[Federal Register Volume 72, Number 238 (Wednesday, December 12, 2007)]
[Notices]
[Pages 70622-70625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-23967]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56805; File No. SR-Amex-2007-122]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Exchange Liability for the Actions or Omission of Amex Book 
Clerks

November 16, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 16, 2007, the American Stock Exchange LLC (``Exchange'' or 
``Amex'') filed with the Securities and Exchange Commission 
(``Commission'') the

[[Page 70623]]

proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the Exchange. The Exchange has 
designated this proposal as non-controversial under Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Rule 996--ANTE providing for the 
limited liability of the Exchange in connection with the actions of 
Amex Book Clerks (``ABCs''). The text of the proposed rule change is 
available at Amex, the Commission's Public Reference Room, and http://amex.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. 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
    The purpose of the proposed rule change is to permit members, 
member organizations, and associated persons of member organizations to 
bring a claim or claims against the Exchange, in limited circumstances, 
for the actions of an ABC. The Commission, in April 2007, published for 
public comment in the Federal Register the Exchange's proposal to 
eliminate the agency obligations of specialists and establish ABCs.\5\ 
In connection with the approval of the ABC proposal, the Exchange 
submits this filing relating to the liability of the Exchange for the 
actions of ABCs.
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    \5\ See Securities Exchange Act Release No. 55583 (April 5, 
2007), 72 FR 18695 (April 13, 2007) (notice of filing of SR-Amex-
2006-107).
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    The ABC will be an Exchange employee or independent contractor 
designated by the Exchange to be responsible for: (i) Maintaining and 
operating the customer limit order book and display book for assigned 
options classes; and (ii) effecting proper executions of orders placed 
in the customer order limit book. The ABC will be prohibited from 
having an affiliation with any member that is approved to act as a 
specialist, registered options trader (``ROT''), remote registered 
options trader (``RROT'') and supplemental registered options trader 
(``SROT'') on the Exchange. In addition, ABCs are also responsible for 
handling Linkage Orders \6\ in all appointed options classes. As a 
result, the ABC will have the means to: (1) Utilize an options 
specialist's account to route P/A Orders and Satisfaction Orders to 
away markets based on prior instructions that must be provided by the 
options specialist to the ABC, and (2) handle all Linkage Orders or 
portions of Linkage Orders received by the Exchange that are not 
automatically executed. The ABC also would have the means to utilize 
the options specialist's account to fill Satisfaction Orders that 
result from a trade-through that the Exchange effects.
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    \6\ ``Linkage Order'' means an immediate or cancel order routed 
through the Linkage as permitted under the Linkage Plan. There are 
three types of Linkage Orders: (i) ``Principal Acting as Agent (``P/
A'') Order,'' which is an order for the principal account of a 
specialist (or equivalent entity on another Participant Exchange 
that is authorized to represent Public Customer orders), reflecting 
the terms of a related unexecuted Public Customer order for which 
the specialist is acting as agent; (ii) ``Principal Order,'' which 
is an order for the principal account of an Eligible Market Maker 
(or equivalent entity on another Participant Exchange) and is not a 
P/A Order; and (iii) ``Satisfaction Order,'' which is an order sent 
through the Linkage to notify a Participant Exchange of a Trade-
Through and to seek satisfaction of the liability arising from that 
Trade-Through.
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    Article IV, Section 1(e) of the Amex Constitution provides that the 
Exchange, its affiliates, officers, Governors, committee members, 
employees or agents shall not be liable to a member, member 
organization, or a person associated with a member or a member 
organization for any loss, expense, damages or claims that arise out of 
the use or enjoyment of the facilities or services afforded by the 
Exchange, any interruption in or failure or unavailability of any such 
facilities or services, 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 agent acting within the scope of 
their authority. However, Article IV, Section 1(e) does permit the 
Board of Governors of the Exchange to provide, by rule, Exchange 
liability with respect to Exchange facilities which implement the 
electronic transmission of orders for the purchase or sale of 
securities traded on the Exchange to the floor of the Exchange or 
between the floor of the Exchange and other markets. Accordingly, 
proposed Rule 996--ANTE would permit Exchange liability, in limited 
circumstances, relating to the actions of ABCs for: (i) Maintaining and 
operating the customer limit order book and display book; and (ii) 
effecting proper executions of orders placed in the customer order 
limit book.
    Limitation of Liability. The liability of the Exchange for claims 
arising out of errors or omissions made by ABCs will be limited as 
follows:
     As to any one or more claims made by a single member on a 
single trading day, the Exchange shall not be liable in excess of the 
larger of $75,000 or the amount of any recovery obtained by the 
Exchange under any applicable insurance maintained by the Exchange.
     As to the aggregate of all claims made by all members on a 
single trading day, the Exchange shall not be liable in excess of the 
larger of $100,000 or the amount of the recovery obtained by the 
Exchange under any applicable insurance maintained by the Exchange.
     As to the aggregate of all claims made by all members 
during a single calendar month, the Exchange shall 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 maintained by the 
Exchange.
    If all of the claims arising out of errors or omissions by an ABC 
cannot be fully satisfied because they exceed the applicable maximum 
amount of liability provided for above, then the maximum amount will be 
allocated among all such claims arising on a single trading day or 
during a single calendar month, as applicable, based upon the 
proportion that each such claim bears to the sum of all such claims.
    Exchange liability will also be limited if a member, member 
organization or the Exchange fails to close out an uncompared trade as 
set forth in Rule 960.\7\ In such a case, the opposing

