Document ID: SEC-2017-1170-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC; NYSE MKT, LLC
Posted Date: 2017-07-13T04:00Z

[Federal Register Volume 82, Number 133 (Thursday, July 13, 2017)]
[Notices]
[Pages 32396-32399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14670]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81103; File No. SR-NYSE-2017-07; SR-NYSEMKT-2017-16]

Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
MKT LLC; Order Granting Approval of Proposed Rule Changes, as Modified 
by Amendment No. 1, Amending NYSE Rule 36 and NYSE MKT Rule 36--
Equities To Permit Exchange Floor Brokers To Use Non-Exchange Provided 
Telephones on the Floor

July 7, 2017.

I. Introduction

    On March 31, 2017 and March 22, 2017, New York Stock Exchange LLC 
(``NYSE'') and NYSE MKT LLC (``NYSE MKT'') (each of NYSE and NYSE MKT 
an ``Exchange''), respectively, 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\ proposed rule changes to permit Exchange floor brokers 
to use telephones not provided by the Exchange while on the Floor of 
the Exchange, and make related changes. The proposed rule changes were 
published for comment in the Federal Register on April 10, 2017.\3\ On 
May 24, 2017, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to either approve 
the proposed rule changes, disapprove the proposed rule changes, or 
institute proceedings to determine whether to disapprove the proposed 
rule changes.\5\ On July 6, 2017, NYSE and NYSE MKT each filed 
Amendment No. 1 to its respective proposed rule change.\6\ The 
Commission received no comments on the proposed rule changes. This 
order grants approval of the proposed rule changes, each as modified by 
the respective Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 80374 (April 4, 
2017), 82 FR 17306 (``NYSE Notice''); and 80375 (April 4, 2017), 82 
FR 17302 (``NYSE MKT Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 80753 (May 24, 
2017), 82 FR 25032 (May 31, 2017). The Commission designated July 9, 
2017 as the date by which it shall approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
changes.
    \6\ Each Amendment No. 1 clarified the expected implementation 
date of the respective proposed rule change. See infra note 29 and 
accompanying text. Amendment No. 1 is available on each Exchange's 
Web site. Each Amendment No. 1 is not subject to notice and comment 
because it is a technical amendment that does not materially alter 
the substance of the proposed rule change or raise any novel 
regulatory issues.
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II. Description of the Proposed Rule Changes, as Modified by Amendment 
No. 1

    NYSE and NYSE MKT propose to amend NYSE Rule 36 and NYSE MKT Rule 
36--Equities, respectively, to permit Exchange floor brokers to use 
cellular or wireless telephones not provided by the Exchange while on 
the Floor \7\ of the Exchange.
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    \7\ The ``Floor'' means the trading floor of the Exchange and 
the premises immediately adjacent thereto, such as the various 
entrances and lobbies of the 11 Wall Street, 18 New Street, 8 Broad 
Street, 12 Broad Street, and 18 Broad Street buildings, and also 
means the telephone facilities available in these locations. See 
NYSE Rule 6; NYSE MKT Rule 6--Equities.
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    Currently, with Exchange approval, a floor broker may maintain a 
telephone line or use an Exchange authorized and Exchange provided 
portable telephone, which permits a non-member off the Floor to 
communicate with a member or member organization on the Floor. Any 
floor broker receiving orders from the public over portable telephones 
must be properly qualified under Exchange rules to conduct such public 
business. Exchange rules prohibit the use of a portable telephone on 
the Floor other than one authorized and issued by the Exchange, with a 
limited exception that allows members and employees of member 
organizations to use personal portable telephones while outside of the 
Trading Floor \8\ but still on the Floor of the Exchange.\9\
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    \8\ The ``Trading Floor'' means the restricted-access physical 
areas designated by the Exchange for the trading of securities, 
commonly known as the ``Main Room'' and the ``Buttonwood Room.'' The 
Trading Floor does not include the areas in the ``Buttonwood Room'' 
designated by the Exchange where NYSE Amex-listed options securities 
are traded (the ``NYSE Amex Options Trading Floor''), or the 
physical area within fully enclosed telephone booths located in 18 
Broad Street at the Southeast wall of the Trading Floor. See NYSE 
Rule 6A; NYSE MKT Rule 6A--Equities.
    \9\ See NYSE Rule 36, Supplementary Material .20(a) and .23; 
NYSE MKT Rule 36--Equities, Supplementary Material .20(a) and .23. 
NYSE MKT specifies that the Exchange will approve the maintenance of 
telephone lines only at the booth location of a member or member 
organization. See NYSE MKT Rule 36--Equities, Supplementary Material 
.20(a).
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    NYSE and NYSE MKT propose to allow a floor broker to use a personal 
cellular or wireless telephone, rather

