[Federal Register Volume 61, Number 132 (Tuesday, July 9, 1996)]
[Notices]
[Pages 36100-36102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17448]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37391; File No. SR-PSE-96-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange, Inc., Relating to the Liability
of the Exchange and its Governors, Officers, and Agents
July 1, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 17, 1996, the Pacific Stock Exchange, Inc. (``PSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule
[[Page 36101]]
change as described in Items I, II, and III below, which Items have
been prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The PSE, pursuant to Rule 19b-4 of the Act, proposes to adopt new
provisions pertaining to the liability of the Exchange and to amend an
existing provision. Specifically, the PSE proposes to adopt: new Rule
13.2, Liability of Exchange, which clarifies and broadens the existing
limitations on the Exchange's liability; new Rule 13.3, Legal
Proceedings Against Exchange Governors, Officers, Employees or Agents,
which prohibits members from instituting certain types of legal
proceedings against Exchange officials; and new Rule 13.4, Exchange's
Cost of Defending Legal Proceedings, which provides for the recovery of
the Exchange's defense costs in certain circumstances. In addition, the
PSE proposes to amend Rule 6.59, Liability of Exchange for Actions of
Order Book Officials, to clarify its purposes and to provide a
reference to the new provisions in Rule 13.
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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Liability of Exchange
The principal rule concerning Exchange liability is contained in
Article VI, Section 6 of the PSE Constitution. Article VI, Section 6
provides that the Exchange is not liable to members for damages arising
out of the use or enjoyment of Exchange facilities in the conduct of
their business.
New Rule 13.2(a) \3\ clarifies that, except as otherwise expressly
provided in the rules of the Exchange, neither the Exchange nor its
Governors, officers, committee members, employees, or agents shall be
liable to members or their associated persons except where the
Exchange's liability is attributable to willful misconduct, gross
negligence, bad faith, fraud, or criminal acts. In addition, new Rule
13.2(a) clarifies that the limitation of the Exchange's liability
includes interruption, failure or unavailability of Exchange facilities
or services.
---------------------------------------------------------------------------
\3\ The PSE notes that new Rule 13.2(a) is based on Chicago
Stock Exchange (``CHX'') Article I, Rule 18(a) and the proposed rule
changes filed by the Chicago Board Options Exchange (``CBOE'') to
Rule 6.7(a). See Securities Exchange Act Release No. 36863 (February
20, 1996), 61 FR 7285 (February 27, 1996) (File No. SR-CBOE-96-02).
---------------------------------------------------------------------------
New Rule 13.2(a) \4\ also adds language which limits the Exchange's
liability for errors, omissions, or delays in calculating or
disseminating various kinds of data relating to current or closing
index values, reports of transactions or quotations for options or
other securities, and further provides that the Exchange does not
warrant the results obtained by any person or entity relying on data
transmitted by or on behalf of the Exchange or any designated reporting
authority. New Rule 13.2(a) \5\ states that its provisions are in
addition to, and do not limit, the provisions of the PSE Constitution,
Article VI, Section 6. Lastly, paragraphs (b) and (c) of new Rule 13.2
\6\ describe the monetary limits on the Exchange's liability with
respect to the Exchange's order routing systems, electronic book, and
automatic execution systems. \7\
---------------------------------------------------------------------------
\4\ The PSE notes that this language to new Rule 13.2(a) is
based on CBOE Rule 24.12
\5\ The PSE notes that this aspect of new rule 13.2(a) is based
on CHX Article 1, Rule 18(b).
\6\ The PSE notes that new Rules 13.2(b) and (c) are based on
CBOE Rules 6.7(b) and (c).
\7\ Under new Rule 13.2(b), the PSE's liability with respect to
the Exchange's order routing systems, electronic book, and automatic
execution systems is limited to the larger of any recovery obtained
by the Exchange under any applicable insurance or: (i) $100,000 as
to any claim or series of claims made by a single member on a single
day; (ii) $250,000 as to all claims by all members on any single
trading day; and (iii) $500,000 as to all claims, in the aggregate,
by all members in any calendar month.
