Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Notices 64615

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 35931

(June 30, 1995), 60 FR 35767 (July 11, 1995) (‘‘1995

Filing’’).

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39379; File No. SR–NYSE–

97–17]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change to Amend the Exchange’s

Wireless Data Communications

Initiatives

December 1, 1997.

I. Introduction

On May 28, 1997, the New York Stock

Exchange, Inc. (‘‘NYSE’’ or ‘‘Exchange’’)

submitted to 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 modify certain

aspects of its program for the use of

wireless data communications

technology that allows a member in a

trading crowd or elsewhere on the

trading floor to communicate with other

locations on the floor by means of a

hand-held wireless device.

Notice of the proposed rule change,

together with the substance of the

proposal, was published for comment in

Securities Exchange Act Release No.

38786 (June 30, 1997), 62 FR 36597 (July

8, 1997). No comments were received on

the proposal. This order approves the

proposed rule change.

II. Description

In 1995, the Committee approved a

proposed rule change of the Exchange 3

that allowed the Exchange to introduce

wireless data communications

technology onto the Exchange trading

floor. The Exchange believes that such

technology expedites, and makes more

efficient, the process by which members

receive and execute orders. The

technology involves the floor-based use

of wireless hand-held data

communications devices. To effect that

initiative, the Exchange undertook to

develop and install a wireless data

communications infrastructure on its

floor. It determined to allow private

vendors, as well as the Exchange itself,

to offer hand-held device services to

Exchange members.

As described at length in the 1995

Filing, the Exchange’s plan has been to

introduce the new technology in four

phases:

(1) In Phase I, the Exchange

supervised and monitored three ‘‘proofof-concept’’ pilot programs on the floor

of the Exchange.

(2) In Phase II, the Exchange

monitored and supervised additional,

more structured, pilot testing of

independent wireless data

communications services, including that

offered by the Exchange.

(3) In Phase III, the Exchange will

conduct on the floor a preproduction

pilot test of its wireless data

communications system infrastructure,

will supervise the installation and

testing of the infrastructure and will

move its own wireless data

communications system to the

infrastructure. In addition, the Exchange

will continue to allow pilot testing of

private vendors’ wireless data

communications services.

(4) In Phase IV, the Exchange will

direct the production roll-out of the

wireless data communications

infrastructure and the migration of

vendors to the infrastructure.

The Exchange had completed Phase I

prior to the time of its submission of the

1995 Filing. Since then, the Exchange

has completed Phase II and recently

entered into Phase III.

Specifically, the purposes of the

proposed rule change are: (1) To modify

the types of wireless data

communications that the Exchange will

permit over the infrastructure; (2) to

clarify that a vendor cannot provide

wireless data communications services

to Exchange members unless it is a

member organization of the Exchange;

and (3) to introduce the forms of

agreement and provisions pursuant to

which the Exchange will allow vendors

and member organizations to provide

wireless data communications services

to members on the trading floor of the

Exchange in the production roll-out

environment.

First, the Exchange proposes to

modify the types of wireless

communications permitted over the

infrastructure. The 1995 Filing specified

as follows:

A vendor’s Phase II pilot program must

restrict wireless data communications to

communications between a hand-held device

used by a member on the floor and a terminal

in a floor booth location. The Exchange will

prohibit all floor-based wireless data

communications between any other points.

The Exchange limited

communications during the Phase II

pilot programs to communications

between a booth terminal and a floorbased hand-held device and will

continue that limitation during Phase III

pilot programs. However, the Exchange

proposes the ultimate addition of

communications between two handheld devices on the floor.

