[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Notices]
[Pages 19040-19047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07192]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69216; File No. SR-NASDAQ-2012-090]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change To Amend Rule 4626--
Limitation of Liability

March 22, 2013.

I. Introduction

    On July 23, 2012, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 amend Exchange Rule 4626--Limitation of 
Liability (``accommodation proposal''). The proposed rule change was 
published for comment in the Federal Register on August 1, 2012.\3\ The 
Commission received 11 comment letters on the accommodation proposal 
\4\

[[Page 19041]]

and a response letter from Nasdaq.\5\ On September 12, 2012, the 
Commission extended the time period for Commission action to October 
30, 2012.\6\ On October 26, 2012, the Commission instituted proceedings 
to determine whether to approve or disapprove the accommodation 
proposal.\7\ The Commission then received six additional comment 
letters on the proposal \8\ and a second response letter from 
Nasdaq.\9\ On January 23, 2013, the Commission extended the time period 
for Commission action to March 29, 2013.\10\ This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67507 (July 26, 
2012), 77 FR 45706 (August 1, 2012) (``Notice'').
    \4\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from Sis DeMarco, Chief Compliance Officer, Triad Securities Corp., 
dated August 20, 2012 (``Triad Letter''); Eugene P. Torpey, Chief 
Compliance Officer, Vandham Securities Corp., dated August 21, 2012 
(``Vandham Letter''); John C. Nagel, Managing Director and General 
Counsel, Citadel LLC, dated August 21, 2012 (``Citadel Letter''); 
Benjamin Bram, Watermill Institutional Trading LLC, dated August 22, 
2012 (``Bram Letter''); Daniel Keegan, Managing Director, Citigroup 
Global Markets Inc., dated August 22, 2012 (``Citi Letter''); 
Theodore R. Lazo, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association, dated August 
22, 2012 (``SIFMA Letter I''); Mark Shelton, Group Managing Director 
and General Counsel, UBS Securities LLC, dated August 22, 2012 
(``UBS Letter I''); Andrew J. Entwistle and Vincent R. Cappucci, 
Entwistle & Cappucci LLP, dated August 22, 2012 (``Entwistle 
Letter''); Douglas G. Thompson, Michael G. McLellan, and Robert O. 
Wilson, Finkelstein Thompson LLP, Christopher Lovell, Victor E. 
Stewart, and Fred T. Isquith, Lovell Stewart Halebian Jacobson LLP, 
Jacob H. Zamansky and Edward H. Glenn, Zamansky & Associates LLC, 
dated August 22, 2012 (``Thompson Letter I''); James J. Angel, 
Associate Professor of Finance, Georgetown University, McDonough 
School of Business, dated August 23, 2012 (``Angel Letter''); and 
Leonard J. Amoruso, General Counsel, Knight Capital Group, Inc., 
dated August 29, 2012 (``Knight Letter'').
    \5\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Joan C. Conley, Senior Vice President and Corporate Secretary, 
Nasdaq, dated September 17, 2012 (``Nasdaq Letter I'').
    \6\ See Securities Exchange Act Release No. 67842 (September 12, 
2012), 77 FR 57171 (September 17, 2012).
    \7\ See Securities Exchange Act Release No. 68115 (October 26, 
2012), 77 FR 66197 (November 2, 2012).
    \8\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from John Robinson, dated November 13, 2012 (``Robinson Letter''); 
Theodore R. Lazo, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association, dated 
November 20, 2012 (``SIFMA Letter II''); Jeremy Abelson, MJA 
Capital, dated November 21, 2012 (``Abelson Letter''); Douglas G. 
Thompson, Michael G. McLellan, and Robert O. Wilson, Finkelstein 
Thompson LLP, Christopher Lovell, Victor E. Stewart, and Fred T. 
Isquith, Lovell Stewart Halebian Jacobson LLP, Jacob H. Zamansky and 
Edward H. Glenn, Zamansky & Associates LLC, dated November 23, 2012 
(``Thompson Letter II''); Tim Mann, dated November 23, 2012 (``Mann 
Letter''); and Mark Shelton, Group Managing Director and General 
Counsel, UBS Securities LLC, dated November 23, 2012 (``UBS Letter 
II'').
    \9\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Joan C. Conley, Senior Vice President and Corporate Secretary, 
Nasdaq, dated December 7, 2012 (``Nasdaq Letter II'').
    \10\ See Securities Exchange Act Release No. 68707 (January 23, 
2013), 78 FR 6154 (January 29, 2013).
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II. Description of Proposal

