82 FR 26967 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend NYSE Arca Equities Rule 13.2, Liability of Corporation

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 111 (June 12, 2017)

[Federal Register Volume 82, Number 111 (Monday, June 12, 2017)]
[Notices]
[Pages 26967-26969]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-12044]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80866; File No. SR-NYSEArca-2017-46]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend NYSE Arca Equities Rule 13.2, 
Liability of Corporation

June 6, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on May 23, 2017, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') 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 self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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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 Arca Equities Rule 13.2 
(``Liability of Corporation'') by (1) aligning the scope of 13.2(a) 
with the rules of other national securities exchanges by specifying 
that the Exchange is not liable to its ETP Holders' ``successors, 
representatives or customers''; (2) eliminating the daily caps that 
limit the amount the Exchange may compensate ETP Holders for claims 
arising under the rule; (3) changing the procedural requirements for 
submitting notification to the Exchange of any claims for compensation; 
and (4) replace the words ``acknowledged receipt of'' in Rule 13.2(b) 
with the word ``received.'' Additionally, the Exchange seeks to have 
the proposed changes to eliminate the daily caps function retroactively 
to March 1, 2017. The proposed rule change is available on the 
Exchange's Web site at www.nyse.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 self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE Arca Equities Rule 13.2 (``Rule 13.2'') provides a mechanism 
for ETP Holders to receive compensation for losses sustained as a 
result of the negligent acts or omissions of the Exchange's employees 
or for the failure of Exchange systems or facilities. Specifically, if 
an ETP Holder transmits an order to or through the Exchange's order 
routing systems, electronic book, or automatic execution systems or to 
any other automated facility of the Exchange and the Exchange has 
acknowledged receipt of the order, Rule 13.2(b) permits the Exchange to 
compensate ETP Holders for losses resulting from ``the negligent acts 
or omissions of its employees or for the failure of its systems or 
facilities.'' The Exchange is only permitted to compensate an ETP 
Holder for losses to the extent the Exchange's rules authorize such 
compensation. As described below, the Exchange proposes to:
     Align its rule with those of other national securities 
exchanges by adding that the Exchange is not liable to ``successors, 
representatives, or customers'' of ETP Holders;
     eliminate the daily caps on liability;
     change the procedural requirements for submitting 
notification to the Exchange of any claims for compensation; and
     replace the words ``acknowledged receipt of'' in Rule 
13.2(b) with the word ``received.''
Proposal To Align and Clarify the Scope of 13.2(a) With Rules of Other 
National Securities Exchanges
    The Exchange proposes to align the scope of 13.2(a) with the rules 
of other national securities exchanges \4\ by adding rule text 
specifying that, except as otherwise expressly provided in the rules, 
the Exchange is not liable to ETP Holders' successors, representatives 
or customers. Rule 13.2 does not authorize the Exchange to compensate a 
successor, representative or customer of an ETP Holder because the rule 
does not reference those entities. As such, the Exchange believes that 
the proposed text specifically referencing these entities clarifies the 
scope of the rule.
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    \4\ See Investors' Exchange LLC (``IEX'') Rule 11.260, BATS BZX 
Exchange Inc. (``BATS'') Rule 11.16, and EDGX Exchange Inc. 
(``EDGX'') Rule 11.14.
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Proposal To Eliminate Daily Caps on Liability
    Rule 13.2 provides the Exchange with the authority to compensate 
ETP Holders for claims arising out of the negligent acts or omissions 
of its employees or for the failure of its systems or facilities up to 
specified amounts in paragraph (b) of the Rule. Specifically, Rule 
13.2(b) provides that:
     As to claims made by a single ETP Holder, with respect to 
a single trading day, the Exchange will not be liable in excess of the 
larger of $100,000, or the amount of any recovery obtained by the 
Exchange under any applicable insurance;
     As to claims made by all ETP Holders, with respect to a 
single trading day, the Exchange will not be liable in excess of the 
larger of $250,000 or the amount of the recovery obtained by the 
Exchange under any applicable insurance; and
     As to claims made by all ETP Holders, with respect to a 
single calendar month, the Exchange will not be liable in excess of the 
larger of $500,000, or the amount of the recovery obtained by the 
Exchange under any applicable insurance.
    The Exchange proposes to eliminate the daily caps in paragraphs 
(b)(1) and (b)(2). The Exchange would retain the monthly cap in (b)(3) 
of $500,000. The proposal to eliminate the daily caps in paragraphs 
(b)(1) and (b)(2) is consistent with the rules of other national 
securities exchanges, which only have a