Under new Rule 13.2(c), if all of the 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 in paragraph
(b), the maximum amount will be allocated based on the proportion
that each claim bears to the sum of all such claims.
---------------------------------------------------------------------------
Legal Proceedings Against Exchange Governors, Officers, Employees or
Agents
New Rule 13.3 \8\ prohibits a member or associated person from
instituting a lawsuit or any other type of legal proceeding against any
Governor, officer, employee, agent, or other official of the Exchange
or any of its subsidiaries based on actions taken or omitted to be
taken while such person is acting on Exchange business or the business
of any of its subsidiaries. Rule 13.3, however, does not apply where
private rights of action under the federal securities laws exist, to
appeals of disciplinary actions, to other actions by the Exchange as
provided for in its rules, and, with respect to the Governors of the
Exchange, to the extent such action or omission is inconsistent with
the Exchange's Certificate of Incorporation.
---------------------------------------------------------------------------
\8\ The PSE notes that new Rule 13.3 is based on CHX Article I,
Rule 17 and the proposed rule changes filed by the CBOE to Rule
6.7A. See Securities Exchange Act Release No. 36863, supra note 3.
---------------------------------------------------------------------------
The Exchange notes that new Rule 13.3 does not prohibit a member
from suing the Exchange as a result of the actions of these
individuals; rather it merely prohibits suits against the person in his
or her individual capacity. According to the PSE, the purpose of
disallowing lawsuits or other legal proceedings against Exchange
officials or agents when they are acting on Exchange business is to
eliminate the potential exposure to personal liability of such persons
which impairs their ability to perform their duties.
Exchange's Costs of Defending Legal Proceedings
New Rule 13.4 \9\ requires a member or associated person who fails
to prevail in a legal proceeding instituted by that person against the
Exchange or other specified persons, and related to the business of the
Exchange, to pay to the Exchange all reasonable expenses, including
attorney's fees, incurred by the Exchange in its defense of such
proceeding. The requirement would apply only where the costs exceed
fifty thousand dollars ($50,000).
---------------------------------------------------------------------------
\9\ The PSE notes that new Rule 13.4 is based on CHX Article 1,
Rule 18(c) and the proposed rule changes filed by the CBOE to Rule
2.24. See Securities Exchange Act Release No. 36863, supra note 3.
---------------------------------------------------------------------------
According to the PSE, this provision is intended to discourage
unfounded, vexatious litigation against the Exchange where the
Exchange's costs are significant, without having an undue chilling
effect on legitimate claims of members. The proposed rule would
[[Page 36102]]
apply to lawsuits or other legal proceedings that might be instituted
by members against the Exchange or to any of its Governors, officers,
committee members, employees, or agents. This provision, however, would
not apply to disciplinary actions, to administrative appeals of
Exchange actions, or to any specific instance where the Board of
Governors has granted a waiver of this rule.
Liability of Exchange for Actions of Order Book Officials
Current Rule 6.59(a) and (g) are being amended for clarification
purposes.\10\ Rule 6.59 is also adding a reference to the new
provisions in Rule 13.
---------------------------------------------------------------------------
\10\ The PSE notes that the amendments are based on CBOE Rules
7.11(b)(1) and 7.11(e), respectively.
---------------------------------------------------------------------------
2. Statutory Basis
The PSE believes that the proposed rule changes are consistent with
Section 6(b)(5) of the Act in that, by limiting the liability of the
Exchange and its Governors, officers, employees, and agents, by
precluding certain types of legal actions by members against such
persons individually, and by discouraging frivolous lawsuits against
the Exchange, it will reduce the costs of the Exchange in responding to
claims and lawsuits, thereby permitting the resources of the Exchange
to be better utilized for promoting just and equitable principles of
trade and for protecting investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The self-regulatory organization does not believe that the proposed
rule change will impose any inappropriate burden on competition.
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
Within 35 days of the publication of this notice in the Federal
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. by order approve the proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of the PSE. All
submissions should refer to File No. SR-PSE-96-21 and should be
submitted by July 30, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.11
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 96-17448 Filed 7-8-96; 8:45 am]
BILLING CODE 8010-01-M