As during the pilot programs, the

Exchange will continue to prohibit

wireless data communications either

from a booth terminal or from a location

on the trading floor to a location off of

the floor. However, the same as under

the pilot programs, a member

subscribing to a wireless data

communications service, whether from

the Exchange or from a private vendor,

may effect communications between a

floor booth terminal and a member’s offfloor system in the same ‘‘wired’’

manner as it can today, subject to

applicable rules and policies. In

addition, the subscribing member’s

booth terminal may interface with the

Exchange’s Common Message Switch

(‘‘CMS’’) in order to allow the member

to enter orders into the Exchange’s

SuperDOT System complex. That

interface would not differ from today’s

booth/CMS interfaces and would be

subject to existing CSM interface

standards.

Next, the Exchange proposes to only

provide access to its wireless

communications infrastructure to

vendors that are member organizations.

The Exchange anticipates that some

member organizations that are

interested in vending those services will

enter into contracts with non-member

organizations (e.g., traditional wireless

data device vendors that desire to

function as agents or contractors of the

member organization) and that those

contracts will delegate many of the

service functions to those other entities.

The Exchange is willing to permit that

use of agents and contractors, so long as

the member organization remains

responsible for the performance of those

functions and guarantees the

performance of the agents and

contractors.

Additionally, the Exchange included

as part of the 1995 Filing, a form of

agreement (the ‘‘Pilot Program Vendor

Form’’) pursuant to which the Exchange

would allow vendors of wireless data

communications services to provide

those services to Exchange members for

the purposes of the Phase I and Phase

II pilot testing. Now that the pilot

testing period is completed, the

Exchange has derived from the Pilot

Program Vendor Form two different

forms of agreement that are designed for

use by member organizations that wish

to provide wireless data

communications services to members in

the Exchange’s production roll-out

wireless data communications

environment. One of those forms (the

‘‘Associated Member Form’’) allows a

member organization to provide such
64616 Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Notices

4The Commission notes that the antidiscrimination restrictions will still apply through

the completion of Phrase III.

5Finally, the proposed rule change provides that:

the NYSE is not liable to the vendor, any

Authorized Service Recipient, or any other person,

for lost profits; and that the vendor cannot represent

that the NYSE provides the service, except for the

infrastructure and certain other equipment in

support of the wireless data communications

services.

6The service description as so amended (the

‘‘Revised Vendor Service Description’’) is set forth

in Attachment A to Exhibit A of the rule filing.

7Responsibility for losses; training; system

maintenance and support; technological limitations;

the availability of equipment and spare parts; and

service charges.

8A copy of the Associated Member Form is

attached to the filing as Exhibit B. Attached as

Attachment A to that form is a service description

(the ‘‘Associated Member Service Description’’),

modified from the Revised Vendor Service

Description as necessary to reflect the associated

member context.

services to members that are officers,

partners and employees of the member

organization. The other form (the

‘‘Revised Vendor Form’’) allows a

member organization to provide such

services to other members.

The primary differences of substance

between the Pilot Program Vendor Form

and the Revised Vendor Form are as

follows. The Revised Vendor Form

eliminates: (1) References to the creation

and installation of the infrastructure; (2)

permission to use radio bands other

than that which the Exchange provides

through its infrastructure; (3) a

requirement that members migrate to

the infrastructure once it becomes

available; and (4) a limited Exchange

obligation to support the

communications equipment of private

vendors.

Also, the Revised Vendor Form

clarifies that only member organizations

may vend wireless data

communications services on the

Exchange’s floor, but allows the member

organization to delegate functions to

agents and contractors, so long as the

member organization guarantees the

performance of the agents and

contractors. The Revised Vendor Form

will allow communications between

members using hand-held devices at

two different locations on the trading

floor, as well as between a member

using a hand-held device on the floor

and a member at a booth terminal, as the

Exchange permitted in the pilot

programs.