[[Page 32397]]

than an Exchange authorized and Exchange provided telephone, to 
communicate with non-members located off the Floor, subject to Exchange 
approval and specified registration requirements. The use of a cellular 
or wireless telephone on the Floor other than one registered with the 
Exchange would be prohibited, subject to the existing exception for use 
of cellular or wireless telephones outside of the Trading Floor.\10\ 
NYSE and NYSE MKT would require floor brokers to register, prior to 
use, any cellular or wireless telephone to be used on the Floor by 
submitting a request in writing to the Exchange in an acceptable 
format. Floor brokers would be required to attest that they are aware 
of and understand the rules governing the use of telephones on the 
Floor.\11\ No floor broker would be allowed to use any alternative 
cellular or wireless telephone on the Floor without prior Exchange 
approval.\12\
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    \10\ See proposed NYSE Rule 36, Supplementary Material .20(a); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .20(a).
    \11\ See proposed NYSE Rule 36, Supplementary Material .21(a); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .21(a). 
NYSE and NYSE MKT submitted proposed attestations, each at Exhibit 
5A. As explained in their proposals, according to NYSE and NYSE MKT, 
they would issue appropriate regulatory guidance regarding the use 
of personal cellular or wireless telephones on the Floor prior to 
the effective date of the proposed rule changes. See NYSE Notice, 
supra note 3, at 17309 n. 18; NYSE MKT Notice, supra note 3, at 
17304 n. 15. According to NYSE and NYSEMKT, this regulatory guidance 
would specify where the written request to use a cellular or 
wireless telephone should be sent and that the floor broker must 
provide the telephone number of the telephone being registered. See 
NYSE Notice, supra note 3, at 17309 n. 17; NYSE MKT Notice, supra 
note 3, at 17304 n. 14. NYSE explained that, for NYSE, the 
attestation and regulatory guidance would supersede a previously 
developed acknowledgement form and previous guidance. See NYSE 
Notice, supra note 3, at 17309 n. 18.
    \12\ See proposed NYSE Rule 36, Supplementary Material .21(a); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .21(a).
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    NYSE and NYSE MKT explained that NYSE Arca, Inc. (``NYSE Arca'') 
and NYSE MKT allow floor-based permit holders and their employees to 
use personal cellular telephones while on the exchanges' options 
trading floors.\13\ The Exchanges' proposed restrictions (described 
further below) for the use of personal cellular telephones on their 
equity Floors are modeled after, with some exceptions, the rules of 
NYSE Arca and NYSE MKT concerning cellular telephone use on their 
options trading floors.\14\
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    \13\ See NYSE Notice, supra note 3, at 17307-08; NYSE MKT 
Notice, supra note 3, at 17303.
    \14\ See NYSE Notice, supra note 3, at 17307-08; NYSE MKT 
Notice, supra note 3, at 17303. See also NYSE Arca Rule 6.2(h); NYSE 
MKT Rule 902NY(i). According to NYSE and NYSE MKT, they did not 
propose to add certain requirements applicable to the NYSE Arca and 
NYSE MKT options trading floors that, according to the Exchanges, 
are not compatible with current practices on the NYSE and NYSE MKT 
equities trading floors that allow floor brokers to speak to 
individuals off the Floor and provide certain status reports and 
observations. See NYSE Notice, supra note 3, at 17308 n. 14; NYSE 
MKT Notice, supra note 3, at 17303 n. 12.
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    Currently, when using an Exchange authorized and Exchange provided 
portable telephone, a floor broker: (i) May engage in direct voice 
communication from the point of sale on the Floor to an off-Floor 
location; (ii) may 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; (iii) must comply with NYSE Rule 123(e) or NYSE MKT Rule 
123(e)--Equities, as applicable; and (iv) must comply with all other 
rules, policies, and procedures of both the Exchange and the federal 
securities laws, including record retention requirements.\15\ NYSE and 
NYSE MKT also require floor brokers and their member organizations to 
