidiaries is consistent with the existing provisions of Rule 6.7A.\8\ The term ``Covered Persons'' [[Page 29123]] would also include such subsidiaries' and affiliates' directors, officers, committee members, other officials, employees, contractors, or agents. --------------------------------------------------------------------------- \8\ Exchange Rule 6.7A currently limits the rights of any Trading Permit Holder or any person associated with a Trading Permit Holder to institute a lawsuit or other legal proceeding against the Exchange or any director, officer, employee, agent or contractor, or other official of the Exchange, or any subsidiary of the Exchange, for any actions taken or omitted to be taken in connection with the official business of the Exchange or any subsidiary, except to the extent such actions or omissions constitute violations of the federal securities laws for which a private right of action exist. The rule also permits appeals of Exchange disciplinary actions as provided in Exchange Rule. Proposed amendments to Rule 6.7A (discussed below) would clarify that this limitation applies to committee members and affiliates of the Exchange. --------------------------------------------------------------------------- The proposed rule change would also clarify that implicit in the General Disclaimer is the Exchange's disclaimer of any warranties, express or implied, with respect to the use or enjoyment of facilities afforded by the Exchange, including without limitation, of any data provided by the Exchange. The current language of the rule states that the Exchange does not warrant ``the use of any data transmitted or disseminated by or on behalf of the Exchange or any reporting authority designated by the Exchange, including but not limited to reports of transactions in or quotations for securities traded on the Exchange or underlying securities, or reports of interest rate measures or index values or related data.'' Under the proposed rule change, the Exchange would make explicit that the General Disclaimer is intended to contain within it a disclaimer of any warranties as to the use or enjoyment of the facilities offered by the Exchange. The proposed rule change would thereby clarify that such use or enjoyment of Exchange facilities by Trading Permit Holders is provided ``as is,'' without specific warranties of merchantability or of fitness for a particular purpose. For the avoidance of doubt, the explicit list of the types of data for which the Exchange disclaims any warranties would also include, without limitation, ``any current or closing index value, any current or closing value of interest rate options, or any report of transactions in or quotations for options or other securities, including underlying securities.'' \9\ --------------------------------------------------------------------------- \9\ The Exchange also proposes to replace the phrase ``facilities or services'' with simply ``facilities'' in two locations within the existing text of Rule 6.7(a). The Exchange believes use of the term ``services'' is duplicative of the term ``facilities'' and is therefore unnecessary. --------------------------------------------------------------------------- The proposed rule change would also clarify that all limitations on liability and disclaimers within paragraph (a) of Rule 6.7 are in addition to, and not in limitation of, any limitations on liability otherwise existing under law. This proposed rule change is intended to ensure that the protection of Rule 6.7 does not circumscribe protections that otherwise would exist under the principles of law.\10\ This and other limitations on liability operate independently from, and in addition to, both the current and proposed amended versions of Rule 6.7 and CBOE's other rules. --------------------------------------------------------------------------- \10\ For example, as CBOE is organized under Delaware law, the principals of Delaware law also apply. --------------------------------------------------------------------------- Proposed Limits on Discretionary Payments for Alleged Losses Currently, Rule 6.7(b) provides that whenever custody of an unexecuted order is transmitted by a Trading Permit Holder to or through the Exchange's systems or to any other automated facility of the Exchange whereby the Exchange assumes responsibility for the transmission or execution of the order, and provided that the Exchange has acknowledged receipt of such order, the Exchange's liability for the negligent acts or omissions of its employees or for the failure of its systems or facilities shall not exceed certain limits set forth in Rule 6.7(b). The Exchange first proposes to provide that Rule 6.42(b) applies to quotes as well as unexecuted orders. Additionally, the Exchange proposes to eliminate the word ``automated'' from ``automated facility of the Exchange'', as not all facilities of the Exchange may be considered automated and the Exchange did not intend to restrict the scope of rule as such. The Exchange also seeks to amend Rule 6.7(b) to explicitly provide that, although the Exchange would not be liable with respect to regulated Exchange business for losses that arise out of the use or enjoyment of the facilities afforded by the Exchange and/or the calculation or dissemination of specified values, or quotes or transaction reports for options or other securities, as provided in Rule 6.7(a),\11\ the Exchange may make discretionary payments to Trading Permit Holders for certain losses alleged to have occurred due to Loss Events. Specifically, the proposed rule change would permit the Exchange to make discretionary payments to Trading Permit Holders for their losses alleged to have resulted from Loss Events up to the following limits. As to any one or more requests for compensation made by a single Trading Permit Holder that arose out of one or more Loss Events occurring on a single trading day, the Exchange could compensate the Trading Permit Holder up to but not exceeding the larger of $100,000 or the amount of any recovery obtained by the Exchange under applicable insurance maintained by the Exchange. As to the aggregate of all requests for compensation made by all Trading Permit Holders that arose out of one or more Loss Events occurring: (i) On a single trading day, the Exchange could compensate the Trading Permit Holders, in the aggregate, up to but not exceeding the larger of $250,000 or the amount of recovery obtained by the Exchange under any applicable insurance policy; and (ii) during a single calendar month, the Exchange could compensate the Trading Permit Holders, in the aggregate, up to but not exceeding the larger of $500,000 or the amount of the recovery obtained by the Exchange under any applicable insurance maintained by the Exchange. The proposed rule change would also state that no request for compensation by a Trading Permit Holder may be in an amount less than $100. Losses incurred on the same trading day and arising out of the same underlying act or omission of the Exchange or failure of the Exchange's systems or facilities may be aggregated to meet the $100 minimum.