In addition, the Revised Vendor Form

will not contain the restriction on

participating vendors that they refrain

from discriminating among the members

to whom they are willing to provide

their vendor services.4 The Exchange

believes that the completion of the

infrastructure means that the technology

necessary to allow every member to

enjoy wireless data communications

services will be available, whether from

a vending member organization or from

the Exchange. In Phase IV, the

production roll-out phase, the Exchange

will therefore allow vending member

organizations to enter into such wireless

data communications arrangements

with members as they may see fit. For

instance, a member organization may

vend a wireless data communication

service to Exchange members, but may

offer preferential terms and conditions

to members with which it is affiliated.

As a result, the Revised Vendor Form

will eliminate: (1) the several provisions

found in the Pilot Program Vendor Form

that require the vendor to provide

wireless data communications services

only on unbiased, non-discriminatory

grounds; and (2) the provision that

limits the scope of any pilot program to

25 members.

The Revised Vendor Form also will

eliminate the provision that prohibits a

vendor from representing that it is the

sole vendor of wireless data

communications services on the

Exchange floor. Finally, the Exchange

proposes to add to the Revised Vendor

Form a provision that prohibits a

vending member organization from

introducing its service, or from

modifying its equipment or

transmission methodology, until the

Exchange has seen the service or the

modification operate satisfactorily. In

addition, the Revised Vendor Form

grants the Exchange the right to test a

service and related equipment.5

The vendor agreement form requires

the vendor to prepare a description of

its service for attachment to the form.

Attachment A to the form (‘‘the Revised

Vendor Service Description’’) sets forth

the information that the Exchange

requires the vendor to include in the

service description. The Exchange

proposes to eliminate, from that

required information, information that

completion of the infrastructure makes

irrelevant. In addition, the Exchange

proposes to add to those required items

of information the vendor’s method and

location for storing devices when not in

use. Furthermore, the Exchange

proposes to clarify that among the rules

and regulations with which the vendor

is required to comply are all health and

safety standards.6

As an important element of the Pilot

Program Vendor Form, the Exchange

required a vendor of a Phase I or II pilot

program to provide its service to a

member only pursuant to a written

contract with the member. The

Exchange required that contract to

govern six elements of the vendormember relationship 7 and to include

certain provisions designed to protect

the interests of the Exchange and its

members. The Exchange set forth those

requirements in an Attachment B to the

Pilot Program Vendor Form. For the

purpose of the Revised Vendor Form,

the Exchange is proposing to amend

those contract requirements in the

manner set forth in Attachment B to

Exhibit A (the ‘‘Revised Vendor-Member

Agreement Terms’’). The amendments:

reflect the fact that the Exchange will

now permit communications between

members using hand-held devices at

two different locations on the floor;

remove the requirement that the vendormember agreement must govern the six

prescribed elements of the relationship;

remove the Exchange-imposed

termination requirements for

terminations by the vendor or the

subscribing member; and add that NYSE

rules apply.

For the production roll-out phase, the

Exchange has prepared the Associated

Member Form for use by a member

organization that wishes to provide

wireless data communications services

on the Exchange’s trading floor solely to

officers, partners and employees of the

member organization that are Exchange

members.8

The Associated Member Form

contains provisions that are almost

identical in substance to those found in

the Revised Vendor Form, except that

the Associated Member Form requires

the member organization to take

responsibility for the actions of its

members and to assure that its members

will comply with all provisions of the

Form as well as with relevant laws,

rules and regulations. For that reason,

the Exchange does not propose to

require the member organization to

enter into an agreement with a

subscriber to its wireless data

communications service if the

subscriber is an Exchange member that

is an officer, partner or employee of the

member organization. As a result, the

Exchange does not propose to impose

on the member organization a set of

terms and conditions—for application

between the member organization and

its members—that parallel those set

forth in the Revised Vendor-Member

Agreement Terms. However, the

proposed rule change does add to the

Associated Member Form a paragraph

similar to one found in the Revised

Vendor-Member Agreement Terms

stating that if the Exchange determines

that any Associated Member has failed

to comply with the rules, policies and
Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Notices 64617

9 15 U.S.C. 78f(b).

10 15 U.S.C. 78f(b)(5).