implement procedures designed to deter anyone calling their Exchange 
authorized and Exchange provided portable telephones from using caller 
ID block or other means to conceal telephone numbers.\16\ Under the 
proposals, NYSE and NYSE MKT would continue to apply these requirements 
when a floor broker uses a personal cellular or wireless telephone on 
the Floor.\17\
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    \15\ See NYSE Rule 36, Supplementary Material .21(a)(i)-(iv); 
NYSE MKT Rule 36--Equities, Supplementary Material .21(a)(i)-(iv). 
See also NYSE Rule 440; NYSE MKT Rule 440--Equities; 17 CFR 240.17a-
3; 17 CFR 240.17a-4.
    \16\ See NYSE Rule 36, Supplementary Material .21(b); NYSE MKT 
Rule 36--Equities, Supplementary Material .21(b). Members and member 
organizations must make and retain records demonstrating compliance 
with such procedures. See NYSE Rule 36, Supplementary Material 
.21(b); NYSE MKT Rule 36--Equities, Supplementary Material .21(b).
    \17\ See proposed NYSE Rule 36, Supplementary Material 
.21(b)(i)-(iv) and (c); proposed NYSE MKT Rule 36--Equities, 
Supplementary Material .21(b)(i)-(iv) and (c).
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    NYSE and NYSE MKT currently prohibit floor brokers from using call-
forwarding or conference calling, and Exchange authorized and Exchange 
provided portable telephones do not have these capabilities.\18\ Under 
the proposals, NYSE and NYSE MKT would eliminate this restriction.\19\ 
According to NYSE and NYSE MKT, the prohibition on forwarding calls 
prevented floor brokers from forwarding calls to a non-Exchange issued 
device, and this goal of preventing floor brokers from forwarding calls 
from an Exchange-issued device to a non-Exchange-issued device would no 
longer be relevant if the floor brokers were using personal cellular 
telephones.\20\ NYSE and NYSE MKT also noted that records of conference 
calls would be captured pursuant to the proposed recordkeeping 
requirements for floor brokers that, as explained further below, would 
require floor brokers to maintain records of their telephone use and 
such records would be available to the Exchange upon request.\21\
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    \18\ See NYSE Rule 36, Supplementary Material .21(a)(v); NYSE 
MKT Rule 36--Equities, Supplementary Material .21(a)(v).
    \19\ See proposed NYSE Rule 36, Supplementary Material .21(b); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .21(b).
    \20\ See NYSE Notice, supra note 3, at 17309; NYSE MKT Notice, 
supra note 3, at 17304.
    \21\ See NYSE Notice, supra note 3, at 17309; NYSE MKT Notice, 
supra note 3, at 17304.
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    Currently, NYSE MKT prohibits floor brokers from using Exchange 
authorized and Exchange provided portable telephones that they use to 
trade equities while on the NYSE Amex Options Trading Floor.\22\ Under 
the proposal, NYSE MKT would retain this prohibition on using a 
telephone used to trade equities while on the options floor, thus 
requiring floor brokers to use a separate personal cellular or wireless 
telephone for equities versus options trading, as needed.\23\
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    \22\ See NYSE MKT Rule 36--Equities, Supplementary Material 
.21(c).
    \23\ See proposed NYSE MKT Rule 36--Equities, Supplementary 
Material .21(e). NYSE MKT has proposed to add a cross-reference to 
this provision in its rule concerning general use of personal 
portable or wireless communication devices by members and employees 
of member organizations. See proposed NYSEMKT Rule 36--Equities, 
Supplemental Material .23.
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    Additionally, NYSE and NYSE MKT would require floor brokers to 
maintain records of the use of telephones and all other approved 
devices, including call logs, for at least three years.\24\ The 
Exchange could deny, limit, or revoke registration of any device used 
on the Floor upon a determination that use of such device is 
inconsistent with the public interest, the protection of investors, or 
just and equitable principles of trade, or that such device has been or 
is being used to facilitate any violation of the Act, as amended, or