\12\ [[Page 29124]] This is intended as a de minimis threshold to avoid requiring the Exchange to devote the resources to considering relatively small requests for payment. The proposed rule change also would state that nothing in Rule 6.7 would obligate the Exchange to seek recovery under any applicable insurance policy. The proposed changes to Rule 6.7(b) would therefore, consistent with Rule 6.7(a), permit the Exchange to make discretionary payments to Trading Permit Holders to compensate them for such losses, up to specified limits, even though the Exchange would not be legally liable to pay for such losses. --------------------------------------------------------------------------- \11\ Specifically, Rule 6.7(a), as proposed to be amended, would provide as follows: Neither the Exchange nor any of its directors, officers, committee members, other officials, employees, contractors, or agents, nor any subsidiaries or affiliates of the Exchange or any of their directors, officers, committee members, other officials, employees, contractors, or agents (``Covered Persons'') shall be liable to the Trading Permit Holders or to persons associated therewith for any loss, expense, damages or claims that arise out of the use or enjoyment of the facilities afforded by the Exchange, any interruption in or failure or unavailability of any such facilities, or any action taken or omitted to be taken in respect to the business of the Exchange except to the extent such loss, expense, damages or claims are attributable to the willful misconduct, gross negligence, bad faith or fraudulent or criminal acts of the Exchange or its officers, employees or agents acting within the scope of their authority. Without limiting the generality of the foregoing, and subject to the same exception, no Covered Person shall have any liability to any person or entity for any loss, expense, damages or claims that result from any error, omission or delay in calculating or disseminating any current or closing index value, any current or closing value of interest rate options, or any reports of transactions in or quotations for options or other securities, including underlying securities. The Exchange makes no warranty, express or implied, as to results to be obtained by any person or entity from the use or enjoyment of the facilities afforded by the Exchange, including without limitation, of any data transmitted or disseminated by or on behalf of the Exchange or any reporting authority designated by the Exchange, including but not limited to any data described in the preceding sentence, and the Exchange makes no express or implied warranties of merchantability or fitness for a particular purpose or use with respect to any such data. The foregoing limitations of liability and disclaimers shall be in addition to, and not in limitation of, the provisions of Article Eighth of the Exchange's Certificate of Incorporation or any limitations otherwise available under law. \12\ For example, if a TPH incurs a loss of $30 on one day due to a certain glitch in the Exchange's systems and a loss of $75 on the same day due to a separate unrelated glitch in the Exchange's systems, the TPH could not request compensation for either loss. However, if for example, the TPH incurs a loss of $105 on one day due to a certain glitch in the Exchange's system, the TPH may request compensation. In this second example, the TPH may request compensation even if such losses were incurred over a number of different transactions so long as it was the result of the same systems issue. --------------------------------------------------------------------------- Timeframes Within Which To Notify Exchange and Submit Requests Proposed new Rule 6.7(c) would establish timeframes within which a valid request for compensation must be brought under the Rule. Under the proposed rule change, notice of all requests would be required to be in writing and to be submitted to the Exchange no later than 12:00 p.m. Central Time on the next business day following the Loss Event giving rise to such request. All requests would be required to be in writing and to be submitted, along with supporting documentation, by 5:00 p.m. Central Time on the third business day following the Loss Event giving rise to each such request.\13\ Additional information related to the request as demanded by the Exchange is also required to be provided. The proposed rule change would also specify that the Exchange would not consider requests for which timely notice and submission had not been provided as required under amended Rule 6.7(c). --------------------------------------------------------------------------- \13\ Other exchanges have similar submission requirements. See, e.g., NYSE Rule 18--Compensation in Relation to Exchange System Failure, which provides in relevant part that NYSE members provide oral notice to NYSE's Division of Floor Operations by the market opening on the next business day following the system failure and written notice by the end of the third business day following the system failure (T+3). See also, ISE Rule 705(d)(3)--Limitation of Liability, which provides that all claims for compensation must be made in writing and submitted no later than the opening of trading on the next business day following the event that gave rise to such claim. --------------------------------------------------------------------------- The proposed provisions of new Rule 6.7(c) would benefit Trading Permit Holders by providing them with clear timeframes within which to submit notices of requests, requests for compensation, and supporting documentation. The proposed changes would also provide the Exchange with certainty as to the deadlines by which notices of requests and completed requests would be required to be submitted in order for the Exchange to consider them for compensation under Rule 6.7. Exchange Treatment of Aggregate Requests Exceeding Maximum Amount Permitted To Be Paid Currently, Rule 6.7(c) provides that if all of the claims cannot be fully satisfied because in the aggregate they exceed the applicable maximum amount of liability provided for in paragraph (b) [of Rule 6.7] [sic], then such maximum amount would be allocated among all such claims arising on a single trading day or during a single calendar month, as applicable, written notice of which has been given to the Exchange no later than the opening of trading on the next business day following the day on which the use or enjoyment of Exchange facilities giving rise to the claim occurred, based upon the proportion that each claim bears to the sum of all such claims. The Exchange proposes to amend existing Rule 6.7(c), which would be renumbered to Rule 6.7(d), to state that, ``if all of the timely requests submitted pursuant to paragraph (c) [of Rule 6.7] that are granted cannot be fully satisfied because in the aggregate they exceed the applicable maximum amount of payments authorized in paragraph (b) [of Rule 6.7], then such maximum amount shall be allocated among all such requests arising on a single trading day or during a single calendar month, as applicable, based upon the proportion that each such request bears to the sum of all such requests.'' The Exchange notes that it is proposing to replace the term ``claim'' with the term ``request'', as well as replace the reference to ``liability'' with ``payments authorized'' to eliminate any implication of liability with respect to the Exchange and other Covered Person resulting from the use or enjoyment of the facilities offered by the Exchange, any interruption in or failure or unavailability or any such facilities, or any action taken or omitted to be taken in respect of the business of the Exchange. Additionally, the Exchange notes that proposed Rule 6.7(d) would continue to provide a fair way of allocating the limited payment that the rule would permit the Exchange to make when the total amount of eligible requests exceed that maximum amount. The proposal would also revise the timeframe in which requests for payment must be made by a Trading Permit Holder. Exchange Review of Timely Requests Proposed new Rule 6.7(e) would provide that the Exchange, in determining whether to make payment in response to a request for compensation, may determine whether the amount requested should be reduced based on the actions or inactions of the requesting Trading Permit Holder. The proposed rule change would permit the Exchange to consider, without limitation, whether the actions or inactions of the Trading Permit Holder contributed to the Loss Event; whether the Trading Permit Holder made appropriate efforts to mitigate its loss; whether the Trading Permit Holder realized any gains as a result of a Loss Event; whether the losses of the Trading Permit Holder, if any, were offset by hedges of positions either on the Exchange or on another affiliated or unaffiliated market; and whether the Trading Permit Holder provided sufficient information to document the request and as demanded by the Exchange. Proposed Rule 6.7(e) would therefore provide reasonable factors that the Exchange may consider in determining whether to pay compensation in response to a request and in determining the amount of any such compensation.