    Pursuant to existing Nasdaq Rule 4626(a), Nasdaq and its affiliates 
are not liable for any losses, damages, or other claims arising out of 
the Nasdaq Market Center or its use.\11\ However, existing Nasdaq Rule 
4626(b) allows Nasdaq to compensate users of the Nasdaq Market Center 
for losses directly resulting from the systems' actual failure to 
correctly process an order, Quote/Order, message, or other data, 
provided the Nasdaq Market Center has acknowledged receipt of the 
order, Quote/Order, message, or data. Nasdaq's payment for all claims 
made by all market participants related to the use of the Nasdaq Market 
Center during a single calendar month shall not exceed the larger of 
$500,000 or the amount of the recovery obtained by Nasdaq under any 
applicable insurance policy.\12\
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    \11\ According to Nasdaq Rule 4626(a), any losses, damages, or 
other claims, related to a failure of the Nasdaq Market Center to 
deliver, display, transmit, execute, compare, submit for clearance 
and settlement, adjust, retain priority for, or otherwise correctly 
process an order, Quote/Order, message, or other data entered into, 
or created by, the Nasdaq Market Center is absorbed by the member, 
or the member sponsoring the customer, that entered the order, 
Quote/Order, message, or other data into the Nasdaq Market Center.
    \12\ See Nasdaq Rule 4626(b)(1). Under Nasdaq Rule 4626(b)(2), 
with respect to the aggregate of all claims made by all market 
participants during a single calendar month related to a systems 
malfunction or error of the Nasdaq Market Center concerning locked/
crossed market, trade through protection, market maker quoting, 
order protection, or firm quote compliance functions of the market 
participant, to the extent such functions are electronically 
enforced by the Nasdaq trading system and where Nasdaq determines in 
its sole discretion that such systems malfunction or error was 
caused exclusively by Nasdaq and no outside factors contributed to 
the systems malfunction or error, Nasdaq's payment during a single 
calendar month will not exceed the larger of $3,000,000 or the 
amount of the recovery obtained by Nasdaq under any applicable 
insurance policy. See Nasdaq Rule 4626(b)(2). The Facebook initial 
public offering does not implicate the types of systems errors or 
malfunctions described in Nasdaq Rule 4626(b)(2).
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    Nasdaq proposes to add subsection (3) to Nasdaq Rule 4626(b) to 
establish a voluntary accommodation program for certain claims arising 
from the initial public offering (``IPO'') of Facebook, Inc. 
(``Facebook'') on May 18, 2012 (collectively ``Facebook IPO'').\13\ 
Specifically, Nasdaq proposes to compensate market participants for 
certain claims related to system difficulties in the Nasdaq Halt and 
Imbalance Cross process (``Cross'') \14\ in connection with the 
Facebook IPO in an amount not to exceed $62 million.\15\ Further, as 
proposed by Nasdaq, claims for compensation must arise solely from 
realized or unrealized direct trading losses from four specific 
categories of Cross orders: (i) Sell Cross orders that were submitted 
between 11:11 a.m. ET and 11:30 a.m. ET on May 18, 2012, that were 
priced at $42.00 or less, and that did not execute; (ii) sell Cross 
orders that were submitted between 11:11 a.m. ET and 11:30 a.m. ET on 
May 18, 2012, that were priced at $42.00 or less, and that executed at 
a price below $42.00; (iii) buy Cross orders priced at exactly $42.00 
and that were executed in the Cross, but not immediately confirmed; and 
(iv) buy Cross orders priced above $42.00 and that were executed in the 
Cross, but not immediately confirmed, but only to the extent entered 
with respect to a customer \16\ that was permitted by the member to 
cancel its order prior to 1:50 p.m. and for which a request to cancel 
the order was submitted to Nasdaq by the member, also prior to 1:50 
p.m.\17\
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    \13\ In addition to adding proposed subsection (b)(3) to Nasdaq 
Rule 4626, Nasdaq proposes to make certain technical amendments to 
existing subsections of that rule. See, e.g., proposed Nasdaq Rule 
4626(b)(4) and (b)(6).
    \14\ See Nasdaq Rule 4753. The Commission recently proposed 
Regulation Systems Compliance and Integrity (``Regulation SCI'') 
because of a highlighted ``need to consider an updated and 
formalized regulatory framework for ensuring that the U.S. 
securities trading markets develop and maintain systems with 
adequate capacity, integrity, resiliency, availability, and 
security, and reinforce the requirement that [automated] systems 
operate in compliance with the [Act].'' See Securities Exchange Act 
Release No. 69077 (March 8, 2013) (File No. S7-01-13) (proposing 
release for Regulation SCI).
    \15\ See proposed Nasdaq Rule 4626(b)(3); Notice, supra note 3, 
at 47507.
    \16\ As proposed, unless Nasdaq Rule 4626 states otherwise, the 
term ``customer'' includes any unaffiliated entity upon whose behalf 
an order is entered, including any unaffiliated broker or dealer. 
See proposed Nasdaq Rule 4626(b)(3)(A).
    \17\ See proposed Nasdaq Rule 4626(b)(3)(A); Notice, supra note 
3, at 45710-11. In addition, proposed Nasdaq Rule 4626(b)(3)(C) 
states that alleged losses arising in any form or that in any way 
resulted from any other causes would not be considered losses 
eligible for the proposed accommodations. Proposed Nasdaq Rule 
4626(b)(3)(C) sets forth a non-exhaustive list of examples of such 
losses.
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    According to proposed Nasdaq Rule 4626(b)(3)(B), the measure of 
loss for the Cross orders described in (i), (iii), and (iv) above would 
be the lesser of: (a) the differential between the expected execution 
price of the orders in the Cross process that established an opening 
print of $42.00 and the actual execution price received; or (b) the 
differential between the expected execution price of the orders in the 
Cross process that established an opening print of $42.00 and a 
benchmark price of $40.527.\18\ With respect to Cross orders described 
in (iv) above, the amount of loss would be reduced by 30 percent.\19\ 
Further,

[[Page 19042]]