[[Page 26968]]

monthly cap.\5\ In addition, the Exchange believes that it is more 
appropriate and fair to have a monthly limit on liability rather than a 
daily limit on liability, which could potentially result in disparate 
treatment among ETP Holders with claims on different days. Under the 
current rules, the Exchange is liable on any day as to the aggregate of 
all claims up until $250,000. Therefore, ETP Holders with claims on a 
day where other ETP Holders also have claims are less likely to receive 
full compensation compared to an ETP Holder that has a claim on a day 
when no other or fewer other ETP Holders have claims. Accordingly, the 
Exchange's proposal seeks to limit the possibility for disparate 
treatment by proposing to eliminate the current daily liability caps.
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    \5\ See ISE Rule 705, Nasdaq Stock Market LLC (``Nasdaq'') Rule 
4626, Nasdaq OMX PHLX LLC (``Nasdaq PHLX'') Rule 1015, and Nasdaq 
BX, Inc. (``Nasdaq BX'') Rule 4626.
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    Under Rule 13.2(c), if claims cannot be fully satisfied because in 
the aggregate they exceed the maximum liability provided under 
paragraph (b), the maximum amount is allocated among all claims. In 
connection with its proposal to eliminate the daily caps in paragraphs 
(b)(1) and (b)(2), the Exchange is making a conforming change to 
eliminate in paragraph (c) the reference to allocating claims arising 
``on a single trading day.''
Proposal To Change Procedural Requirements for Submitting a Claim
    The Exchange proposes to clarify and change the time frame in which 
ETP Holders are required to submit notification to the Exchange of any 
claims for compensation under Rule 13.2. Rule 13.2(c) currently refers 
to written notice of claims ``to the Corporation no later than the 
opening of trading on the next business day following the day on which 
the use or enjoyment of the Corporation's facilities giving rise to the 
claim occurred . . .'' The Exchange proposes to clarify the requirement 
to provide written notice of all claims. Specifically, the Exchange 
proposes to delete the reference in paragraph (c) to written notice and 
replace it with new paragraph (d), the first sentence of which would 
state that all claims for compensation must be in writing. The proposal 
would conform the Exchange's notice requirements for claims to that of 
other national securities exchanges, which require written notice of 
claims.\6\
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    \6\ See Nasdaq Rule 4626, Nasdaq PHLX Rule 1015, and Nasdaq BX 
Rule 4626 (providing that members must submit claims in writing by 
noon Eastern Time on the next business day following the system 
issue).
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    In addition, proposed new paragraph (d) would require that ETP 
Holders make such written claims by noon Eastern Time the next business 
day following the day on which the use of the Exchange gave rise to 
such claims. The Exchange believes it is appropriate to extend the time 
for an ETP Holder to submit a written claim from 9:30 a.m. Eastern Time 
to noon Eastern Time because it would provide time for an ETP Holder to 
evaluate what losses may have occurred on the prior trading day, 
particularly if the issue occurred later in the day. This proposed time 
frame is based on the rules of other national securities exchanges.\7\
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    \7\ Id.
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Proposed Change To Re-Word Rule 13.2(b)
    The Exchange proposes to replace the words ``acknowledged receipt 
of'' in Rule 13.2(b) with the word ``received.'' The Exchange believes 
this language is more concise and accurately reflects that all orders 
received in Exchange systems, whether acknowledged or not, are eligible 
under the Rule. Additionally, the Exchange notes that this language is 
similar to that found in the rules of other national securities 
exchanges.\8\
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    \8\ See NYSE Rule 18(b) and NYSE MKT Rule 18(b).
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Operability of the Proposal To Eliminate the Daily Caps on Liability
    Finally, the Exchange requests to have the proposed changes to 
eliminate the daily caps in paragraphs (b)(1) and (b)(2) function 
retroactively to March 1, 2017. Specifically, the Exchange seeks to 
have the ability to compensate ETP Holders in connection with losses 
incurred from an Exchange system issue on March 20, 2017. Prior to 
March 20, 2017, the Exchange had never received a claim that exceeded 
the liability limits and thus the Exchange was never prevented from 
fully compensating an ETP Holder. In connection with the March, [sic] 
20, 2017, system issue, the Exchange received claims from ETP Holders 
that exceed amounts provided for in the daily caps. The Exchange 
believes that retroactively applying the monthly liability limit 
promotes fairness in that it provides the Exchange with the ability to 
compensate ETP Holders equally and reduces the potential for disparate 
treatment among ETP Holders who suffered a loss on March 20, 2017 and 
those ETP Holder [sic] who suffered a loss on a different day. Lastly, 
the Exchange notes that the Commission has approved other national 
securities exchanges rules related to limitations on liability 
retroactively.\9\
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    \9\ See Securities Exchange Act Release No. 56085 (July 17, 
2007), 72 FR 40348 (July 24, 2007) (SR-NYSE-2007-09).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers 
the objectives of Section 6(b)(5),\10\ in particular, because it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, 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 that 
the proposed rule change removes impediments to and perfects the 
mechanism of a free and open market because it more adequately 
addresses issues of liability by (1) eliminating the daily caps on 
liability and rewording 13.2 (b) to reflect that all orders 
``received'' are eligible under the Rule thus increasing the Exchange's 
ability to compensate ETP Holders for losses incurred in relation to 
the failure of the Exchange's systems or facilities or negligent acts 
or omissions of Exchange employees, (2) adding clarity and transparency 
to scope of the rule and the compensation mechanism provided for in the 
rule by specifying that the Exchange is not liable to an ETP Holder's 
successors, representatives or customers, and (3) changing the 
procedural requirements for submitting notification of claims for 
compensation to the Exchange so that ETP Holders have a [sic] until 
noon Eastern Time the next business day following the day on which use 
of the Exchange's facilities gave rise to such claims to submit written 
notice.
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    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange further believes that the proposed changes are 
reasonable and would remove impediments to and perfect the mechanism of 
a free and open market because eliminating the daily caps would not 
adversely affect ETP Holders and would reduce the risk that a loss is 
not covered by the Exchange's liability limits. Further, the Exchange 
believes that the proposed text specifically referencing that the 
Exchange is not liable to ETP Holders' successors, representatives or 
customers aligns the scope of the rule with that of