\14\ --------------------------------------------------------------------------- \14\ Another exchange considered similar factors in determining whether to pay compensation and in determining the amount of any such compensation. See NYSE Rule 18, which provides in relevant part that the NYSE Compensation Review Panel in its review will determine whether the amount should be reduced based on the actions or inactions of the member organization, including whether the member organization made appropriate efforts to mitigate its loss. --------------------------------------------------------------------------- The Exchange represents that the determination to compensate a Trading Permit Holder will be made on an equitable and non- discriminatory basis and without regard to the Exchange capacity of the Trading Permit Holder (including whether the Trading Permit Holder is a Designated Primary Market-Maker). Additionally, the Exchange represents that the Exchange will maintain a record of Trading Permit Holder requests including documentation detailing the Exchange's findings and details for approving or denying requests in accordance with its obligations under Section 17 of the Act. Finality of Exchange Determinations Under Rule Proposed new Rule 6.7(f) would provide that all determinations by the Exchange pursuant to Rule 6.7 shall be final and not subject to appeal under [[Page 29125]] Chapter XIX of the Exchange Rules.\15\ The proposed rule would also provide that nothing in Rule 6.7, nor any payment made pursuant to Rule 6.7, shall in any way limit, waive or proscribe any defenses a Covered Person may have to any claim, demand, liability, action or cause of action, whether such defense arises in law or equity, or whether such defense is asserted in a judicial, administrative, or other proceeding.\16\ These proposed changes are consistent with the discretionary nature of any payments that would be made under proposed Rule 6.7(b). --------------------------------------------------------------------------- \15\ The Exchange notes that another exchange has a similar provision indicating that all determinations are final. See, NYSE Rule 18, which provides in relevant part that all determinations made pursuant to NYSE Rule 18 by NYSE's Compensation Review Panel, CEO or his or her designee are final. \16\ Another exchange has a similar provision. See e.g., Nasdaq Rule 4626(b)(6), which provides that nothing in its Limitation of Liability rule shall waive Nasdaq's limitations on, or immunities from, liability as set forth in its Rules or agreements, or that otherwise apply as a matter of law. --------------------------------------------------------------------------- Treatment of Losses Occurring Prior to Effective Date of Rule Proposed new paragraph 6.7(g) would establish July 1, 2015 as the Effective Date of revised Rule 6.7. Under proposed paragraph 6.7(g), claims for liability under prior versions of Rule 6.7 would not be considered valid if brought with respect to any acts, omissions or transactions occurring more than one year prior to the Effective Date, or if brought more than one month after the Effective Date. Proposed Rule 6.7(g) would thereby provide certainty to the Exchange as to any expense it might incur due to Loss Events that occurred prior to the Effective Date of the proposed rule change, while also putting Trading Permit Holders on notice that they must file any claims for such losses by a date certain. Deletion of Existing Interpretations Under Rule 6.7 The proposed rule change would delete existing Interpretations .01-.04 under Rule 6.7. Interpretation .01 states that Rule 7.11 governs the liability of the Exchange for claims arising out of the errors or omissions of an Order Book Official or his or her assistants or clerks or a PAR Official or his or her assistants or clerks. Under the proposed rule change, Rule 7.11 (as well as cross-references to Rule 7.11) \17\ would be eliminated, making the interpretation unnecessary. --------------------------------------------------------------------------- \17\ Specifically, Rules 6.7, 7.12 and 21.18 are proposed to be amended to delete cross-references to Rule 7.11. In addition, the Exchange is proposing to amend Rule 21.18 to delete an outdated reference to Board Brokers, a floor function that no longer exists on the Exchange. --------------------------------------------------------------------------- Interpretation .02 is reserved and would therefore be deleted. Interpretation .03 states that the provision of Exchange liability in paragraph (b) of current Rule 6.7 for certain orders routed through the Exchange's Order Routing System or E-Book shall not apply. Because the proposed rule change would eliminate Exchange liability under paragraph (b), the interpretation would no longer be necessary. Interpretation .04 disclaims The Options Clearing Corporation liability to Trading Permit Holders and their associated persons with respect to their use, non-use or inability to use the linkage that was part of the old Options Intermarket Linkage Plan (the ``Old Linkage''). Because the Old Linkage is no longer operable, interpretation .04 is no longer necessary.\18\ --------------------------------------------------------------------------- \18\ The old Options Intermarket Linkage Plan was replaced by the Options Order Protection and Locked/Crossed Markets Plan in 2009. See Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009). --------------------------------------------------------------------------- Conforming Changes to Other Rules The proposed rule change would make conforming changes to Exchange Rules 2.24 and 6.7A. Rule 2.24 requires a Trading Permit Holder who fails to prevail in a lawsuit or other legal proceeding instituted against the Exchange or certain related parties to pay for the Exchange's reasonable costs of defending such lawsuit or proceeding if those costs exceed $50,000. Rule 6.7A limits the legal proceedings a Trading Permit Holder may bring against the Exchange and certain related persons for actions or omissions. Under the proposed amendments to Rules 2.24, contractors would be included within the list of related parties protected by that rule, just as they would be included as Covered Persons under proposed Rule 6.7. As stated above, this proposed change is necessary because the Exchange at times contracts with outside firms to provide products or services to Trading Permit Holders in connection with regulated business conducted on or through the Exchange and that arise out of the use or enjoyment of the facilities afforded by the Exchange and/or the calculation or dissemination of specified values, or quotes or transaction reports for options or other securities. In addition, under the proposed amendments to Rule 2.24, other officials and contractors of the Exchange and any subsidiaries and affiliates of the Exchange and any such subsidiaries' and affiliates' directors, officers, committee members, other officials, employees, contractors, or agents would be explicitly identified/included within the list of related parties protected by the rule,\19\ just as they are proposed to be specifically identified/included within the list of Covered Persons under Rule 6.7. Committee members and affiliates of the Exchange and any subsidiaries' and affiliates' directors, officers, committee members, other officials, employees, contractors and agents would also be explicitly identified/included within the list of related parties under Rule 6.7A.\20\ These changes are intended to conform the text of the three rules and to include affiliates within all three rules.\21\ Moreover, under the proposed amendments to Rule 6.7A, committee members would be explicitly identified/included within the list of related parties protected by the rule, just as they are already specifically identified/included within the list of Covered Persons under existing Rule 6.7 and the similar provision in Rule 2.24. This is also intended to conform the text of the three rules. Finally, under the proposed amendments to Rule 6.7A, the title to the rule will be revised.