according to proposed Rule 4626(b)(3)(B), the measure of loss for the 
Cross orders described in (ii) above would be the differential between 
the expected execution price of the orders in the Cross process that 
established an opening print of $42.00 and the actual execution price 
received.\20\
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    \18\ $40.527 constitutes the volume-weighted average price 
(``VWAP'') of Facebook stock on May 18, 2012, between 1:50 p.m. ET 
and 2:35 p.m. ET. See proposed Nasdaq Rule 4626(b)(3)(B). See also 
Notice, supra note 3, at 45710-11 (describing Nasdaq's rationale for 
establishing the $40.527 benchmark).
    \19\ See proposed Nasdaq Rule 4626(b)(3)(B); see also Notice, 
supra note 3, at 45710 (describing Nasdaq's rationale for lowering 
the amount of eligible losses for the fourth category of Cross 
orders).
    \20\ Each member's direct trading losses calculated in 
accordance with proposed Nasdaq Rule 4626(b)(3)(A) and (B) are 
referred to as the ``member's share.'' See proposed Nasdaq Rule 
4626(b)(3)(B).
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    With respect to the process for submitting claims pursuant to 
proposed Nasdaq Rule 4626(b)(3), all claims must be submitted in 
writing no later than seven days after this accommodation proposal is 
approved by the Commission.\21\ As proposed, the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') would process and evaluate all 
the claims submitted, using the standards set forth in Nasdaq Rule 
4626.\22\ FINRA would then provide to the Nasdaq Board of Directors and 
the Board of Directors of The NASDAQ OMX Group, Inc. an analysis of the 
total value of eligible claims submitted under proposed Nasdaq Rule 
4626(b)(3), and Nasdaq would thereafter file with the Commission a 
proposed rule change setting forth the amount of eligible claims and 
the amount it proposes to pay to its members.\23\ All payments would be 
made in cash and would not be made until the proposed rule change 
setting forth the amount of eligible claims becomes final and 
effective.\24\
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    \21\ See proposed Nasdaq Rule 4626(b)(3)(D). According to 
Nasdaq, notice of approval would be publicly posted on the Nasdaq 
Trader Web site at www.nasdaqtrader.com and provided directly to all 
member firms via an Equity Trader Alert. See Notice, supra note 3, 
at 45712.
    \22\ See proposed Nasdaq Rule 4626(b)(3)(D). FINRA may request 
such supplemental information as it deems necessary to assist its 
evaluation of claims. See id. According to Nasdaq, FINRA's role 
would be limited to measuring data against the benchmarks 
established under Nasdaq Rule 4626(b)(3) to ascertain the 
eligibility and value of each member's claims. See Notice, supra 
note 3, at 45712. Further, Nasdaq represented that FINRA staff 
assessing the claims would not be involved in providing regulatory 
services to any Nasdaq market, and they would not have purchased 
Facebook stock during Nasdaq's IPO opening process or currently own 
Facebook stock. See id.
    \23\ See proposed Nasdaq Rule 4626(b)(3)(E). According to 
Nasdaq, the report that FINRA prepares for Nasdaq on its analysis of 
the eligibility of claims also would be provided to the public 
members of FINRA's Audit Committee. See Notice, supra note 3, at 
45712.
    \24\ See proposed Nasdaq Rule 4626(b)(3)(E).
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    Furthermore, as proposed, in order to receive payment under Nasdaq 
Rule 4626(b)(3), not later than seven days after the effective date of 
the proposed rule change setting forth the amount of eligible claims, 
the member must submit to Nasdaq an attestation detailing the amount of 
customer compensation \25\ and covered proprietary losses.\26\ Failure 
to provide the required attestation within the specified time period 
would void the member's eligibility to receive compensation under 
proposed Nasdaq Rule 4626(b)(3).\27\ In addition, under proposed Nasdaq 
Rule 4626(b)(3)(H), all payments to members under the accommodation 
proposal would be contingent upon the execution and delivery to Nasdaq 
of a release by the member of all claims by it or its affiliates 
against Nasdaq or its affiliates for losses that arise out of, are 
associated with, or relate in any way to the Facebook IPO Cross or any 
actions or omissions related in any way to that Cross.\28\ The failure 
to provide this release within 14 days after the effective date of the 
proposed rule change setting forth the amount of eligible claims would 
void the member's eligibility to receive compensation pursuant to 
proposed Nasdaq Rule 4626(b)(3).\29\
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    \25\ According to proposed Nasdaq Rule 4626(b)(3)(F)(i), 
``customer compensation'' means the amount of compensation, 
accommodation, or other economic benefit provided or to be provided 
by the member to its customers (other than customers that were 
brokers or dealers trading for their own account) in respect of 
trading in Facebook on May 18, 2012.
    \26\ According to proposed Nasdaq Rule 4626(b)(3)(F)(ii), 
``covered proprietary losses'' means the extent to which the losses 
reflected in the member's share were incurred by the member trading 
for its own account or for the account of a customer that was a 
broker or dealer trading for its own account.
    \27\ See proposed Nasdaq Rule 4626(b)(3)(F). In addition, each 
member must maintain books and records that detail the nature and 
amount of customer compensation and covered proprietary losses. See 
id. According to Nasdaq, it, through FINRA, would expect to examine 
the accuracy of a member's attestation at a later date. See Notice, 
supra note 3, at 45712.
    \28\ See proposed Nasdaq Rule 4626(b)(3)(H); Notice, supra note 
3, at 45713 (explaining the purpose of the release requirement).
    \29\ See proposed Nasdaq Rule 4626(b)(3)(H).
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    With respect to the priority of payment under proposed Nasdaq Rule 
4626(b)(3), payments would be made in two tranches.\30\ First, if the 
member has provided customer compensation, the member would receive an 
amount equal to the lesser of the member's share \31\ or the amount of 
customer compensation.\32\ Second, the member would receive an amount 
with respect to covered proprietary losses, however, the sum of 
payments to a member would not exceed the member's share.\33\ According 
to proposed Nasdaq Rule 4626(b)(3)(G), if the amount calculated under 
the first tranche (i.e., customer compensation) exceeds $62 million, 
accommodation would be prorated among members eligible to receive 
accommodation under the first tranche. If the first tranche is paid in 
full and the amount calculated under the second tranche exceeds the 
funds remaining from the $62 million accommodation pool, such funds 
would be prorated among members eligible to receive accommodation under 
the second tranche.\34\ Further, if a member's eligibility to receive 
funds is voided under proposed Nasdaq Rule 4626(b)(3), and the funds 
payable to other members must be prorated, the funds available to pay 
other members would be increased accordingly.\35\
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    \30\ See proposed Nasdaq Rule 4626(b)(3)(G).
    \31\ See supra note 20.
    \32\ See proposed Nasdaq Rule 4626(b)(3)(G).
    \33\ See id.
    \34\ See id.
    \35\ See id.
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III. Summary of Comments and Nasdaq's Responses

    As previously noted, the Commission received a total of seventeen 
comment letters on the accommodation proposal and two response letters 
from Nasdaq.\36\ Fourteen commenters raised concerns with respect to 
the accommodation proposal,\37\ two commenters expressed their support 
for the accommodation proposal,\38\ and one commenter addressed the 
issue of exchange liability more broadly.\39\
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    \36\ See supra notes 4-5, and 8-9.
    \37\ See Triad Letter; Vandham Letter; Bram Letter; Citi Letter; 
SIFMA Letter I; UBS Letter I; Entwistle Letter; and Thompson Letter 
I, supra note 4. See also, Robinson Letter; SIFMA Letter II; Abelson 
Letter; Thompson Letter II; Mann Letter; and UBS Letter II, supra 
note 8.
    \38\ See Citadel Letter and Knight Letter, supra note 4.
    \39\ See Angel Letter, supra note 4. The Angel Letter does not 
opine on the proposal, but rather comments more generally on what 
the appropriate parameters of liability should be for national 
securities exchanges.
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    Commenters raised concerns in the following areas, each of which is 
discussed in greater detail below: (1) The requirement that market 
participants release all other potentially valid claims as a condition 
to participation in the accommodation program; (2) Nasdaq's calculation 
and use of a benchmark price of $40.527; (3) the categories of claim-
eligible trading losses; (4) the amount of the accommodation pool; (5) 
regulatory immunity from private suits and limitations on liability; 
(6) the applicability of Nasdaq Rule 4626; (7) the impact of approval 
of the accommodation proposal on pending litigation; and (8) two 
procedural issues.