[[Page 26969]]

other national securities exchanges \11\ and provides transparency as 
to the rule's application.
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    \11\ See supra note 4.
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    Further, clarifying and extending by a few hours the deadline in 
which ETP Holders are required to submit written notice of claims for 
compensation is reasonable given that an ETP Holder may not be aware of 
a claim or able to file a claim before the market open on the next 
business day. Additionally, the proposed procedural provisions are 
equitable because all ETP Holders are subject to the same procedural 
process for submitting claims for compensation. In addition, the 
Exchange notes that other national securities exchanges have similar 
requirements with respect to the timing in which written notice of 
claims must be submitted.\12\
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    \12\ See supra note 6.
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    Retroactively applying the proposed changes to eliminate the daily 
caps on the Exchange's liability is reasonable because it provides the 
Exchange with the ability to adequately compensate ETP Holders for 
losses incurred in relation to the Exchange's system failure that 
occurred on March 20, 2017. Additionally, the Exchange believes that 
applying the monthly liability limit retroactively promotes just and 
equitable principles of trade because it will apply uniformly to all 
ETP Holders that suffered a loss in connection with the March 20, 2017 
system issues and any ETP Holder that potentially suffers a loss in 
connection with a future Exchange system issue. Prior to March 20, 
2017, the Exchange had never received a claim that exceeded the 
liability limits and thus the Exchange was never prevented from fully 
compensating an ETP Holder for losses suffered in connection with the 
use of the Exchange's facilities, including losses caused by the 
negligent act or omission of an Exchange employee. Therefore, the 
Exchange believes that applying the rule retroactively would not be 
unfair or discriminatory. ETP Holders that suffered losses on March 20, 
2017 and ETP Holders that previously received compensation from the 
Exchange would receive the same benefit of a fully paid claim. Further, 
the Exchange notes that the Commission has approved similar rules 
retroactively \13\ and that the proposed liability limits more closely 
align with the limits of other national securities exchanges.\14\ As 
such, the Exchange believes retroactively applying the proposed changes 
to the liability limits promotes just and equitable principles of 
trade, fosters cooperation and coordination with persons engaged in 
facilitating transactions in securities, removes impediments to, and 
perfects the mechanism of, a free and open market and a national market 
system and, in general, better protects investors and the public 
interest because it reduces the risk that losses suffered by a 
participant would be treated differently depending on the day or 
trading venue that the issue occurred on.
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    \13\ See supra note 9.
    \14\ See supra note 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 will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change is not 
designed to address any competitive issue but rather would add 
transparency to the rule and align more closely with current rules of 
other national stock exchanges \15\ and provide more certainty to 
members that, regardless of trading venue, losses incurred in 
connection with a failure of Exchange systems or facilities, including 
losses caused by the negligent act or omission of an Exchange employee, 
will be eligible for review by and compensation from the Exchange.
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    \15\ See supra notes 4, 5 and 8.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 email to [email protected]. Please include 
File Number SR-NYSEArca-2017-46 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-NYSEArca-2017-46. 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 Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 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-NYSEArca-2017-46, and should 
be submitted on or before July 3, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Brent J. Fields,
Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-12044 Filed 6-9-17; 8:45 am]
 BILLING CODE 8011-01-P