[Federal Register Volume 85, Number 154 (Monday, August 10, 2020)]
[Notices]
[Pages 48303-48306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17349]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89468; File No. SR-NYSECHX-2020-24]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Governing
Liability of Directors and of the Exchange
August 4, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 30, 2020, the NYSE Chicago, Inc. (``NYSE Chicago''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
[[Page 48304]]
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 rules governing liability of directors and
of the Exchange, including the limits on liability for specified
circumstances, that would harmonize such rules with those of the
Exchange's affiliates NYSE Arca, Inc. (``NYSE Arca'') and NYSE
National, Inc. (``NYSE National''). The proposed rule change is
available on the Exchange's website 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
The purpose of this proposed rule change is to change the rules
governing liability of directors and of the Exchange, including the
limits on liability for specified circumstances. Specifically, the
Exchange proposes to replace Article 3, Rule 19 with new Rules 13.1
(Liability of Directors), 13.2 (Liability of Exchange), 13.3 (Legal
Proceedings Against Exchange Directors, Officers, Employees or Agents)
and 13.4 (Exchange's Costs of Defending Legal Proceedings). Proposed
Rules 13.1 through 13.4 are based on the rules set forth in NYSE Arca
Rule 14 and NYSE National Rule 13, with non-substantive differences to
use the term ``Participant'' \4\ rather than the terms ``ETP Holders,''
``OTP Holders'' or ``OTP Firms,'' which terms are not used on the
Exchange.\5\ The Exchange also proposes to delete Article 3, Rule 19,
which is the Exchange's current rule related to liability of the
Exchange.
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\4\ The term ``Participant'' is defined in Article 1, Rule 1(s)
to mean, among other things, any Participant Firm that holds a valid
Trading Permit and that a Participant shall be considered a
``member'' of the Exchange for purposes of the Act. If a Participant
is not a natural person, the Participant may also be referred to as
a Participant Firm, but unless the context requires otherwise, the
term Participant shall refer to an individual Participant and/or a
Participant Firm.
\5\ See NYSE Arca Rules 14.1 through 14.4 and NYSE National
Rules 13.1 through 13.4.
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In July 2018, the Exchange and its direct parent company were
acquired by NYSE Group, Inc. (``Transaction'').\6\ As a result of the
Transaction, the Exchange became part of a corporate family including
five separate registered national securities exchanges.\7\ Following
the Transaction, the Exchange continued to operate as a separate self-
regulatory organization and with rules, membership rosters and listings
distinct from the rules, membership rosters and listings of the other
NYSE Exchanges.
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\6\ See Securities Exchange Act Release No. 83635 (July 13,
2018), 83 FR 34182 (July 19, 2018) (SR-CHX-2018-004); see also
Securities Exchange Act Release No. 83303 (May 22, 2018), 83 FR
24517 (May 29, 2018) (SR-CHX-2018-004).
\7\ In addition to NYSE Arca and NYSE National, the Exchange has
two other registered national securities exchange affiliates: New
York Stock Exchange LLC (``NYSE'') and NYSE American LLC (``NYSE
American'') (collectively, the Exchange, NYSE, NYSE Arca, NYSE
National, and NYSE American, the ``NYSE Exchanges'').
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Following the Transaction, the Exchange established a rule
numbering framework in connection with the migration of the Exchange to
the NYSE Pillar platform \8\ and has aligned its trading rules with the
rules of its affiliated NYSE Exchanges in order to provide consistent
standards while operating on the Pillar platform.\9\ As part of this
effort, the proposal set forth below further harmonizes the Exchange's
rules governing liability of directors and of the Exchange, including
liability caps and related reimbursement requirements, with those of
NYSE Arca and NYSE National in order to provide uniform standards and
requirements.
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\8\ See Securities Exchange Act Release No. 85297 (March 12,
2019), 84 FR 9854 (March 18, 2019) (SR-NYSECHX-2019-03) (Notice of
filing and immediate effectiveness of proposed rule change to
establish a rule numbering framework).
\9\ See Securities Exchange Act Release No. 87264 (October 9,
2019), 84 FR 55345 (October 16, 2019) (SR-NYSECHX-2019-08) (Approval
Order of proposal to add rules to support the transition of trading
to the Pillar Trading Platform).