A. Release of All Claims Relating to the Facebook IPO Cross

    Several commenters expressed concerns that payment to eligible

[[Page 19043]]

claimants is conditioned upon the member firm executing a release of 
claims by the firm or its affiliates against Nasdaq for losses 
associated with the Facebook IPO on May 18, 2012.\40\ Specifically, one 
commenter indicated that requiring execution of the release as a 
precondition to participation in the accommodation proposal creates a 
``fundamentally unfair dilemma'' for members.\41\ According to the 
commenter, Nasdaq members must choose to execute a release of claims 
and participate in the accommodation program, which may not make the 
member whole, or pursue ``cost-and resource-intensive alternative 
avenues of recovery.'' \42\ This commenter believes that members should 
be able to both participate in the accommodation program and be able to 
pursue other avenues of recourse. According to this commenter, any 
recovery under the accommodation program should be ``setoff against 
future claims,'' but should not preclude future claims against Nasdaq, 
especially for claims for losses that are not eligible for compensation 
under the accommodation program.\43\ This commenter further stated that 
any release requirement should be limited to the categories of claim-
eligible trading losses--allowing other avenues of recourse for losses 
that are not eligible to receive compensation under the accommodation 
program.\44\ Another commenter noted that releases of claims are 
typically the product of commercial, arms-length negotiation and not 
part of a rule imposed by a regulatory authority.\45\ Finally, one 
commenter suggested that Nasdaq members be given the option to ``opt 
in'' to the accommodation program on an order by order basis or a firm 
by firm basis.\46\
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    \40\ See UBS Letter I, supra note 4, at 3-4; Vandham Letter, 
supra note 4, at 3; Knight Letter, supra note 4, at 2; and UBS 
Letter II, supra note 8 at 3-4.
    \41\ See UBS Letter I, supra note 4, at 3.
    \42\ See id.
    \43\ See UBS Letter II, supra note 8, at 3.
    \44\ See id.
    \45\ See Knight Letter, supra note 4, at 2.
    \46\ See Vandham Letter, supra note 4, at 3.
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    In response, Nasdaq asserted that the release requirement is fair, 
reasonable, and furthers the objectives of Section 6(b)(5) of the Act 
\47\ because it is ``aimed at avoiding unnecessary litigation and 
ensuring equal treatment of all members receiving funds under the 
[accommodation] [p]roposal.'' \48\ Moreover, Nasdaq noted that 
participation in the accommodation program and execution of the release 
are entirely voluntary.\49\ Accordingly, members that wish to forgo 
participation in the accommodation program and pursue claims against 
Nasdaq instead remain free to do so.\50\ Nasdaq also noted that the use 
of a release is routine in the context of a payment in settlement of a 
disputed claim, including those brought against regulated entities.\51\ 
Finally, Nasdaq argued that allowing members to participate in the 
accommodation program without releasing Nasdaq from other claims 
related to the Facebook IPO Cross would, in effect, ``subsidize the 
costs of future litigation against itself.'' \52\
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    \47\ 15 U.S.C. 78f(b)(5).
    \48\ See Nasdaq Letter I, supra note 5, at 5. One commenter 
observed that the release requirement may actually ``deter those who 
suffered the greatest harm from participating in the Program'' which 
may result in Nasdaq exhausting the $62 million accommodation pool 
without significantly reducing Nasdaq's litigation exposure. See UBS 
Letter II, supra note 8, at note 5.
    \49\ See Nasdaq Letter I, supra note 5, at 5; and Nasdaq Letter 
II, supra note 9, at 4.
    \50\ See id.
    \51\ See id.
    \52\ See Nasdaq Letter I, supra note 5, at 5. Nasdaq stated that 
it ``is not prepared to make the accommodation it proposes to 
members that are unwilling to accept that accommodation in full 
satisfaction of any claims they might otherwise assert against 
Nasdaq.'' See Nasdaq Letter II, supra note 9, at 4.
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B. Nasdaq's Uniform Benchmark Price

    Several commenters expressed concern with Nasdaq's calculation and 
use of the uniform benchmark price of $40.527 to determine the amount 
of compensation owed to a member under the accommodation proposal.\53\ 
Generally, these commenters stated that, contrary to Nasdaq's 
assertion, a ``reasonably diligent member'' would not have mitigated 
losses during the first forty-five minutes after execution reports were 
delivered to firms.\54\ More specifically, two commenters stated that 
the uniform benchmark price should be based on a VWAP of Facebook stock 
on Monday, May 21, 2012.\55\
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    \53\ See Triad Letter, supra note 4, at 1-3; Vandham Letter, 
supra note 4, at 2; Bram Letter, supra note 4, at 1; and Citi 
Letter, supra note 4, at 2 and 10. According to Nasdaq, the forty-
five minutes after execution reports were delivered ``would have 
been ample time for a reasonably diligent member to have identified 
any unexpected customer losses or unanticipated customer positions, 
and taken steps to mitigate or liquidate them.'' See Notice, supra 
note 3, at footnote 24.
    \54\ See Triad Letter, supra note 4, at 1-3; Vandham Letter, 
supra note 4, at 2; Bram Letter, supra note 4, at 1; and Citi 
Letter, supra note 4, at 2 and 10.
    \55\ See Triad Letter, supra note 4, at 1; and Citi Letter, 
supra note 4, at 2 (stating that the benchmark price should be the 
VWAP of Facebook stock between the opening price on Monday, May 21, 
2012 and the price at noon on that same day).
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    In response, Nasdaq reasserted that the use of the VWAP of Facebook 
stock during the 45 minute window after 1:50 p.m. is appropriate as the 
benchmark price because 45 minutes provided members enough time to 
identify and mitigate any unexpected losses or unanticipated 
positions.\56\ Nasdaq argued that an objective benchmark, rather than a 
subjective benchmark premised on an evaluation of each individual 
member's circumstances and trading decisions, is necessary to avoid 
inconsistent and potentially discriminatory distributions under the 
accommodation proposal.\57\ Additionally, because Nasdaq is not 
prepared to increase the size of the $62 million accommodation pool, 
Nasdaq believes that ``a change in the benchmark price would actually 
reduce the funds available to claimants that acted quickly to mitigate 
their losses, for the benefit of those that did not.'' \58\
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    \56\ See Nasdaq Letter I, supra note 5, at 3. Specifically, 
Nasdaq noted that: (i) All orders and cancellations, including those 
entered between 11:11 a.m. and 11:30 a.m., were ``executed, 
cancelled, or released into the market'' by 1:50 p.m.; (ii) 
confirmations of all trades and cancellations had been disseminated 
to members by 1:50 p.m.; and (iii) Nasdaq began reporting a firm bid 
and ask to the tape and all data feeds were operating normally by 
1:50 p.m. See id. at 3-4. Nasdaq also stated that it issued a 
``System Status message'' informing members that all systems were 
operating normally at 1:57 p.m. See id. at 4.
    \57\ See Nasdaq Letter II, supra note 9, at 4.
    \58\ See id.
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C. Nasdaq's Categories of Claim-Eligible Trading Losses