\22\ --------------------------------------------------------------------------- \19\ Specifically, the phrase ``the Exchange or any of its directors, officers, committee members, employees or agents'' is proposed to be replaced with the phrase ``the Exchange or any of its directors, officers, committee members, other officials, employees, contractors, or agents, or any subsidiaries or affiliates of the Exchange or any of their directors, officers, committee members, other officials, employees, contractors, or agents'' in Rule 2.24. \20\ Specifically, the phrase ``the Exchange or any director, officer, employee, contractor, agent or other official of the Exchange or any subsidiary of the Exchange'' is proposed to be replaced with the phrase ``the Exchange or any of its directors, officers, committee members, other officials, employees, contractors, or agents, or any subsidiaries or affiliates of the Exchange or any of their directors, officers, committee members, other officials, employees, contractors, or agents'' in Rule 6.7A. \21\ The Commission notes CBOE's statement of the purpose of its proposed rule change is to eliminate any implication of liability for losses arising out of the use or enjoyment of Exchange facilities consistent with existing law where courts have recognized the importance of protecting exchanges from liability in the context of matters arising out of the SRO function. See supra note 5 and accompanying text. \22\ Specifically, the title ``Legal Proceedings Against the Exchange and its Directors, Officers, Employees, Contractors or Agents'' is proposed to be changed to simply ``Legal Proceedings Against the Exchange.'' Cross-references to Rule 6.7A contained in Appendix A of Chapters XLVII-XLIX and Appendix A of Chapters L-LIV Appendix A are also proposed to be updated to reflect the new title. Additionally, cross-references to Rule 2.24 contained in Appendix A of Chapters XLVII-XLIX and Appendix A of Chapters L-LIV Appendix A are proposed to be updated to include consistent capitalization of words in the Rule's title. --------------------------------------------------------------------------- The proposed rule change would also delete Rule 7.11 in its entirety. Rule [[Page 29126]] 7.11 currently governs the liability of the Exchange relating to losses resulting from the errors or omissions of Exchange Order Book Officials and PAR Officials. Rule 7.11 provides that the Exchange's liability arising out of any errors or omissions of an Order Book Official or PAR Official (or their assistants or clerks) shall be subject to the limitations set forth in paragraph (a) of existing Rule 6.7, and to further limitations set forth in paragraph (b) and (c) of Rule 7.11. Under paragraph (b) of Rule 7.11, absent reasonable justification or excuse, any single claim \23\ by a Trading Permit Holder or person associated with a Trading Permit Holder for losses arising from errors or omissions of an Order Book Official or PAR Official, and any claim by the Exchange made pursuant to paragraph (d) of the Rule,\24\ must be presented in writing to the opposing party within ten business days following the transaction giving rise to the claim.\25\ All disputed claims shall be referred to binding arbitration before an arbitration panel whose resolution of the dispute shall be final, and there shall be no appeal to the Board of Directors from a decision of such panel. Under paragraph (c), liability under Rule 7.11 is limited as follows: Should a Trading Permit Holder, TPH organization or the Exchange fail to close out an uncompared trade in the period of time provided by Rule 10.1, then the opposing party's liability with respect to any claims arising from such trade shall be limited to the lesser of (i) the loss which would have been experienced by the claimant if the uncompared trade had been closed out at the opening of trading on the day provided in Rule 10.1 for the closing out of such uncompared trade; or (ii) the actual loss realized by the claimant. --------------------------------------------------------------------------- \23\ Under paragraph (b), the term ``transaction'' means any single order or instruction which is placed with an Order Book Official or PAR Official, or any series of orders or instructions which is placed with an Order Book Official or a PAR Official at substantially the same time by the same Trading Permit Holder and which relates to any one or more series of options of the same class. All errors and omissions made by an Order Book Official or PAR Official with respect to or arising out of any transaction shall give rise to a ``single claim'' against the Exchange for losses resulting therefrom as provided in paragraph (b) and in paragraph (c), and the Exchange is free to assert any defense to such claim it may have. No claim shall arise as to errors or omissions which are found to have resulted from any failure by a Trading Permit Holder (whether or not the Trading Permit Holder is claiming against the Exchange pursuant to paragraph (b)), or by any person acting on behalf of a Trading Permit Holder, to enter or cancel an order with such Order Book Official or PAR Official on a timely basis or clearly and accurately to communicate to such Order Book Official or PAR Official: (i) The description or symbol of the security involved; (ii) the exercise price or option contract price; (iii) the type of option; (iv) the number of trading units; (v) the expiration month; or (vi) any other information or data which is material to the transaction. In addition, no claim shall be allowed if, in the opinion of the arbitration panel, the Trading Permit Holder or other person making such claim did not take promptly, upon discovery of the errors or omissions, all proper steps to correct such errors or omissions and to establish the loss resulting therefrom. See Rule 7.11(b)(1). \24\ Under paragraph (d), if any damage is caused by an error or omission of an Order Book Official or PAR Official which is the result of any error or omission of a TPH organization, then such TPH organization shall indemnify the Exchange and hold it harmless from any claim of liability resulting from or relating to such damage. See Rule 7.11(d). \25\ Provided, that if an error or omission has resulted in an unmatched trade, then any claim based thereon shall be presented after the unmatched trade has been closed out in accordance with Rule 10.1, Disagreement on Unmatched Trades, but within ten business days following such resolution of the unmatched trade. See Rule 7.11(b)(2). --------------------------------------------------------------------------- Under the proposed rule change, Rule 6.7 would govern the liability of the Exchange for claims arising out of any errors or omissions by agents of the Exchange, which would include Order Book Officials, PAR Officials and their respective assistants or clerks. Rule 7.11 therefore would be rendered superfluous. The Exchange does note that, with the elimination of Rule 7.11, both the Exchange's reciprocal right to bring a claim against Trading Permit Holders and the arbitration process for disputed claims will be eliminated. The Exchange no longer believes it is necessary to single out the errors or omissions of Order Book Officials and PAR Officials in the manner described under Rule 7.11 as compared to other errors and omissions that are subject to Rule 6.7.