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Currently, Article 3, Rule 19 (Limitation of Liability), generally
states that neither the Exchange, nor its affiliates, nor any of the
directors, officers, committee members, officials, employees,
contractors or agents of the Exchange or its affiliates would be liable
to Participants or persons associated with Participants for any loss
arising out of the use of the facilities, systems, services or
equipment provided by the Exchange or for any loss associated with an
interruption in, or in a failure or unavailability of any such
facilities, systems, services or equipment, whether or not the loss
resulted from negligence or other unintentional errors omissions or
from any other cause within or without the Exchange's control.\10\ The
rule also states that the Exchange makes no warranty as to results that
might be obtained by persons using the Exchange's facilities or
services or any data transmitted by or on behalf of the Exchange.\11\
Further, the rule bars a Participant from instituting a legal
proceeding against the Exchange, its affiliates or their directors,
officer, committee members, officials, employees, contractors or agents
for actions taken or omitted in connection with the official business
of the Exchange, except to the extent that such actions or omissions
constitute violations of the Federal securities laws for which a
private right of action exists.\12\ Finally, the rule provides that any
Participant who fails to prevail in a lawsuit or administrative
adjudicative proceeding against the Exchange or any of its officers,
directors, committee members, employees or agents, shall pay to the
Exchange all reasonable expenses, including attorneys' fees, incurred
by the Exchange in the defense of such proceeding if such expenses
exceed $50,000.00.\13\
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\10\ See Article 3, Rule 19(a).
\11\ See Article 3, Rule 19(b).
\12\ See Article 3, Rule 19(c).
\13\ See Article 3, Rule 19(e).
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The Exchange now proposes to replace Article 3, Rule 19 with Rules
13.1 through 13.4 to add rules related to liability of directors and of
the Exchange, including the liability caps and reimbursement
requirements that are based on the rules of NYSE Arca and NYSE
National.\14\
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\14\ See note 5, supra.
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Proposed Rule 13.1 would provide that any provision of the
Certificate of Incorporation, Bylaws or the Rules of the Exchange that
provides or purports to provide that the members of the Board of
Directors shall not be liable to the Exchange or its Participants for
monetary damages for breach of fiduciary duty as a Manager shall not be
applied in any instance in which such liability arises directly or
indirectly as a result of a violation of federal securities laws.\15\
The Exchange does not currently
[[Page 48305]]
have a rule that is analogous to proposed Rule 13.1.
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\15\ Proposed Rule 13.1 is substantively identical to NYSE Arca
Rule 14.1 and NYSE National 13.1.
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Proposed Rule 13.2(a) \16\ would provide that except as otherwise
expressly provided in the Exchange's rules, neither the Exchange nor
its Directors, officers, committee members, employees or agents shall
be liable to the Participants of the Exchange, or successors,
representatives or customers thereof, or to persons associated
therewith 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 agents acting within the scope
of their authority. The limitation of liability set forth in proposed
Rule 13.2(a) would not apply to violations of federal securities laws.
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\16\ Proposed Rule 13.2(a) is substantively identical to NYSE
Arca Rule 14.2(a) and NYSE National Rule 13.2(a).
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Proposed Rule 13.2(a) would further provide that subject to certain
exceptions, the Exchange would have no liability to any person for any
loss, expense, damages or claims that result from any error, omission
or delay in calculating or disseminating any current or closing index
value, or any reports of transactions in or quotations for securities
traded on the Exchange. The first two paragraphs of proposed Rule
13.2(a) replace Article 3, Rule 19(a) and are based on the first two
paragraphs of NYSE Arca Rule 14.2(a) and NYSE National Rule 13.2(a)
without any substantive differences. Additionally, proposed Rule
13.2(a) would provide that the Exchange makes no warranty as to results
that might be obtained by any person or entity from the use of any data
transmitted to disseminated by or on behalf of the Exchange or any
reporting authority designated by the Exchange. This paragraph of
proposed Rule 13.2(a) replaces Article 3, Rule 19(b), and is based on
the third paragraph of NYSE Arca Rule 14.2(a) and NYSE National Rule
13.2(a) without any substantive differences.
Proposed Rule 13.2(b) \17\ would provide that the Exchange would
compensate Participants for losses whenever custody of an unexecuted
order is transmitted by a Participant to or through the Exchange's
order routing systems, electronic book or automatic executions systems
or to any other automated facility of the Exchange. Under proposed Rule
13.2(b)(1), the Exchange would cap its liability to all Participants at
the greater of $500,000 or the amount recovered under any applicable
insurance policy in a single calendar month. The Exchange does not
currently have a rule that is analogous to proposed Rule 13.2(b).
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\17\ Proposed Rule 13.2(b) is substantively identical to NYSE
Arca Rule 14.2(b) and NYSE National Rule 13.2(b).
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Proposed Rule 13.2(c) \18\ would provide that that to the extent
that all claims arising out of the use or enjoyment of the facilities
afforded by the Exchange cannot be fully satisfied because in the
aggregate they exceed the applicable maximum amount of liability
provided for, then the Exchange would allocate the maximum amount among
all such claims arising during a single calendar month based on the
proportion that each such claim bears to the sum of all such claims.
The Exchange does not currently have a rule that is analogous to
proposed Rule 13.2(c).
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\18\ Proposed Rule 13.2(c) is substantively identical to NYSE
Arca Rule 14.2(c) and NYSE National Rule 13.2(c).