    Several commenters stated that the types of orders eligible to 
receive compensation under the accommodation proposal are too narrowly 
defined.\59\ Two commenters believe that Nasdaq should provide 
compensation for losses resulting from ``downstream operational, 
technological and customer issues.'' \60\ One commenter stated that 
Nasdaq's system failures, specifically the failure to deliver execution 
reports for more than two hours after trading began, ``caused direct 
and severe damage'' to the commenter and other market participants and 
led to direct trading losses.\61\ Another commenter argued that 
customer orders entered before

[[Page 19044]]

11:11 a.m. on May 18, 2012, that were ``cancel/replaced'' between 11:11 
a.m. and 11:30:09 a.m. should be treated differently from other orders 
entered during such time and should be entitled to full 
compensation.\62\
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    \59\ See UBS Letter I, supra note 4, at 2-3; Citi Letter, supra 
note 4, at 7-10; Vandham Letter, supra note 4, at 3; and UBS Letter 
II, supra note 8, at 3.
    \60\ See UBS Letter I, supra note 4, at 3. See also UBS Letter 
II, supra note 8, at 3; and Citi Letter, supra note 4, at 7-10 
(noting that ``[i]n some cases, investors submitted multiple 
redundant orders based on the belief that the orders were not going 
through'' and ``[i]n other cases, investors submitted cancelations 
before receiving order confirmations, but were stuck with the 
stock.'').
    \61\ See UBS Letter I, supra note 4, at 3; UBS Letter II, supra 
note 8, at 3 (urging the Commission to condition approval of the 
accommodation proposal on expansion of the categories of losses 
eligible for compensation).
    \62\ See Vandham Letter, supra note 4, at 3. The commenter 
believes that Nasdaq's failure to properly account for cancel/
replaced orders resulted in Nasdaq ``taking the profits generated 
from certain clients to distribute amongst a larger group.'' See id.
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    Another commenter observed that the accommodation proposal provides 
no direct compensation to ``ordinary retail investors'' and does not 
guarantee that retail investors would receive any compensation for 
losses.\63\ Because Nasdaq's proposal contemplates paying retail 
customers through Nasdaq member broker-dealers, the commenter expressed 
concern that there is no guarantee that compensation will ultimately be 
passed back to the retail investor, especially in instances where the 
member's ``customer'' is another broker-dealer.\64\
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    \63\ See Thompson Letter I, supra note 4, at 3-4; and Thompson 
Letter II, supra note 8, at note 1.
    \64\ See Thompson Letter I, supra note 4, at 11. See also 
Thompson Letter II, supra note 8, at note 1.
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    Nasdaq responded by stating that the question before the Commission 
is only whether the proposal is consistent with the requirements of the 
Act.\65\ Nasdaq asserted that commenters have not argued that the 
proposal ``discriminates unfairly'' among members or that it is 
otherwise inconsistent with the requirements of the Act.\66\ Nasdaq 
stated its belief that none of the comments provide a basis for the 
Commission to determine that a modification to the methodology and 
criteria it proposed ``is necessary to remedy any inconsistency with 
the Exchange Act.'' \67\ With respect to retail investors, Nasdaq 
stated that its accommodation proposal would benefit retail investors 
with eligible claims even though Nasdaq has no direct relationship with 
them.\68\ Nasdaq noted that the accommodation proposal requires each 
member to submit an attestation detailing the amount of compensation 
provided or to be provided by the member to its customers.\69\ 
Moreover, Nasdaq pointed out that accommodation payments are to be made 
in two tranches with the first tranche going toward retail customer 
claims.\70\
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    \65\ See Nasdaq Letter I, supra note 5, at 2.
    \66\ See id. But see Robinson Letter, supra note 8, at 1; 
Abelson Letter, supra note 8, at 2; and Mann Letter, supra note 8, 
at 1 (all generally stating each commenter's belief that anything 
less than full compensation for his losses is inconsistent with the 
``just and equitable principles of trade'' and is therefore 
inconsistent with the requirements of the Act); see also Triad 
Letter, supra note 4, at 2; Vandham Letter, supra note 4, at 1, 3; 
UBS Letter I, supra note 4, at 2-3; Thompson Letter I, supra note 4, 
at 3-4 (generally arguing for greater compensation to market 
participants for their losses).
    \67\ See Nasdaq Letter I, supra note 5, at 4.
    \68\ See id. at 8.
    \69\ See id.
    \70\ See id.
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D. $62 Million Accommodation Pool is Insufficient

    Several commenters argued that the proposed $62 million 
accommodation pool is an insufficient amount to compensate market 
participants harmed by Nasdaq's systems issues.\71\ One commenter 
expressed concern that the second tranche of payments, which would 
provide compensation for covered proprietary losses \72\ (the majority 
of this commenter's losses), may not be reimbursed at all as claims for 
customer losses disbursed in the first tranche will likely exhaust the 
entire accommodation pool.\73\
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    \71\ See UBS Letter I, supra note 4, at 2 (estimating that its 
losses are ``in excess of $350 million'' and describing Nasdaq's 
proposal to pay $62 million in the aggregate as ``woefully 
inadequate''); Thompson Letter I, supra note 4, at 4 and 20; 
Thompson Letter II, supra note 8, at note 1; and UBS Letter II, 
supra note 8, at 2-4.
    \72\ See supra notes 26, 30-34 and accompanying text.
    \73\ See UBS Letter II, supra note 8, at 2-4.
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    Nasdaq responded that commenters' objections to the amount of 
compensation are ``unpersuasive'' because the Commission has already 
determined that rules, such as existing Nasdaq Rule 4626, limiting 
exchange liability are consistent with the Act.\74\ Furthermore, 
according to Nasdaq, if the accommodation proposal is disapproved, the 
current (much lower) limitation on liability of $500,000 would 
apply.\75\ Nasdaq emphasized that members who believe the amount of 
compensation offered is insufficient or otherwise dislike the 
accommodation proposal may elect not to participate.\76\ Nasdaq stated 
that it is not prepared to increase the size of the $62 million dollar 
accommodation pool.\77\ According to Nasdaq, the purpose of the 
accommodation proposal is ``to modify an existing rule that limits 
Nasdaq's liability to $500,000 in order to make additional funds 
available to compensate members and their customers for the categories 
of loss defined in the [accommodation] [p]roposal * * * .'' \78\ Nasdaq 
stated that ``[t]he purpose of the [accommodation] [p]roposal is not to 
pay all claims of losses alleged with respect to the trading of 
Facebook stock, nor even all claims of losses alleged to have been 
incurred on May 18, 2012.'' \79\ As to one commenter's concern that the 
accommodation pool will be exhausted before any payments are made in 
the second tranche for covered proprietary losses, Nasdaq stated that 
it believes that the $62 million ``will be sufficient fully to 
compensate valid claims under the terms'' of the accommodation 
proposal.\80\ Moreover, Nasdaq argued, that it believes ``the proposed 
prioritization of payment in favor of members who have or will pass 
compensation on to their customers is consistent with the Act.'' \81\
---------------------------------------------------------------------------

