Document ID: SEC-2008-0541-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-04-09T04:00Z

[Federal Register: April 9, 2008 (Volume 73, Number 69)]
[Notices]               
[Page 19274-19276]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ap08-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57611; File No. SR-NYSE-2008-20]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendments No. 1 and 2 
Thereto Relating to Exchange Rule 36 (Communications Between Exchange 
and Member's Offices) To Make Permanent an Existing Portable Phone 
Pilot

April 3, 2008.
    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 March 17, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. On March 27, 2008, the Exchange submitted Amendment No. 1 to 
the proposed rule change.\3\ On April 2, 2008, the Exchange submitted 
Amendment No. 2 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange included the rule text of 
Exchange Rule 36 as originally approved by the Commission as a pilot 
and subsequently amended to include Registered Competitive Market 
Makers (``RCMMs''). See notes 6 and 8 infra. Amendment No. 1 
replaced the original filing in its entirety. See also note 4 infra.
    \4\ Amendment No. 2 replaced Amendment No. 1 in its entirety. In 
Amendment No. 2, the Exchange included an inadvertently omitted 
portion of the text of Exchange Rule 36. Amendment No. 2 amends 
Exhibit 5 of the 19b-4 so that it accurately reflects the existing 
portable phone pilot and the text of Exchange Rule 36 as it will 
appear upon permanent approval of the pilot.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Exchange Rule 36 (Communications 
Between Exchange Member's Offices) to make permanent the existing 
portable phone pilot (the ``Pilot'').\5\
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    \5\ See also note 9 infra. Member Education Bulletins (``MEBs'') 
and acknowledgment forms are part of the rule proposal.
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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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these 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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Through this rule change, the Exchange seeks to amend Exchange Rule 
36 to allow Floor brokers and Registered Competitive Market-Makers 
(``RCMMs'') \4\ to use Exchange authorized and provided portable phones 
on the Exchange Floor, provided certain specified conditions are met. 
Such usage has been permitted on a pilot basis. The current Pilot 
expires on April 30, 2008, and the NYSE seeks to have the amendment to 
Exchange Rule 36 made permanent.
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    \4\ See Exchange Rule 107A, which defines and governs the 
registration and dealings of RCMMs.
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Background

    The Commission originally approved the Pilot to be implemented for 
a six-month period \5\ beginning no later than June 23, 2003.\6\ Since 
the inception of the Pilot, the Exchange has extended the Pilot nine 
times, with the current Pilot set to expire on April 30, 2008.\7\ In 
2006, the Exchange incorporated RCMMs into the Pilot and subsequently 
amended the Pilot to allow RCMMs to use an Exchange authorized and 
provided portable phone on the Exchange Floor to call to and receive 
calls from their booths on the Exchange Floor.\8\
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    \5\ See Securities Exchange Act Release No. 47671 (April 11, 
2003), 68 FR 19048 (April 17, 2003) (SR-NYSE-2002-11).
    \6\ See Securities Exchange Act Release No. 47992 (June 5, 
2003), 68 FR 35047 (June 11, 2003) (SR-NYSE-2003-19) (delaying the 
implementation date for portable phones from on or about May 1, 
2003, to no later than June 23, 2003).
    \7\ See Securities Exchange Act Release Nos. 48919 (December 12, 
2003), 68 FR 70853 (December 19, 2003) (SR-NYSE-2003-38) (extending 
the Pilot for an additional six months ending on June 16, 2004); 
49954 (July 1, 2004), 69 FR 41323 (July 8, 2004) (SR-NYSE-2004-30) 
(extending the Pilot for an additional five months ending on 
November 30, 2004); 50777 (December 1, 2004), 69 FR 71090 (December 
8, 2004) (SR-NYSE-2004-67) (extending the Pilot for an additional 
four months ending March 31, 2005); 51464 (March 31, 2005), 70 FR 
17746 (April 7, 2005) (SR-NYSE-2005-20) (extending the Pilot for 
additional four months ending July 31, 2005); 52188 (August 1, 
2005), 70 FR 46252 (August 9, 2005) (SR-NYSE-2005-53) (extending the 
Pilot for an additional six months ending January 31, 2006); 53277 
(February 13, 2006), 71 FR 8877 (February 21, 2006) (SR-NYSE-2006-
03) (extending the Pilot for an additional six months ending July 
31, 2006); 54276 (August 4, 2006), 71 FR 45885 (August 10, 2006) 
(SR-NYSE-2006-55) (extending the Pilot for an additional six months 
ending January 31, 2007); 55218 (January 31, 2007), 72 FR 6025 
(February 8, 2007) (SR-NYSE-2007-05) (extending the Pilot for an 
additional twelve months ending January 31, 2008); and 57249 
(January 31, 2008), 73 FR 7024 (February 6, 2008) (SR-NYSE-2008-10) 
(extending the Pilot for an additional three months ending April 30, 
2008).
    \8\ See Securities Exchange Act Release Nos. 53213 (February 2, 
2006), 71 FR 7103 (February 10, 2006) (SR-NYSE-2005-80) and 54215 
(July 26, 2006), 71 FR 43551 (August 1, 2006) (SR-NYSE-2006-51).
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    Exchange Rule 36 governs the establishment of telephone or 
electronic communications between the Exchange Floor and any other 
location. Prior to the Pilot, Exchange Rule 36 prohibited the use of 
portable phone communications between the Exchange Floor and any off-
Floor location. The only approved communication by Floor brokers 
between the Exchange Floor and an off-Floor location prior to the Pilot 
was by means of a telephone located at a broker's booth. Communications 
often involved a customer calling a broker at the booth for ``market 
look'' information. Prior to the Pilot, a broker could not use a 
portable phone in a trading Crowd at the point of sale to speak with a 
person located off the Exchange Floor.
    Under the Pilot, sections .21 and .22 of Exchange Rule 36 delineate 
the conditions under which Floor brokers and RCMMs, respectively, are 
allowed to use an Exchange authorized and provided portable phone on 
the Exchange Floor.\9\ Currently, under the