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Proposed Rule 13.2(d) \19\ would provide that in order for a
Participant to be eligible to receive compensation, claims must be made
in writing and must be submitted no later than 12 p.m. Eastern Time on
the next business day following the day on which the use or enjoyment
of the Exchange's facilities gave rise to such claims. The Exchange
does not currently have a rule that is analogous to proposed Rule
13.2(d).
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\19\ Proposed Rule 13.2(d) is substantively identical to NYSE
Arca Rule 14.2(d) and NYSE National Rule 13.2(d).
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Proposed Rule 13.3 would establish requirements relating to legal
proceedings against directors, officers, employees, agents, or other
officials of the Exchange. This proposed rule replaces Article 3, Rule
19(c), and is based on NYSE Arca Rule 14.3 and NYSE National Rule 13.3
without any substantive differences.
Proposed Rule 13.4 would establish the circumstances regarding who
is responsible for the Exchange's costs in defending a legal proceeding
brought against the Exchange. This proposed rule replaces Article 3,
Rule 19(e), and is based on NYSE Arca Rule 14.3 and NYSE National Rule
13.3 without any substantive differences.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\20\ in general, and
furthers the objectives of Section 6(b)(5),\21\ 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.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that proposed Rule 13 would remove
impediments to and perfect the mechanism of a free and open market and
a national market system by harmonizing the Exchange's rules governing
liability of directors, liability of exchange, legal proceedings
against Exchange directors, officers, employees, or agents, and
Exchange's costs of defending legal proceedings with the approved rules
of its affiliated exchanges, NYSE Arca and NYSE National. The Exchange
believes that the proposed rules would further promote just and
equitable principles of trade by providing for consistent methodology
relating to liability for trading on affiliated exchanges that use the
same trading platform. The proposed rule change would therefore promote
consistency among the Exchange and its affiliates and make its rules
easier to navigate for the public, the Commission, and Participants.
The proposed rule change is also intended to align the liability
caps and compensation claims requirements with the caps and
requirements currently provided by the Exchange's affiliates, NYSE Arca
and NYSE National, and would therefore provide consistent rules across
those exchanges.\22\ Consistent rules, in turn, would simplify the
regulatory requirements for Participants of the Exchange that are also
members on those affiliated exchanges. The Exchange believes that the
proposed rule change would provide greater harmonization among similar
rules of NYSE Arca and NYSE National, resulting in greater uniformity
and more efficient regulatory compliance. As such, the proposed rule
change would foster cooperation and coordination with persons engaged
in facilitating transactions in securities and would remove impediments
to and perfect the mechanism of a free and open market and a national
market system.
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\22\ See note 5, supra.
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Lastly, the Exchange notes that the proposal to adopt provisions
governing liability of directors, liability of exchange, legal
proceedings against
[[Page 48306]]
Exchange directors, officers, employees, or agents, and Exchange's
costs of defending legal proceedings are similar to those approved by
the Commission for a number of self-regulatory organizations. More
specifically, the Commission recently approved the Members Exchange
Form 1 application which includes Rule 11.14 (Limitation of
Liability),\23\ the Long-Term Stock Exchange Form 1 application which
includes Rule 11.260 (Limitation of Liability),\24\ and the Investors
Exchange Form 1 application which includes Rule 11.260 (Limitation of
Liability).\25\
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\23\ See Securities Exchange Act Release No. 88806 (May 4,
2020), 85 FR 27451 (May 8, 2020) (In the Matter of the Application
of MEMX LLC for Registration as a National Securities Exchange;
Findings, Opinion, and Order of the Commission).
\24\ See Securities Exchange Act Release No. 85828 (May 10,
2019), 84 FR 21841 (May 15, 2019) (In the Matter of the Application
of Long-Term Stock Exchange, Inc.; for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the
Commission).
\25\ See Securities Exchange Act Release No. 78101 (June 17,
2016), 81 FR 41142 (June 23, 2016) (In the Matter of the Application
of: Investors' Exchange, LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the
Commission).
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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 not necessary or appropriate in
furtherance of the purposes of the Act because all Participants would
be subject to the same limits on liability, liability caps and
reimbursement requirements. The proposed rule change is designed to
provide greater harmonization among similar rules across the Exchange's
affiliates, NYSE Arca and NYSE National, resulting in more efficient
regulatory compliance for common members.
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)(iii) of the Act \26\ and Rule 19b-4(f)(6) thereunder.\27\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
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.
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\26\ 15 U.S.C. 78s(b)(3)(A)(iii).
\27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \28\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\28\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSECHX-2020-24 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-NYSECHX-2020-24. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSECHX-2020-24, and should be submitted
on or before August 31, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17349 Filed 8-7-20; 8:45 am]
BILLING CODE 8011-01-P