    \74\ See Nasdaq Letter I, supra note 5, at 2.
    \75\ See id.
    \76\ See id. at 2-3; and Nasdaq Letter II, supra note 9, at 4.
    \77\ See Nasdaq Letter II, supra note 9, at 4.
    \78\ See Nasdaq Letter I, supra note 5, at 4.
    \79\ See id. Nasdaq expanded on this point in its second 
response letter, emphasizing that the proposal is designed to 
compensate members for ``only those losses directly attributable to 
the systems issues experienced by Nasdaq'' and not ``to address 
specific members' individual problems.'' See Nasdaq Letter II, supra 
note 9, at 3.
    \80\ See Nasdaq Letter II, supra note 9, at 4.
    \81\ See id.
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E. Regulatory Immunity from Private Suits and Limitations on Liability

    A number of commenters asserted that Nasdaq is not entitled to 
immunity from liability because it was acting in its ``for profit'' 
capacity in its handling of the Facebook IPO, rather than acting in its 
``regulatory capacity'' as a self-regulatory organization.\82\ However, 
several commenters stated their belief that the broader issues of 
regulatory immunity and limitations on exchange liability should be 
considered separately from Nasdaq's accommodation proposal.\83\
---------------------------------------------------------------------------

    \82\ See Citi Letter, supra note 4, at 2-4 and 12-15; SIFMA 
Letter I, supra note 4, at 2-4; Thompson Letter I, supra note 4, at 
8-10; Thompson Letter II, supra note 8, at note 1; and UBS Letter 
II, supra note 8, at 4-5.
    \83\ See Citadel Letter, supra note 4, at 2; Knight Letter, 
supra note 4, at 2; Thompson Letter II, supra note 8, at note 2; UBS 
Letter II, supra note 8, at 4-5; SIFMA Letter II, supra note 8, at 
3.
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    Nasdaq responded that the Commission's task with regard to the 
accommodation proposal is only to determine whether the proposed rule 
change is consistent with the Act, and the Commission does not need to 
address the issue of regulatory immunity to do so.\84\
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    \84\ See Nasdaq Letter I, supra note 5, at 6-7.
---------------------------------------------------------------------------

F. Applicability of Nasdaq Rule 4626

    According to one commenter, market participants' losses ``resulted 
not from the type of ordinary system failures contemplated by Rule 4626 
* * *, but rather from a known design flaw that resulted in a similar 
technology issue dating back to Fall 2011, as well as Nasdaq's high-
risk, profit-oriented

[[Page 19045]]

behavior prior to and during the IPO * * *'' \85\ This commenter argued 
that it is improper to use Rule 4626 to create an accommodation fund in 
connection with the Facebook IPO because the losses suffered in 
connection with the IPO do not fall within the parameters of Rule 
4626.\86\
---------------------------------------------------------------------------

    \85\ See Citi Letter, supra note 4, at 4, and 15-16.
    \86\ See id.
---------------------------------------------------------------------------

    Nasdaq emphasized in response that Rule 4626 is a pre-existing 
Commission approved rule and that the rule squarely applies to Nasdaq's 
systems issues related to the Facebook IPO.\87\
---------------------------------------------------------------------------

    \87\ See Nasdaq Letter I, supra note 5, at 5-6.
---------------------------------------------------------------------------

G. Impact on Pending Litigation

    Two commenters expressed concern that Commission approval of the 
accommodation proposal might negatively impact other adjudications of 
disputes with Nasdaq regarding the Facebook IPO.\88\ The commenters 
expressed concern that courts or other adjudicative bodies might 
interpret Commission approval of the accommodation proposal as defining 
or approving the classes of eligible claimants as restricted only to 
market participants who submitted one of the four enumerated Cross 
order types.\89\ Nasdaq did not specifically respond to commenters' 
concerns on this issue.
---------------------------------------------------------------------------

    \88\ See Thompson Letter I, supra note 4, at 4-8; and Entwistle 
Letter, supra note 4, at 2. See also Thompson Letter II, supra note 
8, at 2-3.
    \89\ See Thompson Letter I, supra note 4, at 4-8; and Entwistle 
Letter, supra note 4, at 2. One commenter also expressed concern 
about the potential impact of Commission approval on pending 
litigation with respect to: (i) Nasdaq's claim of immunity; (ii) the 
causes and effects of Nasdaq's system issues; (iii) the validity of 
Nasdaq's uniform benchmark price as an estimate of Facebook's stock 
price in the absence of any Nasdaq systems issues; (iv) the types 
and categories of losses that should or should not be recognized as 
compensable; and (v) various other factual and legal assumptions the 
commenter believes Nasdaq's accommodation proposal contains. See 
Thompson Letter II, supra note 8, at 2.
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H. Procedural Concerns

    Several commenters raised procedural concerns regarding the 
implementation of the accommodation proposal.\90\ Two commenters noted 
that Nasdaq should waive the one-year time limit to bring actions 
against Nasdaq in Sections 18(H) and 19 of its Service Agreement given 
the amount of time it could take to implement the compensation process 
set forth in the proposed rule change.\91\ Four commenters stated that 
Nasdaq member firms should not be required to release Nasdaq from 
liability before member firms receive notice of a final payment amount 
pursuant to the accommodation proposal.\92\
---------------------------------------------------------------------------