[[Page 19275]]

Pilot, with the approval of the Exchange, a Floor broker is permitted 
to engage in direct voice communication from the point of sale to an 
off-Floor location, such as a member firm's trading desk or the office 
of one of the broker's customers. Such communications permit the broker 
to accept orders consistent with Exchange rules, provide status and 
oral execution reports as to orders previously received, as well as 
``market look'' observations as historically have been routinely 
transmitted from a broker's booth location.
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    \9\ See MEBs 2005-20 (November 28, 2005) and 2005-23 (December 
2, 2005). MEBs describe the conditions for the use of a portable 
phone by Floor brokers and RCMMs, the acknowledgement procedure, and 
the rule text. These MEBs were previously filed as exhibits with the 
Commission in connection with the operation of the Pilot. See 
Securities Exchange Act Release No. 53213 (February 2, 2006), 71 FR 
7103 (February 10, 2006) (SR-NYSE-2005-80). Revised MEBs will be 
sent to all Floor brokers and RCMMs utilizing portable phones 
pursuant to Exchange Rule 36.
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    Both incoming and outgoing calls are allowed, provided the 
requirements of all other Exchange rules have been met. A Floor broker 
is not permitted to represent and execute any order received as a 
result of such voice communication unless the order is first properly 
recorded by the member and entered into the Exchange's Front End 
Systemic Capture (FESC) electronic database.\10\ In addition, Exchange 
Rules require that Floor brokers receiving orders from the public over 
portable phones must be properly qualified to engage in such direct 
access business under Exchange Rules 342 and 345, among others.\11\
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    \10\ See Exchange Rule 123(e). See also Securities Exchange Act 
Release Nos. 43689 (December 7, 2000), 65 FR 79145 (December 18, 
2000) (SR-NYSE-98-25) and 44943 (October 16, 2001), 66 FR 53820 
(October 24, 2001) (SR-NYSE-2001-39) (discussing certain exceptions 
to FESC, such as orders to offset an error, or a bona fide 
arbitrage, which may be entered within 60 seconds after a trade is 
executed).
    \11\ For more information regarding Exchange requirements for 
conducting a public business on the Exchange Floor, see Information 
Memos 01-41 (November 21, 2001), 01-18 (July 11, 2001) (available at 
http://www.nyse.com), and 91-25 (July 8, 1991).
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    It is impermissible for Floor brokers to use call-forwarding or 
conference calling. Accordingly, Exchange authorized and provided 
portable phones used by Floor brokers do not have call forwarding or 
conference calling capabilities, and Floor brokers and their member 
organizations must have procedures designed to deter anyone calling 
their portable phone from using caller ID block or attempting to 
conceal the phone number from which the call is being made. Moreover, 
members and member organizations must make and retain records which 
reflect compliance with these procedures.
    The Pilot also allows RCMMs to use an Exchange authorized portable 
phone solely to call and receive calls from their booths on the 
Exchange Floor, to communicate with their or their member 
organizations' off-Floor office, and to communicate with the off-Floor 
office of their clearing member organization to enter off-Floor orders 
and to discuss matters related to the clearance and settlement of 
transactions, provided the off-Floor office uses a wired phone line for 
these discussions. RCMMs and their or their member organization's off-
Floor offices may not use portable phones to transmit to the Exchange 
Floor orders for the purchase or sale of securities by public customers 
or any other agency business.\12\ For both RCMMs and Floor brokers, use 
of a portable phone on the Exchange Floor other than one authorized and 
provided by the Exchange is prohibited.
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    \12\ Allowing RCMMs acting as Floor brokers to use portable 