\26\ As simplified and revised, Rule 6.7 would apply equally to all types of claims by Trading Permit Holders against Covered Persons, including Order Book Officials and PAR Officials. --------------------------------------------------------------------------- \26\ The Exchange also notes that, in practice, there have not been any disputed claims submitted to the arbitration process under Rule 7.11 for several years. --------------------------------------------------------------------------- 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') \27\ in general and furthers the objectives of Section 6(b)(5) of the Act \28\ in particular, which requires that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and to perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. In particular, the proposal would amend Exchange Rule 6.7 to eliminate any implication of liability with respect to the Exchange and other Covered Person resulting from the use or enjoyment of the facilities offered by the Exchange, any interruption in or failure or unavailability or any such facilities, or any action taken or omitted to be taken in respect of the business of the Exchange. The proposed rule change is consistent with and supplements existing law, and would assist the Exchange in fulfilling its role as a national securities exchange by avoiding the risk of tempering this critical regulatory function to avoid the disruption and expense of unnecessary litigation or potential catastrophic loss. --------------------------------------------------------------------------- \27\ 15 U.S.C. 78f(b). \28\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The proposal would also permit the Exchange to compensate Trading Permit Holders for their losses incurred due to a Loss Event, even though the Exchange would not have legal liability for those losses. The proposed rule change would therefore facilitate the Exchange's ability to make discretionary payments to redress a situation in which Trading Permit Holders suffer losses due to a Loss Event. As stated above, the Exchange represents that the determination to compensate a Trading Permit Holder will be made on an equitable and non- discriminatory basis without regard to the Exchange capacity of the Trading Permit Holder, including whether the Trading Permit Holder is a Designated Primary Market-Maker. The Exchange therefore believes the proposed rule change is consistent with the Act, and Section 6(b)(5) of the Act in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and to 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 also believes that these policies would promote fairness in the national market system. The proposed rule change would allow CBOE to address Trading Permit Holder requests for compensation under various circumstances and would allow CBOE to act in a fashion similar to many of its competitors. As stated above, several exchanges have substantially similar rules to those proposed here, and the Exchange believes that the proposed rule change would place CBOE in a similar position to address Trading Permit Holder requests.\29\ The Exchange believes that to the extent there are any [[Page 29127]] differences, such differences are not substantive and are still consistent with the scope of prior self-regulatory organization rulemaking. --------------------------------------------------------------------------- \29\ See BOX Rule 7230 and EDGA Rule 11.14; see also NASDAQ Stock Market LLC (``Nasdaq'') Rule 4626, ISE Rule 705, BATS Exchange, Inc. Rule 11.16, and NYSE Rule 18. --------------------------------------------------------------------------- Finally, the Exchange believes that as Rule 6.7 will now govern the liability of the Exchange for claims arising out of any errors or omissions by agents of the Exchange (which would include Order Book Officials, PAR Officials and their respective assistants or clerks), Rule 7.11 is superfluous and unnecessary to maintain in the rules. Additionally, the Exchange no longer believes it is necessary to single out the errors or omissions of Order Book Officials and PAR Officials in the manner described under Rule 7.11 as compared to other errors and omissions that are subject to Rule 6.7. The Exchange notes that although the Exchange's reciprocal right to bring a claim against Trading Permit Holders and the arbitration process for disputed claims will be eliminated, such language is no longer necessary.\30\ As such, the Exchange believes that eliminating Rule 7.11 maintains clarity in the rules and avoids potential confusion, which removes impediments and perfects the mechanism of a free and open market and a national market system, and, in general, protects investors and the public interest. --------------------------------------------------------------------------- \30\ In practice, there have not been any disputed claims submitted to the arbitration process under Rule 7.11 for several years. --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that this proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. As stated above, the Exchange believes that these policies would promote fairness in the national market system. The proposed rule change would allow CBOE to address Trading Permit Holder requests for compensation under various circumstances and would allow CBOE to act in a fashion similar to many of its competitors. In addition, as stated above, several exchanges have substantially similar rules to those proposed here, except as otherwise noted, and the Exchange believes that the proposed rule change would place CBOE in a similar position to address Trading Permit Holder requests.\31\ --------------------------------------------------------------------------- \31\ Id. --------------------------------------------------------------------------- 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 foregoing 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 from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b- 4(f)(6) \33\ thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \32\ 15 U.S.C. 78s(b)(3)(A). \33\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b- 4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the 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. --------------------------------------------------------------------------- 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 CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-CBOE-2015-042 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2015-042. This file number should be included on the subject line if email 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 Web site viewing and printing in the Commission's Public Reference Room, 100 F St. NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 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- CBOE-2015-042, and should be submitted on or before June 10, 2015. --------------------------------------------------------------------------- \34\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\34\ Robert W. Errett, Deputy Secretary. [FR Doc. 2015-12148 Filed 5-19-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 97 / Wednesday, May 20, 2015 / Notices 29121
impediments to and perfect the transparency. The Commission believes provisions of 5 U.S.C. 552, will be
mechanism of a free and open market the waiver of the operative delay is available for Web site viewing and
and a national market system, and, in consistent with the protection of printing in the Commission’s Public
general, protect investors and the public investors and the public interest. Reference Room, 100 F Street NE.,
interest. Therefore, the Commission hereby Washington, DC 20549, on official
waives the operative delay and business days between the hours of
B. Self-Regulatory Organization’s
designates the proposal operative upon 10:00 a.m. and 3:00 p.m. Copies of the
Statement on Burden on Competition
filing.14 filing will also be available for
The Exchange does not believe that At any time within 60 days of the inspection and copying at the principal
the proposed rule change will result in filing of the proposed rule change, the office of the Exchange. All comments
any burden on competition that is not Commission summarily may received will be posted without change;
necessary or appropriate in furtherance temporarily suspend such rule change if the Commission does not edit personal
of the purposes of the Act, as amended. it appears to the Commission that such identifying information from
To the contrary, the Exchange believes action is necessary or appropriate in the submissions. You should submit only
the proposal would enhance public interest, for the protection of information that you wish to make
competition because describing the investors, or otherwise in furtherance of available publicly. All submissions
Exchange’s use of data feeds enhances the purposes of the Act. If the should refer to File Number SR–BX–
transparency and enables investors to Commission takes such action, the 2015–026 and should be submitted on
better assess the quality of the Commission shall institute proceedings or before June 10, 2015.