    \90\ See Citi Letter, supra note 4, at 16; SIFMA Letter I, supra 
note 4, at 5; Knight Letter, supra note 4, at 2; and SIFMA Letter II 
supra note 8, at 3.
    \91\ Section 18(H) provides ``that any claim, dispute, 
controversy, or other matter in question arising out of the 
agreement must be made no later than one year after it has arisen. 
Section 19 of the agreement provides that any claim, dispute, 
controversy, or other matter in question arising out of the 
agreement is expressly waived if it is not brought within that 
period.'' See SIFMA Letter I, supra note 4, at 5; see also Citi 
Letter, supra note 4, at 16; and SIFMA Letter II, supra note 8, at 
3.
    \92\ See SIFMA Letter I, supra note 4, at 5-6; Citi Letter, 
supra note 4, at 16; Knight Letter, supra note 4, at 2; and UBS 
Letter II, supra note 8, at 4. See also SIFMA Letter II supra note 
8, at 2.
---------------------------------------------------------------------------

    Nasdaq responded that commenters' requests to extend the one-year 
time limit for members to bring claims against Nasdaq improperly ask 
the Commission to interfere with existing contractual relationships 
that have no bearing on whether Nasdaq Rule 4626 should be amended.\93\ 
As for concerns that claimants might have to release their claims 
against Nasdaq prior to receiving compensation under the accommodation 
proposal, Nasdaq represents that the release will become effective upon 
payment.\94\
---------------------------------------------------------------------------

    \93\ See Nasdaq Letter I, supra note 5, footnote 11. Nasdaq 
believes that members who voluntarily choose to proceed with their 
claims outside of the accommodation proposal ``should do so under 
the terms and conditions they have agreed to, and not seek to use 
the Commission's notice and comment process to renegotiate their 
prior contractual commitments.'' See id.
    \94\ See id. at footnote 9. Nasdaq also stated that it intends 
to implement the accommodation proposal such that a member would be 
aware of the results of its claim prior to being required to execute 
a release. See id. See also, SIFMA Letter II, supra note 8, at 2 
(stating that this commenter appreciated Nasdaq's clarification on 
this issue).
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    As described above, commenters have raised a number of concerns 
about the proposed rule change, many contending that it is not a fair 
or equitable approach to compensating market participants harmed by 
Nasdaq's system issues. Nasdaq has explained, however, that it did not 
design the proposed rule change to compensate all claims of loss 
suffered by market participants relating to Nasdaq's system 
difficulties with the Cross.\95\ Rather, Nasdaq, in the accommodation 
proposal, is proposing to change a Nasdaq rule that in its current form 
strictly limits the amount of compensation that may be paid to users of 
the Nasdaq Market Center. In considering whether to approve the 
proposed rule change, the Commission takes into account the existing 
circumstances and the manner in which the current Nasdaq rules would 
operate if the Commission disapproved the proposed rule change.\96\
---------------------------------------------------------------------------

    \95\ See supra notes 78 to 79 and accompanying text. Several 
commenters observed that the accommodation proposal will indeed not 
result in full compensation for their losses. See, e.g., supra notes 
71-73 and accompanying text. Commenters also noted that some market 
participants have brought legal actions alleging claims against 
Nasdaq based on system difficulties encountered during the Facebook 
IPO. See Thompson Letter I, supra note 4, at 3; and Entwistle 
Letter, supra note 4, at 1. The Commission notes that approval of 
this proposed rule change has no bearing on claims made in any 
pending litigation against Nasdaq related to systems difficulties 
encountered during the Facebook IPO.
    \96\ While commenters have suggested various modifications to 
the accommodation proposal that would, in their view, make it 
better, the Commission's authority is only to approve or disapprove 
the change as proposed by Nasdaq. See generally Section 19(b) of the 
Act.
---------------------------------------------------------------------------

    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.\97\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\98\ which requires, among 
other things, that the rules of a national securities exchange be 
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 regulating, clearing, 
settling, processing information with respect to, and 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, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \97\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \98\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Existing Nasdaq rules state that Nasdaq and its affiliates are not 
liable for any losses, damages, or other claims arising out of the 
Nasdaq Market Center or its use.\99\ However, as noted above,\100\ 
Nasdaq Rule 4626(b) currently allows Nasdaq to compensate users of the 
Nasdaq Market Center for certain types of losses directly resulting 
from its systems' actual failures. Under current Nasdaq Rule 
4626(b)(1), payment for all such claims made by all market participants 
during a single calendar month cannot exceed the larger of $500,000 or 
the amount of recovery obtained by Nasdaq under any applicable 
insurance policy.\101\ While the accommodation proposal is not designed 
to, and would not, compensate all claims of loss suffered by market 
participants relating to Nasdaq's system

[[Page 19046]]

difficulties with the Cross,\102\ the Commission notes that the 
accommodation proposal would create a means of providing significantly 
more compensation for eligible claims, outside of litigation, than 
would otherwise be available under existing Nasdaq Rule 4626(b). 
Accordingly, approval of the proposed rule change will make more funds 
available to compensate investors and Nasdaq members under Nasdaq's 
rules, which the Commission believes is in the public interest.\103\
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    \99\ See Nasdaq Rule 4626(a).
    \100\ See supra notes 11-12 and accompanying text.
    \101\ See Nasdaq Rule 4626(b)(1).
    \102\ See supra note 79 and accompanying text.
    \103\ Several commenters questioned the adequacy of the amount 
of compensation that would be provided to Nasdaq members under the 
accommodation proposal as well as the calculation and use of the 
benchmark price in determining the amount of loss repayable under 
the accommodation proposal. See supra notes 53-55, 71 and 
accompanying text.
---------------------------------------------------------------------------

    The Commission believes that the proposal sets forth objective and 
transparent processes to determine eligible claims and how such claims 
would be paid to Nasdaq members that elect to participate in the 
accommodation plan. Specifically, Nasdaq proposes to provide additional 
compensation beyond that available under existing Rule 4626(b)(1) for 
claims of realized or unrealized direct trading losses arising from 
four specific categories of Cross orders.\104\ Also, as noted above, 
proposed Nasdaq Rule 4626(b)(3)(B) would set forth the methods for 
calculating the amount of losses for each of the four categories of 
Cross orders.\105\ In addition, proposed Nasdaq Rule 4626(b)(3)(D) 
specifies the time period for a member to submit its claim and provides 
that FINRA would process and evaluate the claims.\106\ Proposed Nasdaq 
Rule 4626(b)(3)(E) sets forth details regarding FINRA's review process, 
the timing of payments by Nasdaq, and the manner of payment (i.e., in 
cash).\107\
---------------------------------------------------------------------------

