[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