11 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

12Phone call between Santo Famularo, NYSE and

Heather Seidel, Attorney, Market Regulation,

Commission, on October 3, 1997.

13The Exchange has represented that it will

circulate a bulletin to its members informing them

that there will be service alternatives through

Exchange members and the Exchange itself.

Telephone conversation between Santo Famularo,

NYSE, and Heather Seidel, Attorney, Market

Regulation, Commission, on November 25, 1997.

procedures of the NYSE, the

Commission, or the Federal

Communications Commission (‘‘FCC’’),

then the vendor (customer) has to stop

providing the Service to that Associated

Member immediately, upon notice to

the customer or after a reasonable

amount of time after notice.

As in respect of Phase II, the

Exchange reserves the right to limit the

number of vendors that may provide

wireless data communications systems

on the floor during Phase IV, based on

the ability of the Exchange to maintain

its regulatory oversight responsibilities

in a satisfactory manner. In addition, as

the Exchange gains experience with the

use of wireless data communications

technology on its floor, it may

determine that additional restrictions,

such as in respect of permissible

transmissions or hardware, are

warranted.

The Exchange does not currently plan

to charge vendors or Exchange members

or member organizations for the

privilege of providing wireless data

communications services during Phase

IV, although it reserves its right to do so.

If the Exchange does determine to

impose Phase IV charges or any other

charges, it would first seek Commission

approval of any such charge.

III. Discussion

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, and, in particular, with the

requirements of Section 6(b).9

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5)10 requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to foster cooperation and

coordination with persons engaged in

regulating, processing information with

respect to, and facilitating transactions

in securities, to remove impediments to

and perfect the mechanisms of a free

and open market and a national market

system, and, in general, to protect

investors and the public, by continuing

to expedite and improve the efficiency

of the process by which members

receive and execute orders on the floor

of the Exchange.11

The Commission believes that

allowing communications between two

hand-held devices located at two

different positions on the floor is

consistent with the Act and the original

pilot approval because it will expedite

and allow for more efficient processing

of orders and dissemination of

information among members on the

floor, by eliminating the current

necessary step of communicating with

the booth terminal. A member may rely

on the information it receives from

another member on the floor through a

hand-held wireless device to make

trading decisions, without having to

first communicate with the booth. The

Commission notes the pilot testing has

demonstrated that the Exchange’s

wireless data communications

infrastructure has the capacity to

accommodate those communications.

The Commission also notes that the

restriction will still apply that any order

or information coming from off the floor

must go to a booth terminal before it can

be transmitted to someone on the floor

of the Exchange.

The Commission also believes that it

is consistent with the Act to allow the

Exchange to provide access to its

wireless data communications

infrastructure only to vendors that are

member organizations because only

member organizations are subject to the

Exchange’s Constitution, rules, and

oversight. The Exchange notes that the

only vendors that participated in

wireless data communications service

pilot tests during Phases I and II were

a member organization of the Exchange

and a party affiliated with a member

organization of the Exchange. It is

unlikely that this restriction will

dampen the availability of available

vendors, given that member

organizations will be allowed to

contract out the provided vendor

services.

The Commission believes that the

proposed changes to the Pilot Program

Vendor form, resulting in two separate

forms, the Revised Vendor Form and the

Associated Member Form, are consistent

with the Act. The Commission believes

that the proposed changes that eliminate

references to the creation and

installation of the infrastructure,

permission to use radio bands other

than that which the Exchange provides

through its infrastructure, the

requirement that members migrate to

the infrastructure once it becomes

available, and a limited Exchange

obligation to support the

communications equipment of private

vendors, are reasonable because the

Exchange will use the Revised Vendor

Form in an environment in which the

Exchange will already have completed

the development and installation of its

wireless data communications

infrastructure.