Exchange’s execution and routing to determine whether the proposed rule
services. should be approved or disapproved. For the Commission, by the Division of
Trading and Markets, pursuant to delegated
C. Self-Regulatory Organization’s IV. Solicitation of Comments authority.15
Statement on Comments on the Interested persons are invited to
Proposed Rule Change Received From Robert W. Errett,
submit written data, views, and Deputy Secretary.
Members, Participants, or Others arguments concerning the foregoing,
[FR Doc. 2015–12142 Filed 5–19–15; 8:45 am]
No written comments were either including whether the proposed rule
solicited or received. change is consistent with the Act. BILLING CODE 8011–01–P
III. Date of Effectiveness of the Comments may be submitted by any of
Proposed Rule Change and Timing for the following methods:
SECURITIES AND EXCHANGE
Commission Action Electronic Comments COMMISSION
Because the proposed rule change • Use the Commission’s Internet
does not (i) significantly affect the comment form (http://www.sec.gov/ [Release No. 34–74969; File No. SR–CBOE–
protection of investors or the public rules/sro.shtml); or 2015–042]
interest; (ii) impose any significant • Send an email to rule-comments@
burden on competition; and (iii) become sec.gov. Please include File Number SR– Self-Regulatory Organizations;
operative for 30 days from the date on BX–2015–026 on the subject line. Chicago Board Options Exchange,
which it was filed, or such shorter time Incorporated; Notice of Filing and
Paper Comments
as the Commission may designate, the Immediate Effectiveness of a Proposed
proposed rule change has become • Send paper comments in triplicate Rule Change Regarding Limitation of
effective pursuant to Section 19(b)(3)(A) to Secretary, Securities and Exchange Liability
of the Act 10 and Rule 19b–4(f)(6) Commission, 100 F Street NE.,
thereunder.11 Washington, DC 20549–1090. May 14, 2015.
A proposed rule change filed All submissions should refer to File Pursuant to Section 19(b)(1) of the
pursuant to Rule 19b–4(f)(6) under the Number SR–BX–2015–026. This file Securities Exchange Act of 1934 (the
Act 12 normally does not become number should be included on the ‘‘Act’’),1 and Rule 19b–4 thereunder,2
operative for 30 days after the date of its subject line if email is used. To help the notice is hereby given that on May 5,
filing. However, Rule 19b–4(f)(6)(iii) 13 Commission process and review your 2015, Chicago Board Options Exchange,
permits the Commission to designate a comments more efficiently, please use Incorporated (the ‘‘Exchange’’ or
shorter time if such action is consistent only one method. The Commission will ‘‘CBOE’’) filed with the Securities and
with the protection of investors and the post all comments on the Commission’s Exchange Commission (the
public interest. The Exchange has asked Internet Web site (http://www.sec.gov/ ‘‘Commission’’) the proposed rule
the Commission to waive the 30-day rules/sro.shtml). Copies of the change as described in Items I and II
operative delay so that the proposal may submission, all subsequent below, which Items have been prepared
become operative immediately upon amendments, all written statements by the Exchange. The Exchange filed the
filing, noting that waiver of the with respect to the proposed rule proposal as a ‘‘non-controversial’’
operative delay would permit the change that are filed with the proposed rule change pursuant to
Exchange to immediately enhance Commission, and all written Section 19(b)(3)(A)(iii) of the Act 3 and
communications relating to the Rule 19b–4(f)(6) thereunder.4 The
10 15 U.S.C. 78s(b)(3)(A). proposed rule change between the Commission is publishing this notice to
11 17 CFR 240.19b–4(f)(6). As required under Rule Commission and any person, other than
mstockstill on DSK4VPTVN1PROD with NOTICES
19b–4(f)(6)(iii), the Exchange provided the solicit comments on the proposed rule
those that may be withheld from the
Commission with written notice of its intent to file change from interested persons.
the proposed rule change, along with a brief public in accordance with the
description and the text of the proposed rule
15 17 CFR 200.30–3(a)(12).
change, at least five business days prior to the date 14 For purposes only of waiving the 30-day
1 15 U.S.C. 78s(b)(1).
of filing of the proposed rule change, or such operative delay, the Commission has also
shorter time as designated by the Commission. considered the proposed rule’s impact on
2 17 CFR 240.19b–4.
12 17 CFR 240.19b–4(f)(6). 3 15 U.S.C. 78s(b)(3)(A)(iii).
efficiency, competition, and capital formation. See
13 17 CFR 240.19b–4(f)(6)(iii). 15 U.S.C. 78c(f). 4 17 CFR 240.19b–4(f)(6).
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![29124 Federal Register / Vol. 80, No. 97 / Wednesday, May 20, 2015 / Notices
This is intended as a de minimis documentation. The proposed changes which requests for payment must be
threshold to avoid requiring the would also provide the Exchange with made by a Trading Permit Holder.