    \104\ See proposed Nasdaq Rule 4626(b)(3)(A).
    \105\ See supra notes 18-20 and accompanying text.
    \106\ See supra notes 21-23 and accompanying text.
    \107\ See supra notes 23-24 and accompanying text.
---------------------------------------------------------------------------

    As discussed in more detail above, several commenters objected to 
limiting compensation under the accommodation proposal to the four 
categories of Cross orders.\108\ Further, several commenters questioned 
the adequacy of the amount of compensation that would be provided to 
Nasdaq members under the accommodation proposal as well as the 
calculation and use of the benchmark price in determining the amount of 
loss repayable under the accommodation proposal.\109\ In determining 
that approval of the accommodation proposal is consistent with the Act, 
the Commission is not reaching any conclusion on the overall adequacy 
of the amount of the compensation pool, the benchmark price used, or 
other limitations on eligibility.
---------------------------------------------------------------------------

    \108\ See supra notes 59-64 and accompanying text.
    \109\ See supra notes 53-55, 71 and accompanying text.
---------------------------------------------------------------------------

    In order to receive compensation under proposed Nasdaq Rule 
4626(b)(3), a member must timely submit to Nasdaq an attestation 
detailing the amount of customer compensation and covered proprietary 
losses.\110\ The proposal would further require the member to maintain 
books and records that detail the nature and amount of customer 
compensation and covered proprietary losses.\111\ The Commission 
believes that the proposed attestation and recordkeeping requirements 
should help incentivize Nasdaq members to accurately determine the 
amount of customer compensation and covered proprietary losses and 
submit claims accordingly. Moreover, payments made pursuant to proposed 
Nasdaq Rule 4626(b)(3) would be made in two tranches--a member would 
first receive an amount equal to the lesser of the member's share or 
the amount of customer compensation,\112\ and then receive an amount 
with respect to covered proprietary losses.\113\ The Commission 
believes that, because the accommodation proposal would accommodate 
members for customer losses before accommodating members for 
proprietary losses, the accommodation proposal should encourage members 
to compensate their customers for customer losses related to the 
Facebook IPO.
---------------------------------------------------------------------------

    \110\ See proposed Nasdaq Rule 4626(b)(3)(F).
    \111\ See id.
    \112\ See supra note 25 (defining ``customer compensation'').
    \113\ See proposed Nasdaq Rule 4626(b)(3)(G). See also supra 
notes 26 (defining ``covered proprietary losses'') and 30-35 and 
accompanying text (explaining how funds are to be allocated).
---------------------------------------------------------------------------

    Lastly, in order to receive payments under proposed Nasdaq Rule 
4626(b)(3), within 14 days after the effective date of a separate 
proposed rule change setting forth the amount of eligible claims, a 
member must execute and deliver to Nasdaq a release of all claims by 
the member or its affiliates against Nasdaq or its affiliates for 
losses that arise out of, are associated with, or relate in any way to 
the Facebook IPO Cross or to any actions or omissions related in any 
way to that Cross.\114\ As discussed above, several commenters opposed 
the proposed waiver of claims.\115\ However, although a member must 
execute a release of claims in order to receive any payment under 
proposed Nasdaq Rule 4626(b)(3), participation in the accommodation 
program is voluntary, which means a member is free to elect not to 
submit a claim for compensation under the accommodation program and 
choose instead to pursue other remedies.\116\
---------------------------------------------------------------------------

    \114\ See proposed Nasdaq Rule 4626(b)(3)(H).
    \115\ See supra notes 40-46 and accompanying text.
    \116\ The Commission notes that Nasdaq intends to implement the 
accommodation proposal such that a member would be aware of the 
results of its claim prior to being required to execute a release 
and that Nasdaq represents that the release will become effective 
upon payment. See supra note 94 and accompanying text.
---------------------------------------------------------------------------

    For the reasons discussed in this section, the Commission finds 
that Nasdaq's proposal to amend its existing Rule 4626 to increase the 
amount of compensation Nasdaq is authorized to provide from $500,000 to 
$62 million for certain types of claims arising in connection with the 
Facebook IPO on May 18, 2012, is consistent with the Section 6(b)(5) of 
the Act. In reaching its conclusion, the Commission is relying on the 
representations made by Nasdaq in its accommodation proposal, but is 
not making any determinations regarding the accuracy of the facts as 
represented by Nasdaq, and notes that certain commenters have contested 
Nasdaq's representation of the facts. In addition, the Commission is 
not expressing any view with respect to any issue other than whether 
the proposed rule change is consistent with Section 19(b) of the Act. 
For example, as discussed above, several commenters questioned whether 
Nasdaq should be entitled to immunity from liability based on its 
actions with respect to the Facebook IPO.\117\ Other commenters argued 
that the question of whether regulatory immunity applies should be 
considered separately from this proposed rule change.\118\ Whether 
regulatory immunity should apply to Nasdaq in connection with its 
actions related to the Facebook IPO is outside the scope of the 
proposed rule change and the Commission's consideration of such 
proposed rule change. Similarly, as discussed in more detail above, 
several commenters expressed concern that approval of the proposed rule 
change could potentially impact pending litigation with Nasdaq 
regarding the Facebook IPO.\119\ The Commission emphasizes that this 
approval order addresses only whether the proposed change to Nasdaq's 
existing

[[Page 19047]]

accommodation rule is consistent with Section 19(b) of the Act. The 
Commission also notes that, given the amount of time it could take to 
implement the compensation process set forth in the proposed rule 
change, several commenters urged Nasdaq to waive the one-year time 
limit set forth in Nasdaq's service agreement within which members must 
bring actions against Nasdaq.\120\ Because Nasdaq's service agreement 
is not before the Commission as a part of this proposed rule change, 
the Commission expresses no view with respect to whether Nasdaq should 
provide an exception under the service agreement. Finally, in issuing 
this order, the Commission is expressing no view as to whether Nasdaq 
or any other person may have violated the federal securities laws or 
any other laws, any rule or regulation thereunder, or the rules of 
Nasdaq or any other self-regulatory organization, in connection with 
the Facebook IPO.
---------------------------------------------------------------------------

    \117\ See supra note 82 and accompanying text.
    \118\ See supra note 83 and accompanying text.
    \119\ See supra notes 88-89 and accompanying text.
    \120\ See supra note 91 and accompanying text.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\121\ that the proposed rule change (SR-NASDAQ-2012-090) be, and 
hereby is, approved.
---------------------------------------------------------------------------

    \121\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07192 Filed 3-27-13; 8:45 am]
BILLING CODE 8011-01-P