[Federal Register Volume 60, Number 33 (Friday, February 17, 1995)]
[Notices]
[Pages 9415-9416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4043]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35360; File No. SR-Amex-94-50]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Proposed 
Commentary .02 to Rule 60

February 13, 1995.

Introduction

    On November 14, 1994, the American Stock Exchange, Inc. (``Amex'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to codify the Amex's agreement 
with the New York Stock Exchange (``NYSE'') whereby the NYSE will not 
be held liable for damages sustained by an Amex member's or member 
organization's use of any NYSE system, service, or facility.

    \1\15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 35146 (December 23, 1994), 60 FR 516 (January 
4, 1995). No comments were received on the proposal.

II. Background and Discussion

    The proposed rule change emanates from several licensing agreements 
between the NYSE and Amex. For example, in 1993 the Amex licensed the 
NYSE electronic display book for [[Page 9416]] equities. As part of 
that licensing agreement, the NYSE required that it be protected from 
liability for damages sustained by Amex members and member 
organizations using the display book on the Amex floor. Consequently, 
the Amex adopted a policy statement disclaiming NYSE liability for such 
damages.\3\

    \3\See Securities Exchange Act Release No. 32140 (April 14, 
1993), 58 FR 21327 (April 20, 1993).
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    Most recently, the Amex entered into an agreement with the NYSE to 
integrate the Amex's Equity Intra-Day Comparison System (``IDC'') into 
the NYSE's On-Line Comparison System (``OCS''), so that Amex equity and 
bond transactions can be compared through OCS. This will enable members 
to utilize the same computer terminal for the comparison of both Amex 
and NYSE securities and thus lessen the cost to the member firm 
community. The integration is being accomplished in two steps. Amex 
listed corporate bonds began to be compared through OCS on October 21, 
1994, and equities are expected to be phased in by the end of the first 
quarter of 1995.
    As the Amex may enter into additional agreements with the NYSE in 
the future relating to the use of other NYSE systems, services, or 
facilities by Amex member firms, this proposal would codify a liability 
disclaimer provision to cover not only the current situation involving 
the use of OCS, but also all future situations where Amex member firms 
are using other NYSE facilities in accordance with similar agreements 
with the NYSE.\4\ The Amex plans to disseminate proposed Commentary .02 
to its Rule 60 to the membership, upon SEC approval.

    \4\The NYSE acknowledges that under New York State Common Law, a 
liability disclaimer such as the instant one does not insulate the 
NYSE from loss due to the gross negligence or willful misconduct. 
Conversation between Steve Abrams and Michael Simon, Milbank, Tweed, 
Hadley & McCloy, Counsel to NYSE, and Amy Bilbija, Attorney, 
Commission, dated December 2, 1994.
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    The Commission notes that the Amex Constitution (Article IV, 
Section 2(e)) currently provides that the Exchange shall not be liable 
for any damages incurred by a member firm growing out of its use of the 
facilities afforded by the Exchange for the conduct of its business 
(which includes the use of the Exchange's trading systems), except as 
the Exchange may otherwise provide. Further, the NYSE Constitution has 
a similar provision regarding use of its facilities by its members. 
Finally, the Commission notes that the terms of the proposed Commentary 
are merely a codification of the contractual agreements between the 
Amex and the NYSE wherein the Amex has agreed to disclaim NYSE's 
liability under the specified circumstances referred to herein.
    The Commission believes that it is reasonable for the NYSE to be 
released from liability for injuries sustained by Amex members and 
member organizations using the NYSE's OCS. As noted above, the proposed 
rule change is similar to existing Amex and NSE rules that limit 
exchange liability. In addition, under similar circumstances, the 
Commission has allowed licensee exchanges to release licensors from 
certain liability for damages resulting from use of their product.\5\ 
Finally, the Commission wishes to emphasize that this disclaimer only 
affects NYSE liability for losses sustained by Amex members and member 
organizations using OCS and does not extend to customer-related losses.

    \5\For example, the Commission has approved limited disclaimers 
of liability for licensors of the indexes underlying index options. 
See, e.g., Securities Exchange Act Release Nos. 31382 (October 30, 
1992), 57 FR 52802 (November 5, 1992) (regarding options on Russell 
2000 Index); and 19908 (June 24, 1983), 48 FR 30815 (July 5, 1983) 
(regarding options on Standard & Poor's 500 Stock Price Index).
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III. Conclusion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Section 6(b).\6\ In particular, 
the Commission believes the proposal is consistent with the Section 
6(b)(5) requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, and to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities. The Commission also finds that 
the proposal is consistent with Section 17A\7\ in that it furthers the 
use of new data processing and communications techniques that should 
result in more accurate clearance and settlement of securities 
transactions.

    \6\15 U.S.C. Sec. 78f(b) (1988).
    \7\15 U.S.C. 78q-1 (1988).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-Amex-94-50) is approved.

    \8\15 U.S.C. Sec. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\17 CFR 200.30-3(a)(12) 1994.
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-4043 Filed 2-16-95; 8:45 am]
BILLING CODE 8010-01-M