phones would involve further discussions with the Commission and 
would be the subject of a separate filing with the Commission.
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    It is impermissible for RCMMs, their booth personnel, their member 
organization's off-Floor office, and their clearing member 
organization's off-Floor office to use call-forwarding or conference 
calling. Accordingly, Exchange authorized and provided portable phones 
used by RCMMs do not have call forwarding or conference calling 
capabilities and booth phones used to make calls to and receive calls 
from RCMMs are prohibited from having call forwarding or conference 
calling features enabled. RCMMs and their member organizations must 
implement procedures designed to deter their or their member 
organization's off-Floor office and the off-Floor office of their 
clearing member organization calling their portable phone from using 
caller ID block or any other means designed to conceal the phone number 
from which the call is being made.
    Use of the portable phone by Floor brokers and RCMMs pursuant to 
sections .21 and .22 of Exchange Rule 36 must comply with all other 
rules, policies, and procedures of both the federal securities laws and 
the Exchange, including the record retention requirements, as set forth 
in Exchange Rule 440 and SEC Rules 17a-3 and 17a-4. Further, every 
Floor broker and RCMM must sign a written agreement consenting to 
specified terms of usage in connection with the operation of the Pilot 
and their use of the Exchange authorized and provided portable 
phones.\13\
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    \13\ Floor brokers and RCMMs agree to comply with sections .20, 
.21, and .22 of Exchange Rule 36, all other rules, policies, and 
procedures of both federal securities laws and the Exchange, 
including the record retention requirements of Exchange Rule 440 and 
Rules 17a-3 and 17a-4 under the Act, and acknowledge that the 
Exchange has the right to request from their Exchange authorized 
portable phone service provider any records relating to incoming and 
outgoing calls that NYSE Regulation, Inc. deems necessary. Floor 
brokers additionally agree that to the extent they are aware that a 
customer or any other incoming caller is using a caller ID block, 
the Floor broker will request in writing that the customer/caller 
disable such block when calling the Floor broker. Such written 
request must be documented and a copy of the same retained. RCMMs 
acknowledge that they may only call and receive calls from the 
locations delineated in section .22 of Exchange Rule 36. RCMMs 
additionally agree to disable the functionality that allows call-
forwarding, conference calling, caller ID block, or any other means 
to conceal the phone number from which the call is being made.
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    Specialists are subject to separate restrictions in Exchange Rule 
36 on their ability to engage in communications from the specialist 
post to an off-Floor location.\14\ The amendments to Exchange Rule 36 
proposed in this filing will not apply to specialists, who would 
continue to be prohibited from communicating from the post to upstairs 
trading desks or customers.\15\
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    \14\ See Securities Exchange Act Release No. 46560 (September 
26, 2002), 67 FR 62088 (October 3, 2002) (SR-NYSE-00-31) (discussing 
restrictions on specialists' communications from the post).
    \15\ Exchange Rule 36.30 provides that, with the approval of the 
Exchange, a specialist unit may maintain a telephone line at its 
stock trading post location to the off-Floor offices of the 
specialist unit or the unit's clearing firm. Such telephone 
connection shall not be used for the purpose of transmitting to the 
Exchange Floor orders for the purchase or sale of securities, but 
may be used to enter options or futures hedging orders through the 
unit's off-Floor office or the unit's clearing firm, or through a 
member (on the Exchange Floor) of an options or futures exchange.
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Pilot Program Results