In addition, because the Exchange

limited the scope of the Phase I and II

pilot programs and will similarly limit

Phase III pilot programs, the Exchange

insisted that each participating vendor

refrain from discriminating among the

members to whom it was willing to

provide its pilot service through the end

of Phase III. However, the completion of

the infrastructure means that the

technology necessary to allow every

member to enjoy wireless data

communications services will be

available, whether from a vending

member organization or from the

Exchange. Therefore, in Phase IV, the

production roll-out phase, the proposed

rule change will allow vending member

organizations to enter into such wireless

data communications arrangements

with members as they may see fit. The

Commission believes that this portion of

the proposed rule change will not result

in unfair discrimination between

customers, issuers, brokers, and dealers,

in part because the NYSE’s own system

will be available to everyone,12 which

means that a member will always be

able to have access to wireless data

communication services. The

Commission notes that eliminating the

non-discriminatory requirements allows

both vendors and potential customer/

members to negotiate more freely

regarding various aspects of the service.

The Commission believes that the

proposed rule change that eliminates

from the Revised Vendor Form the

provision that prohibits a vendor from

representing that it is the sole vendor of

wireless data communications services

on the Exchange floor is reasonable

under the Act because the Exchange

feels certain that all members will be

aware that the Exchange and certain

member organizations will provide

service alternatives.13

Finally, the Commission believes that

the addition to the Revised Vendor

Form of a provision that prohibits a

vending member organization from

introducing its service, or from

modifying its equipment or

transmission methodology, until the

Exchange has seen the service or the

modification operate satisfactorily, and

allows the Exchange to test the service
64618 Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Notices

14The Commission notes that the Revised Vendor

Form is to be used only during Phase IV.

15The Commission believes that the proposed

changes to the Revised Vendor Service Description,

which sets forth the information that the Exchange

requires the vendor to include in the service

description, are consistent with the Act because the

proposed changes eliminate the requirement of

certain information that completion of the

infrastructure makes irrelevant.

16See supra note 7 and accompanying text.

17The proposed rule change that permits

communications between members using hand-held

devices at two different locations on the floor is

incorporated into this document and is consistent

with the Act for the same reasons discussed above.

18The vendor must still not exceed capacity.

19Therefore, the Commission believes that the

reasoning behind approving the changes to the

Revised Vendor Form also applies to the Associated

Member Form, for the similar proposed changes.

20 15 U.S.C. 78s(b)(2).

21 17 CFR 200.30–3(a)(12).

or related equipment, is consistent with

the Act. The Commission believes that

this change gives the Exchange

sufficient authority to oversee its

infrastructure by strengthening the

Exchange’s contractual safeguards at a

time 14 when the Exchange will allow

vendors to have access to the

Exchange’s infrastructure, unlike Phases

I and II, and when the Exchange may

not have the same degree of

communication with vending member

organizations as it has had during the

earlier phases.15

The Commission believes that the

Revised Vendor-Member Agreement

Terms 16 are consistent with the Act.17

The proposed change that will remove

the requirement that the vendor-member

agreement must govern the six

prescribed elements of that relationship

is reasonable under the Act because it

allows both the vendor and the member

greater flexibility in fashioning a service

agreement that is agreeable to both

parties. Now that there will be no

restriction on the number of customers

a vendor may have,18 and the

Exchange’s service will be available to

all parties who wish to utilize it, it is

reasonable to allow the vendors and

members more freedom in structuring

their service agreements, within the

boundaries set forth in the Revised

Vendor Form and its attachments. Also,

the provision that adds that the NYSE

Constitution and rules apply is

consistent with the Act because the

NYSE is charged with ensuring that its

members (and hence, the vendors and

their customers) comply with the NYSE

rules.