[[Page 32398]]

rules thereunder, or Exchange Rules.\25\ Each Exchange states that it 
would assume no liability to floor brokers due to conflicts between 
telephones in use on the Floor or electronic interference problems 
resulting from the use of telephones on the Floor.\26\
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    \24\ See proposed NYSE Rule 36, Supplementary Material .21(d); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .21(d). 
Floor brokers would need to maintain the first two years of records 
in an accessible place. The Exchange would reserve the right to 
periodically inspect such records pursuant to NYSE Rule 8210 and 
NYSE MKT Rule 8210, respectively. See proposed NYSE Rule 36, 
Supplementary Material .21(d); proposed NYSE MKT Rule 36--Equities, 
Supplementary Material .21(d).
    \25\ See proposed NYSE Rule 36, Supplementary Material .21(e); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .21(f).
    \26\ See proposed NYSE Rule 36, Supplementary Material .21(f); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .21(g). 
According to NYSE and NYSE MKT, rules of other exchanges similarly 
limit or cap liability for losses arising from the use of an 
exchange's facilities, systems, or equipment. See NYSE Notice, supra 
note 3, at 17310 n. 23; NYSE MKT Notice, supra note 3, at 17305 n. 
20 (citing Nasdaq Rule 4626; NYSE Arca Options Rules 2.8 and 14.2; 
NYSE Arca Equities Rules 2.7 and 13.2).
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    NYSE and NYSE MKT propose to replace references to ``portable,'' 
``personal portable,'' or ``Exchange authorized and provided portable'' 
telephones with ``cellular or wireless'' telephones.\27\ Finally, NYSE 
and NYSE MKT propose to make minor technical changes to the rules.\28\
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    \27\ See proposed NYSE Rule 36, Supplementary Material .20, .21, 
and .23; proposed NYSE MKT Rule 36--Equities, Supplementary Material 
.20, .21, and .23.
    \28\ See proposed NYSE Rule 36, Supplementary Material .20(a); 
proposed NYSE MKT Rule 36--Equities, Supplementary Material .20(a) 
and .21(b)(ii).
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    NYSE and NYSE MKT noted that they will announce the implementation 
date of the proposed rule changes in a Regulatory Bulletin at least 30 
days in advance of such implementation date and that the proposed rules 
changes will become operative within 90 days of approval.\29\ As of the 
implementation date, the Exchanges will no longer provide portable 
telephones to floor brokers.
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    \29\ See Amendment No. 1, supra note 6.
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II. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
changes, as modified by Amendment No. 1, are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\30\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
Section 6(b)(5) of the Act,\31\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, 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.
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    \30\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \31\ 15 U.S.C. 78f(b)(5).
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    NYSE and NYSE MKT propose to allow floor brokers to use personal 
cellular or wireless telephones on the Floor, instead of Exchange 
authorized and Exchange provided telephones, subject to Exchange 
approval and specified registration requirements. The Commission notes 
that NYSE Arca and NYSE MKT currently allow floor brokers to use 
personal cellular or wireless telephones on their options trading 
floors.\32\ The Commission further notes that floor brokers' use of 
personal cellular or wireless telephones will be generally subject to 
the existing regulatory framework pertaining to use of portable 
telephones on the Floor, with certain additions and one change as 
described further below. With respect to NYSE MKT, the Commission notes 
that if a floor broker conducts business on both the equities floor and 
the options floor, the floor broker would be required to maintain a 
separate personal cellular or wireless telephone for use on each floor.
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    \32\ See NYSE Arca Rule 6.2(h); NYSE MKT Rule 902NY(i). See also 
supra notes 13 and 14 and accompanying text.
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    When first approving NYSE floor brokers' use of Exchange authorized 
and Exchange provided portable telephones on the Floor on a pilot 
basis, the Commission noted that the Exchange would have access to all 
telephone records and that proper surveillance is an essential 
component of any telephone access policy to an Exchange trading 
floor.\33\ NYSE and NYSE MKT propose that floor brokers would be 
required to maintain records of telephone use, including logs of calls 
placed, and that the Exchange would have the right to periodically 
inspect such records. The Commission expects that NYSE and NYSE MKT 
will provide guidance to floor brokers concerning these proposed rule 
changes that delineates the floor brokers' recordkeeping requirements 
(including specific steps floor brokers should take to fully comply 
with such requirements) and then institute adequate surveillance 
procedures to monitor these efforts.
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    \33\ See Securities Exchange Act Release No. 47671 (April 11, 
203), 68 FR 19048, 19050 (April 17, 2003) (SR-NYSE-2002-11).
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    As the Commission originally stated when first approving floor 
brokers' use of Exchange authorized and Exchange provided portable 
telephones, surveillance procedures are essential, and should help to 
ensure that floor brokers who are interacting with the public are 
authorized to do so and that orders are being handled in compliance 
with Exchange rules.\34\ These requirements remain the same 
notwithstanding that, as noted in the proposals, the Floor has changed 
and is now a largely automated trading environment.
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    \34\ See id. For example, among others, NYSE Rule 123(e) and 
NYSE MKT Rule 123(e)--Equities require members and member 
organizations to record the details of an order in an electronic 
system immediately upon receipt. See NYSE Rule 123(e); NYSE MKT Rule 
123(e)--Equities.
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    Essentially, the Exchanges' proposals deal with changes in 
ownership of the portable telephones. NYSE and NYSE MKT have amended 
their rules to address these changes by adding floor broker 
recordkeeping and other requirements within the existing regulatory 
structure of NYSE Rule 36 and NYSE MKT Rule 36--Equities, respectively. 
The responsibility of the Exchanges, as self-regulatory organizations, 
to conduct surveillance and ensure compliance with their rules remains 
the same, regardless of who owns the telephones. The Exchanges have 
assured us that they can fulfill their duties despite the change in 
ownership of the telephones and, based on that representation, we are 
approving the proposed rule changes.\35\
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    \35\ Notwithstanding any Regulatory Service Agreements with 
FINRA and the application of FINRA rules to floor brokers as 
registered broker dealers, the Exchanges retain legal responsibility 
for their regulation of their members on their Floor and their 
market and the performance of FINRA as a regulatory service 
provider. The Exchanges have represented that they can supervise and 
monitor the use of communications on their Floor and approval of the 
proposed rule changes is based, in part, on those representations 
and that the Exchanges' own surveillance and compliance 
responsibilities will be supported by that of FINRA. Each Exchange 
retains ultimate legal responsibility for the performance of its 
regulatory functions and to assure compliance by its members with 
the new rules. See 15 U.S.C. 78s(g).
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    NYSE and NYSE MKT propose specific registration requirements for 
the use of personal cellular or wireless telephones on the Floor, 
including an attestation that floor brokers are aware of applicable 
rules. The Exchange would have the ability to deny, limit, or revoke 
such registration.\36\ The Commission believes that these registration 
requirements will allow the Exchanges to oversee floor brokers' use of 
personal cellular or wireless telephones. Further, NYSE and NYSE MKT 
propose to remove restrictions on the use of call forwarding and 
conference calling. The Commission believes that the initial reason for 
the restriction on the use of call forwarding is moot now that floor 
brokers will not use Exchange-issued telephones and the recordkeeping 
requirements described