    Currently, there are approximately 400 portable phone 
subscribers.\16\ For a sample week of October 15 through October 19, 
2007, an average of 2,518 calls/day were outgoing calls from portable 
phones issued to Floor brokers and RCMMs. An average of 960 calls/day 
were incoming calls to the portable phones. Of the outgoing calls from 
portable phones, an average of 1,026 calls/day were calls to the booth 
by Floor brokers and RCMMs, and 1,492 calls/day were calls by RCMMs to 
the upstairs offices of their member organization and their clearing 
member organization and calls of Floor brokers. Approximately 41% of 
the outgoing calls from portable phones were calls to the booth by 
Floor brokers and RCMMs.
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    \16\ This data includes both Floor brokers and RCMMs.
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    Of the 960 average incoming calls/day received, an average of 337 
calls/day were calls to RCMMs from the upstairs offices of their member 
organization and their clearing member organization and calls to Floor 
brokers. An average of 623 calls/day were calls received from the 
booth. Thus, approximately 65% of all incoming calls received were from 
the

[[Page 19276]]

booth and the remaining 35% of incoming calls received were calls to 
RCMMs from the upstairs offices of their member organization and their 
clearing member organization and calls to Floor brokers.\17\
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    \17\ The Exchange has received records of incoming and outgoing 
telephone calls from January 31, 2007, through January 31, 2008, for 
Floor brokers and RCMMs and will continue to receive records of such 
telephone calls on a monthly basis.
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    The Exchange believes that the Pilot is operating successfully in 
that there is a reasonable degree of usage of portable phones. Based on 
the Pilot, the Exchange has not identified any additional significant 
regulatory issues to report at this time. Moreover, there have been no 
administrative or technical problems, other than routine telephone 
maintenance issues, that have resulted from the operation of the Pilot 
over the past few months.

Proposal To Make Portable Phone Pilot Permanent

    The Exchange proposes to make permanent the amendment to Exchange 
Rule 36 permitting a Floor broker and an RCMM to use an Exchange 
authorized and issued portable phone on the Exchange Floor.
    The permanent incorporation of the Pilot's provisions will enable 
the Exchange to continue to provide more direct, efficient access to 
its trading crowds and customers, increase the speed of transmittal and 
execution of orders, and provide an enhanced level of service to 
customers in an increasingly competitive environment. In particular, by 
enabling customers to speak directly to a Floor broker in a trading 
crowd on an Exchange authorized and issued portable phone, the proposed 
rule change will continue what has become a more expeditious and direct 
free flow of information than the circuitous manner in which 
information was transmitted prior to the Pilot.
    The Exchange believes that the successful operation of the Pilot 
since 2003 for Floor brokers with the inclusion of RCMMs in 2006 amply 
demonstrates that the Pilot facilitates communication on the Exchange 
Floor for both Floor brokers and RCMMs without any corresponding 
drawbacks. Therefore, the Exchange believes it is appropriate to amend 
Exchange Rule 36 to make permanent the existing Pilot.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act \18\ that an Exchange have 
rules that are designed to promote just and equitable principles of 
trade, 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. The amendment to Exchange Rule 36 
supports the mechanism of free and open markets by providing a means 
for increased communication by Floor brokers and RCMMs to and from the 
Exchange Floor.
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    \18\ 15 U.S.C. 78f(b)(5).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of 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 such 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, 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2008-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2008-20. This file 
number should be included on the subject line if e-mail 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 Web site (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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the NYSE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2008-20 and should be 
submitted on or before April 30, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-7443 Filed 4-8-08; 8:45 am]

BILLING CODE 8011-01-P