The Commission notes that the

Associated Member Form contains

provisions that are almost identical in

substance to those found in the Revised

Vendor Form.19 However, under the

proposed rule change, the Associated

Member Form requires the member

organization to take responsibility for

the actions of its members and to assure

that its members will comply with all

provisions of the Form as well as with

relevant laws, rules and regulations. For

that reason, the Exchange does not

propose to require the member

organization to enter into an agreement

with a subscriber to its wireless data

communications service if the

subscriber is an Exchange member that

is an officer, partner or employee of the

member organization; as a result, the

proposed rule change does not impose

on the member organization a set of

terms and conditions that parallel those

set forth in the Revised Vendor-Member

Agreement Terms. The Commission

believes that this portion of the

proposed rule change is consistent with

the Act because it still provides for

sufficient control over the vendorcustomer relationship and notes that the

proposed rule change does provide that

the vendor must terminate its

relationship with an Associated Member

whom the Exchange has determined has

failed to comply with the rules, policies,

and procedures of the NYSE, the

Commission, or the FCC.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,20 that the

proposed rule change (SR–NYSE–97–

17) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32028 Filed 12–5–97; 8:45 am]

BILLING CODE 8010–01–M

OFFICE OF THE UNITED STATES

TRADE REPRESENTATIVE

Notice of Meeting of the Industry

Sector Advisory Committee on Small

and Minority Business (ISAC–14)

AGENCY: Office of the United States

Trade Representative.

ACTION: Notice of meeting.

SUMMARY: The Industry Sector Advisory

Committee on Small and Minority

Business (ISAC 14) will hold a meeting

on December 15, 1997 from 9:15 a.m. to

4:00 p.m. The meeting will be open to

the public from 9:15 a.m. to 1:00 p.m.

and closed to the public from 1:00 p.m.

to 4:00 p.m.

DATES: The meeting is scheduled for

December 15, 1997, unless otherwise

notified.

ADDRESSES: The meeting will be held at

the Department of Commerce in Room

4830, located at 14th Street and

Constitution Avenue, N.W.,

Washington, D.C., unless otherwise

notified.

FOR FURTHER INFORMATION CONTACT:

Millie Sjoberg, Department of

Commerce, 14th St. and Constitution

Ave., N.W., Washington, D.C. 20230,

(202) 482–4792 or Bill Daley, Office of

the United States Trade Representative,

600 17th St. N.W., Washington, D.C.

20508, (202) 395–6120.

SUPPLEMENTARY INFORMATION: The ISAC

14 will hold a meeting on December 15,

1997 from 9:15 a.m. to 4:00 p.m. The

meeting will include a review and

discussion of current issues which

influence U.S. trade policy. Pursuant to

Section 2155(f)(2) of Title 19 of the

United States Code and Executive Order

11846 of March 27, 1975, the Office of

the U.S. Trade Representative has

determined that part of this meeting will

be concerned with matters the

disclosure of which would seriously

compromise the development by the

United States Government of trade

policy, priorities, negotiating objectives

or bargaining positions with respect to

the operation of any trade agreement

and other matters arising in connection

with the development, implementation

and administration of the trade policy of

the United States. During the discussion

of such matters, the meeting will be

closed to the public from 1:00 p.m. to

4:00 p.m. The meeting will be open to

the public and press from 9:15 a.m. to

1:00 p.m. when other trade policy issues

will be discussed. Attendance during

this part of the meeting is for

observation only. Individuals who are

not members of the committee will not

be invited to comment.

Pate Felts,

Acting Assistant United States Trade

Representative, Intergovernmental Affairs

and Public Liaison.

[FR Doc. 97–31950 Filed 12–5–97; 8:45 am]

BILLING CODE 3190–01–M

OFFICE OF THE UNITED STATES

TRADE REPRESENTATIVE

Trade Policy Staff Committee; Public

Comments on the Triennial Review of

the World Trade Organization

Agreement on the Application of

Sanitary and Phytosanitary Measures

(the ‘‘SPS Agreement’’)

ACTION: Notice and request for

comments.

SUMMARY: The Trade Policy Staff

Committee (TPSC) is requesting written