

[Federal Register: January 10, 2008 (Volume 73, Number 7)]
[Notices]               
[Page 1903-1904]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ja08-71]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57103; File No. SR-NYSEArca-2007-115]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change Relating to Rule 6.87--Obvious Error

January 4, 2008.
    On November 8, 2007, NYSE Arca, Inc. (``NYSE Arca'' 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 NYSE Arca Rule 6.87 governing obvious 
errors to revise the review procedure for contesting decisions made 
pursuant to the rule. The proposed rule change was published for 
comment in the Federal Register on November 27, 2007.\3\ The Commission 
received no comment letters on the proposal. 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\ Securities Exchange Act Release No. 56819 (November 19, 
2007), 72 FR 66214.
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    Currently, NYSE Arca Rule 6.87 provides that the Exchange will 
determine whether a transaction resulted from an ``Obvious Error'' \4\ 
after it receives notification within the prescribed time frame. If the 
Exchange believes that an Obvious Error has occurred, the Exchange will 
adjust the price of the trade, with or without an adjustment penalty, 
or will nullify the trade, depending on the status of the parties to 
the trade. Currently, a party may appeal the Exchange's decision to the 
Exchange's Board of Directors (``Board'') pursuant to NYSE Arca Rule 
10.14.
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    \4\ ``Obvious Error'' is defined in NYSE Arca Rule 6.87(a)(1).
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    The Exchange proposes to eliminate a party's right to appeal to the 
Board and instead allow a party to appeal to an Obvious Error Panel 
(``OE Panel''). The OE Panel would be composed of the Exchange's Chief 
Regulatory Officer (``CRO''), or a designee of the CRO,\5\ and 
representatives from two options trading permit firms (``OTP 
Firms'').\6\ One OE Panel representative would be from an OTP Firm 
directly engaged in market making activities and one OE Panel 
representative would be from an OTP Firm directly engaged in the 
handling of options orders for public customers.
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    \5\ The Exchange represents that a designee of the CRO would be 
an employee of the Exchange, working closely with and reporting 
directly to, the CRO, such as one of the Directors of Options 
Regulation.
    \6\ The Exchange proposes to designate at least ten OTP Firm 
representatives to be called upon to serve on the OE Panel. In no 
case would the OE Panel include a person related to a party to the 
trade in question. To the extent reasonably possible, the Exchange 
proposes to call upon the designated representatives to participate 
on an OE Panel on an equally frequent basis.
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    In addition, requests for an appeal would have to be made via 
facsimile or e-mail within thirty minutes after the party requesting 
the appeal is given notification of the initial determination. 
Thereafter, the OE Panel would review the information and may overturn 
or modify the action previously taken by the Exchange. Such 
determination by the OE Panel would be considered a final action by the 
Exchange on the matter at issue. All final determinations made by the 
OE Panel would be rendered, without prejudice, as to the rights of the 
parties to the transaction to submit their dispute to arbitration. The

[[Page 1904]]

revised process is intended to provide for a quicker resolution of 
appeal requests than the Board process currently governed by Rule 
10.14.
    Further, if the OE Panel upholds the Exchange's decision made 
pursuant to Rule 6.87(a)(4) to nullify or adjust a trade, the Exchange 
would assess a $500.00 fee against the party or parties who initiated 
the request for appeal.
    The Exchange also proposes to amend Rule 10.14 to remove the 
reference to Rule 6.87 and amend Rule 6.87 to remove Commentary .02.
    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 \7\ and, in 
particular, the requirements of section 6(b) of the Act \8\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal is consistent with section 6(b)(5) of the Act,\9\ in 
that the proposal is designed to promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and remove impediments and 
perfect the mechanisms of a free and open market and to protect 
investors and the public interest.
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    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an ``obvious error'' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the minds regarding the terms of the 
transaction. In the Commission's view, the determination of whether an 
``obvious error'' has occurred and the process for reviewing such a 
determination should be based on specific and objective criteria and 
subject to specific and objective procedures.
    The Commission believes that the Exchange's proposal to create the 
OE Panel to review obvious error determinations of the Exchange, and to 
eliminate Board review of such determinations, is appropriate. The 
Commission believes that the OE Panel's review procedures are clear and 
objective and that the composition of the OE Panel is designed to be 
balanced and fair.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSEArca-2007-115), as 
amended, is hereby approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-255 Filed 1-9-08; 8:45 am]

BILLING CODE 8011-01-P
