Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
NYSE Arca proposes to amend NYSE Arca Equities Rule 7.10 governing clearly erroneous executions (“CEE”) on the Archipelago Exchange, the equities trading facility of NYSE Arca Equities, Inc. (“NYSE Arca Equities”). Specifically, the Exchange proposes to assess a fee associated with the appellate mechanism of NYSE Arca Equities Rule 7.10.
The text of the proposed rule change is available on NYSE Arca's Web site (
In its filing with the Commission, NYSE Arca included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NYSE Arca has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
The Exchange amended NYSE Arca Equities Rule 7.10 (Clearly Erroneous Executions) to include subsections (c)(2)–(4), which amendment became effective May 16, 2005. NYSE Arca Equities Rules 7.10(c)(2)–(4) provide for an appeals panel that includes the Exchange's Chief Regulatory Officer (“CRO”), or a designee of the CRO, and two representatives from Equity Trading Permit (“ETP”) Holders (together with the CRO, the “CEE Panel”) to review the determination of clearly erroneous executions that are made by an NYSE Arca Equities officer under NYSE Arca Equities Rule 7.10(c)(1).
As part of its continuing efforts to enhance the appeal process, the Exchange proposes to add NYSE Arca
Since NYSE Arca Equities Rules 7.10(c)(2)–(4) were adopted, the Exchange has found that some ETP Holders have taken advantage of the process by categorically appealing all decisions in which they are involved, including decisions that involve a
Furthermore, under NYSE Arca Equities Rule 7.10(c)(1), an ETP Holder may request that an NYSE Arca Equities officer review any transaction the ETP Holder regards as erroneous. Accordingly, an officer renders an official determination whether the transaction is erroneous and, if so, whether it should be canceled or modified. The initial determination made by the NYSE Arca Equities officer is done at no charge to the ETP Holder, and the Exchange believes that any further examination of the execution should incur a modest fee, in the event the original decision is upheld, to reduce the number of frivolous and abusive appeals.
The Exchange notes that the appeal process draws upon the resources of not only the Exchange but also of the ETP Holders who volunteer as appeal panelists pursuant to NYSE Arca Equities Rule 7.10(c)(2)(A). Specifically, an appeal requires the efforts of two NYSE Arca Equities employees to accept and process the appeal (
Moreover, the CEE Panel is largely dependent on ETP Holder participation. Each panel member is a volunteer and dedicates his or her own time to the CEE Panel, which often meets during the busiest periods in a trading day. The Exchange believes that constant abuse of this process would likely foster volunteer frustration and may lead panelists to withdraw entirely from participating in the process.
The Exchange believes that appeals such as those described above represent an unintended use of the appeal process and demonstrate that abuses can proliferate when ETP Holders incur no downside risk to filing repeated appeals, whether valid or otherwise, and, in effect, are given a free second bite at the apple. Therefore, the Exchange believes that it is necessary to limit the abuse of the process and reduce the number of frivolous and
When the Exchange amended NYSE Arca Equities 7.10(c)(2) to provide for an appeals process, the Exchange did not intend for the CEE Panel to serve as a redundant decision making mechanism, and it did not anticipate that the CEE Panel would be called upon to meet as frequently as it does today. Additionally, while the Exchange does not have statistical data surrounding other self-regulatory organizations' appeal processes, the Exchange understands that usage of their appellate mechanism is done sparingly and is not exploited by their members.
The Exchange did not anticipate these effects when it proposed NYSE Arca Equities Rule 7.10(c)(2)–(4). As a result, the Exchange deems it necessary to propose a fee of $500 against each ETP Holder who appeals a decision made under NYSE Arca Equities Rule 7.10(c)(1) and such decision is confirmed by the CEE Panel.
The proposed rule change is consistent with Section 6(b)
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act.
The Exchange has neither solicited nor received written comments on the proposed rule change.
Within 35 days of the date of publication of this notice in the
(A) By order approve the proposed rule change or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
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:
• Use the Commission's Internet comment form (
• Send an e-mail to
• Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.