Exchange to devote the resources to certainty as to the deadlines by which
Exchange Review of Timely Requests
considering relatively small requests for notices of requests and completed
payment. The proposed rule change also requests would be required to be Proposed new Rule 6.7(e) would
would state that nothing in Rule 6.7 submitted in order for the Exchange to provide that the Exchange, in
would obligate the Exchange to seek consider them for compensation under determining whether to make payment
recovery under any applicable Rule 6.7. in response to a request for
insurance policy. The proposed changes compensation, may determine whether
to Rule 6.7(b) would therefore, Exchange Treatment of Aggregate the amount requested should be
consistent with Rule 6.7(a), permit the Requests Exceeding Maximum Amount reduced based on the actions or
Exchange to make discretionary Permitted To Be Paid inactions of the requesting Trading
payments to Trading Permit Holders to Currently, Rule 6.7(c) provides that if Permit Holder. The proposed rule
compensate them for such losses, up to all of the claims cannot be fully satisfied change would permit the Exchange to
specified limits, even though the because in the aggregate they exceed the consider, without limitation, whether
Exchange would not be legally liable to applicable maximum amount of liability the actions or inactions of the Trading
pay for such losses. provided for in paragraph (b) [of Rule Permit Holder contributed to the Loss
Timeframes Within Which To Notify 6.7] [sic], then such maximum amount Event; whether the Trading Permit
Exchange and Submit Requests would be allocated among all such Holder made appropriate efforts to
claims arising on a single trading day or mitigate its loss; whether the Trading
Proposed new Rule 6.7(c) would during a single calendar month, as Permit Holder realized any gains as a
establish timeframes within which a applicable, written notice of which has result of a Loss Event; whether the
valid request for compensation must be been given to the Exchange no later than losses of the Trading Permit Holder, if
brought under the Rule. Under the the opening of trading on the next any, were offset by hedges of positions
proposed rule change, notice of all business day following the day on either on the Exchange or on another
requests would be required to be in which the use or enjoyment of Exchange affiliated or unaffiliated market; and
writing and to be submitted to the facilities giving rise to the claim whether the Trading Permit Holder
Exchange no later than 12:00 p.m. occurred, based upon the proportion provided sufficient information to
Central Time on the next business day that each claim bears to the sum of all document the request and as demanded
following the Loss Event giving rise to by the Exchange. Proposed Rule 6.7(e)
such claims. The Exchange proposes to
such request. All requests would be would therefore provide reasonable
amend existing Rule 6.7(c), which
required to be in writing and to be factors that the Exchange may consider
would be renumbered to Rule 6.7(d), to
submitted, along with supporting in determining whether to pay
state that, ‘‘if all of the timely requests
documentation, by 5:00 p.m. Central compensation in response to a request
submitted pursuant to paragraph (c) [of
Time on the third business day and in determining the amount of any
Rule 6.7] that are granted cannot be
following the Loss Event giving rise to
fully satisfied because in the aggregate such compensation.14
each such request.13 Additional
they exceed the applicable maximum The Exchange represents that the
information related to the request as
amount of payments authorized in determination to compensate a Trading
demanded by the Exchange is also
paragraph (b) [of Rule 6.7], then such Permit Holder will be made on an
required to be provided. The proposed
maximum amount shall be allocated equitable and non-discriminatory basis
rule change would also specify that the
among all such requests arising on a and without regard to the Exchange
Exchange would not consider requests
for which timely notice and submission single trading day or during a single capacity of the Trading Permit Holder
had not been provided as required calendar month, as applicable, based (including whether the Trading Permit
under amended Rule 6.7(c). upon the proportion that each such Holder is a Designated Primary Market-
The proposed provisions of new Rule request bears to the sum of all such Maker). Additionally, the Exchange
6.7(c) would benefit Trading Permit requests.’’ represents that the Exchange will
Holders by providing them with clear The Exchange notes that it is maintain a record of Trading Permit
timeframes within which to submit proposing to replace the term ‘‘claim’’ Holder requests including
notices of requests, requests for with the term ‘‘request’’, as well as documentation detailing the Exchange’s
compensation, and supporting replace the reference to ‘‘liability’’ with findings and details for approving or
‘‘payments authorized’’ to eliminate any denying requests in accordance with its
incurs a loss of $105 on one day due to a certain implication of liability with respect to obligations under Section 17 of the Act.
glitch in the Exchange’s system, the TPH may the Exchange and other Covered Person Finality of Exchange Determinations
request compensation. In this second example, the resulting from the use or enjoyment of
TPH may request compensation even if such losses Under Rule
were incurred over a number of different the facilities offered by the Exchange,
transactions so long as it was the result of the same any interruption in or failure or Proposed new Rule 6.7(f) would
systems issue. unavailability or any such facilities, or provide that all determinations by the
13 Other exchanges have similar submission
any action taken or omitted to be taken Exchange pursuant to Rule 6.7 shall be
requirements. See, e.g., NYSE Rule 18— final and not subject to appeal under
Compensation in Relation to Exchange System in respect of the business of the
Failure, which provides in relevant part that NYSE Exchange.
members provide oral notice to NYSE’s Division of 14 Another exchange considered similar factors in
mstockstill on DSK4VPTVN1PROD with NOTICES
Additionally, the Exchange notes that
Floor Operations by the market opening on the next determining whether to pay compensation and in
business day following the system failure and
proposed Rule 6.7(d) would continue to determining the amount of any such compensation.
written notice by the end of the third business day provide a fair way of allocating the See NYSE Rule 18, which provides in relevant part
following the system failure (T+3). See also, ISE limited payment that the rule would that the NYSE Compensation Review Panel in its
Rule 705(d)(3)—Limitation of Liability, which permit the Exchange to make when the review will determine whether the amount should
provides that all claims for compensation must be be reduced based on the actions or inactions of the
made in writing and submitted no later than the
total amount of eligible requests exceed member organization, including whether the
opening of trading on the next business day that maximum amount. The proposal member organization made appropriate efforts to
following the event that gave rise to such claim. would also revise the timeframe in mitigate its loss.