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above should allow the Exchanges to monitor the use of conference 
calls.
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    \36\ See supra note 25 and accompanying text.
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    Based on the foregoing, the Commission believes that the proposed 
rule changes present no novel regulatory issues and therefore finds the 
proposed rule changes to be consistent with the Act. The Commission 
believes that it is reasonable for NYSE and NYSE MKT to allow floor 
brokers to use personal cellular or wireless telephones on their 
equities Floors, subject to Exchange approval, registration 
requirements, and a regulatory framework similar to that which 
currently exists for use of Exchange authorized and Exchange provided 
portable telephones on their equities Floors, and for the use of 
personal cellular telephones on options floors, in compliance with 
Exchange Rules and federal securities laws. The Commission expects that 
the Exchanges will monitor compliance with Exchange rules by floor 
brokers using personal cellular or wireless telephones on the Floor and 
will inform the Commission if they encounter unanticipated difficulties 
in enforcing their rules, and make any subsequent changes to their 
rules to address these issues, or otherwise find that the use of 
personal telephones raises regulatory concerns.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule changes (SR-NYSE-2017-07 and SR-
NYSEMKT-2017-16), each as modified by their respective Amendment No. 1, 
be, and hereby are, approved.
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    \37\ 15 U.S.C. 78s(b)(2).
    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-14670 Filed 7-12-17; 8:45 am]
 BILLING CODE 8011-01-P