[[Page 70624]]

party's liability with respect to any claims arising from such trade 
will be limited to the lesser of: (1) 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 next business day as provided in Rule 
960; or (2) the actual loss realized by the claimant.
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    \7\ Commentary .01(b) to Rule 960 provides that all rejected 
options transaction notices (``ROTNs'') must be ``OK'd'' or ``DK'd'' 
not later than one-half hour prior to the opening of trading on the 
first business day following the trade date unless an agent 
(including a specialist) was involved in the execution of a 
transaction, where the time limit shall be extended to fifteen 
minutes prior to such opening (these time limits may be extended by 
a Floor Official).
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    Furthermore, the Exchange's potential liability is also limited if 
any damage is caused by an error or omission of an ABC which is the 
result of any error or omission of a member organization. Under such 
circumstances, the member organization will be required to indemnify 
the Exchange and hold it harmless from any claim of liability resulting 
from or relating to such damage.
    Procedure. Absent reasonable justification or excuse, any claim by 
a member, member organization, or persons associated with a member or 
member organization for losses arising from errors or omissions of an 
ABC, and any claim by the Exchange for indemnification under paragraph 
(g) of Proposed Rule 996--ANTE, must be presented in writing to the 
opposing party within ten (10) business days following the transaction 
giving rise to the claim; 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 but within ten 
(10) business days following such resolution of the unmatched trade.
    For purposes of proposed Rule 996--ANTE, the term ``transaction'' 
means any single order or instruction which is placed with an ABC, or 
any series of orders or instructions, which is placed with an ABC at 
substantially the same time by the same member and which relates to any 
one or more series of options of the same class. All errors and 
omissions made by an ABC with respect to or arising out of any 
transaction will give rise to a ``single claim'' against the Exchange. 
The Exchange will retain any defenses to such claim or claims that it 
may have. In addition, no claim will be permitted to arise as to errors 
or omissions which are found to have resulted from any failure by a 
member or by any person acting on behalf of a member, to enter or 
cancel an order with such ABC on a timely basis or clearly and 
accurately to communicate to such ABC:
    (i) The description or symbol of the security involved; or
    (ii) The exercise price or option contract price; or
    (iii) The type of option; or
    (iv) The number of trading units; or
    (v) The expiration month; or
    (vi) Any other information or data which is material to the 
transaction.
    Arbitration. Pursuant to proposed Rule 996--ANTE, all disputed 
claims will be referred to binding arbitration with the decision of a 
majority of the arbitrators selected to hear and determine the 
controversy deemed final. There will be no appeal right to the Board of 
Governors from any decision of an arbitration panel. The arbitration 
panel will be composed of an odd number of panelists. Each of the 
parties to the dispute will select one Exchange member to serve as 
panelist on the arbitration panel. The panelists so selected shall then 
select one or more additional panelist(s); provided that the additional 
panelist(s) so selected are members of the Exchange and that no member 
of the arbitration panel may have any direct or indirect financial 
interest in the claim. In the event that the initial panelists selected 
by the parties to the dispute cannot agree on the selection of the 
additional panelist(s), such additional panelist(s) shall be appointed 
by a Floor Official chosen by a random draw who has no direct or 
indirect financial interest in the claim. The NASD Code of Arbitration 
Procedure for Industry Disputes (Article VIII of the Amex Constitution) 
shall apply to any arbitration proceeding.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \8\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \9\ in particular in that it would remove 
impediments to and perfect the mechanism of a free and open market in a 
manner consistent with the protection of investors and the public 
interest.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ Because the foregoing proposed rule change: (i) Does 
not significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ The Exchange has satisfied the requirement under Rule 19b-
4(f)(6)(iii) that it give written notice to the Commission of its 
intent to file the proposed rule change at least five business days 
prior to filing.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to waive the operative 
delay if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
operative delay to permit the proposed rule change to become effective 
prior to the 30th day after filing.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission notes that the proposal is substantially identical to 
the Chicago Board Options Exchange's (``CBOE'') rules regarding 
limitation of exchange liability for acts and omission of CBOE Par 
Officials,\13\ previously published for comment and approved by the 
Commission,\14\ and the Exchange's

[[Page 70625]]

proposal raises no new issues of regulatory concern. Waiving the 
operative delay will allow the proposal to become effective 
simultaneously with Amex's proposal to establish ABCs, which we are 
approving separately today.\15\ Therefore, the Commission has 
determined to waive the 30-day delay and allow the proposed rule change 
to become operative immediately.\16\
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    \13\ See CBOE Rules 6.7, ``Exchange Liability,'' and 7.11, 
``Liability of Exchange for Actions of Order Book Officials, and PAR 
Officials.''
    \14\ See Securities Exchange Act Release Nos. 52017 (July 12, 
2005), 70 FR 41453 (July 19, 2005) (notice of filing of SR-CBOE-
2005-46) and 52798 (November 18, 2005), 70 FR 71344 (November 28, 
2005) (order approving SR-CBOE-2005-46).
    \15\ See Securities Exchange Act Release No. 56804 (November 16, 
2007) (order approving SR-Amex-2006-107).
    \16\ For purposes only of waiving the operative delay of this 
proposal, the Commission notes that it has considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-Amex-2006-67 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2007-122. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of the Exchange. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Amex-2007-122 and should be submitted on 
or before January 2, 2008.
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    \17\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-23967 Filed 12-11-07; 8:45 am]
BILLING CODE 8011-01-P