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![Federal Register / Vol. 80, No. 97 / Wednesday, May 20, 2015 / Notices 29127
differences, such differences are not C. Self-Regulatory Organization’s number should be included on the
substantive and are still consistent with Statement on Comments on the subject line if email is used.
the scope of prior self-regulatory Proposed Rule Change Received From To help the Commission process and
organization rulemaking. Members, Participants, or Others review your comments more efficiently,
No written comments were solicited please use only one method. The
Finally, the Exchange believes that as Commission will post all comments on
Rule 6.7 will now govern the liability of or received with respect to the proposed
the Commission’s Internet Web site
the Exchange for claims arising out of rule change.
(http://www.sec.gov/rules/sro.shtml).
any errors or omissions by agents of the III. Date of Effectiveness of the Copies of the submission, all subsequent
Exchange (which would include Order Proposed Rule Change and Timing for amendments, all written statements
Book Officials, PAR Officials and their Commission Action with respect to the proposed rule
respective assistants or clerks), Rule change that are filed with the
Because the foregoing proposed rule
7.11 is superfluous and unnecessary to change does not: (i) Significantly affect Commission, and all written
maintain in the rules. Additionally, the the protection of investors or the public communications relating to the
Exchange no longer believes it is interest; (ii) impose any significant proposed rule change between the
necessary to single out the errors or burden on competition; and (iii) become Commission and any person, other than
omissions of Order Book Officials and operative for 30 days from the date on those that may be withheld from the
PAR Officials in the manner described which it was filed, or such shorter time public in accordance with the
under Rule 7.11 as compared to other as the Commission may designate, it has provisions of 5 U.S.C. 552, will be
errors and omissions that are subject to become effective pursuant to Section available for Web site viewing and
Rule 6.7. The Exchange notes that 19(b)(3)(A) of the Act 32 and Rule 19b– printing in the Commission’s Public
although the Exchange’s reciprocal right 4(f)(6) 33 thereunder. At any time within Reference Room, 100 F St. NE.,
to bring a claim against Trading Permit Washington, DC 20549, on official
60 days of the filing of the proposed rule
business days between the hours of
Holders and the arbitration process for change, the Commission summarily may
10:00 a.m. and 3:00 p.m. Copies of such
disputed claims will be eliminated, temporarily suspend such rule change if
filing also will be available for
such language is no longer necessary.30 it appears to the Commission that such
inspection and copying at the principal
As such, the Exchange believes that action is necessary or appropriate in the
office of the Exchange. All comments
eliminating Rule 7.11 maintains clarity public interest, for the protection of
received will be posted without change;
in the rules and avoids potential investors, or otherwise in furtherance of
the Commission does not edit personal
confusion, which removes impediments the purposes of the Act. If the
identifying information from
and perfects the mechanism of a free Commission takes such action, the
submissions. You should submit only
and open market and a national market Commission will institute proceedings information that you wish to make
system, and, in general, protects to determine whether the proposed rule available publicly. All submissions
investors and the public interest. change should be approved or should refer to File Number SR–CBOE–
disapproved. 2015–042, and should be submitted on
B. Self-Regulatory Organization’s or before June 10, 2015.
IV. Solicitation of Comments
Statement on Burden on Competition
Interested persons are invited to For the Commission, by the Division of
The Exchange believes that this submit written data, views, and Trading and Markets, pursuant to delegated
proposed rule change does not impose arguments concerning the foregoing, authority.34
any burden on competition that is not including whether the proposed rule Robert W. Errett,
necessary or appropriate in furtherance change is consistent with the Act. Deputy Secretary.
of the purposes of the Act. As stated Comments may be submitted by any of [FR Doc. 2015–12148 Filed 5–19–15; 8:45 am]
above, the Exchange believes that these the following methods: BILLING CODE 8011–01–P
policies would promote fairness in the Electronic Comments
national market system. The proposed
rule change would allow CBOE to • Use the Commission’s Internet SECURITIES AND EXCHANGE
comment form (http://www.sec.gov/ COMMISSION
address Trading Permit Holder requests
rules/sro.shtml); or [Release No. 34–74967; File No. SR–Phlx–
for compensation under various
• Send an email to rule-comments@ 2015–39]
circumstances and would allow CBOE sec.gov. Please include File Number SR–
to act in a fashion similar to many of its CBOE–2015–042 on the subject line. Self-Regulatory Organizations;
competitors. In addition, as stated NASDAQ OMX PHLX, LLC; Notice of
above, several exchanges have Paper Comments
Filing and Immediate Effectiveness of
substantially similar rules to those • Send paper comments in triplicate Proposed Rule Change To Update the
proposed here, except as otherwise to Brent J. Fields, Secretary, Securities Public Disclosure of Sources of Data
noted, and the Exchange believes that and Exchange Commission, 100 F Street Utilized By PSX
the proposed rule change would place NE., Washington, DC 20549–1090.
CBOE in a similar position to address All submissions should refer to File May 14, 2015.
Trading Permit Holder requests.31 Number SR–CBOE–2015–042. This file Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
mstockstill on DSK4VPTVN1PROD with NOTICES
32 15 U.S.C. 78s(b)(3)(A). (‘‘Act’’),1 and Rule 19b–4 thereunder,2
33 17 CFR 240.19b–4(f)(6). As required under Rule notice is hereby given that on May 5,
19b–4(f)(6)(iii), the Exchange provided the 2015, NASDAQ OMX PHLX LLC
Commission with written notice of its intent to file (‘‘Phlx’’ or ‘‘Exchange’’) filed with the
30 In practice, there have not been any disputed
the proposed rule change, along with a brief
description and the text of the proposed rule
claims submitted to the arbitration process under change, at least five business days prior to the date
34 17 CFR 200.30–3(a)(12).
Rule 7.11 for several years. of filing of the proposed rule change, or such 1 15 U.S.C. 78s(b)(1).
31 Id. shorter time as designated by the Commission. 2 17 CFR 240.19b–4.
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Document Created: 2018-02-21 10:29:45
Document Modified: 2018-02-21 10:29:45
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 29121 |
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