Document ID: SEC-2008-0196-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-02-06T05:00Z

[Federal Register: February 6, 2008 (Volume 73, Number 25)]
[Notices]               
[Page 7024-7026]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe08-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57249; File No. SR-NYSE-2008-10]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 36 (Communication Between Exchange and Exchange 
Members' Offices)

January 31, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 30, 2008, the New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been substantially prepared by the 
Exchange. The Exchange filed the proposed rule change pursuant to 
section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange seeks to extend its current portable phone pilot (the 
``Pilot'') operating pursuant to Exchange Rule 36 from its scheduled 
January 31, 2008 expiration date to April 30, 2008.

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
    The Exchange seeks to extend the Pilot operating pursuant to 
Exchange Rule 36 from the Pilot's scheduled January 31, 2008 expiration 
date to April 30, 2008. Pursuant to the Pilot, Floor brokers and 
Registered Competitive Market Makers (``RCMM'') are permitted to use an 
Exchange authorized and provided portable telephone on the Exchange 
Floor provided certain conditions are met.

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 eight 
times, with the current Pilot expiring on January 31, 2008.\7\ Exchange

[[Page 7025]]

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 telephone 
communication between the Exchange Floor and any off-Floor location.
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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) (``Original 
Order'').
    \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 four 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); and 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). Also, the 
Exchange has incorporated RCMMs into the Pilot and subsequently 
amended the Pilot to allow RCMMs to use an Exchange authorized and 
provided portable telephone on the Exchange Floor to call to and 
receive calls from their upstairs offices, the upstairs offices of 
their clearing firm, and their booth locations on the Exchange 
Floor. 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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    During the operation of the Pilot, Floor brokers and RCMMs may use 
Exchange authorized and issued portable telephones on the Exchange 
Floor. Floor brokers are 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 governing the entry of orders on the 
Exchange Floor; \8\ provide status and oral execution reports as to 
orders previously received, as well as ``market look'' observations as 
have historically been routinely transmitted from a broker's booth 
location.
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    \8\ 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. 
See also note 10 infra.
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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 (Exchange Rule 123(e)).\9\ 
In addition, Exchange rules require that any Floor broker 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.\10\
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    \9\ See Securities Exchange Act Release No. 43689 (December 7, 
2000), 65 FR 79145 (December 18, 2000) (SR-NYSE-98-25). See also 
Securities Exchange Act Release No. 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).
    \10\ 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 on 
http://www.nyse.com/regulation/) and 91-25 (July 8, 1991).

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    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 telephone line 
for these discussions. RCMMs, who trade for their own accounts on the 
Exchange Floor subject to the requirements of Exchange Rule 107A, are 
currently not allowed to use a portable phone to conduct any agency 
business.\11\ For both RCMMs and Floor brokers, use of a portable 
telephone on the Exchange Floor other than one authorized and issued by 
the Exchange is prohibited.
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    \11\ 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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    Specialists are subject to separate restrictions in Exchange Rule 
36 on their ability to engage in voice communications from the 
specialist post to an off-Floor location.\12\ The Pilot does not apply 
to specialists, who would continue to be prohibited from speaking from 
the post to upstairs trading desks or customers.\13\
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    \12\ 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).
    \13\ 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.\14\ For a sample week of October 15 through October 19, 
2007, an average of 2,518 calls/day was outgoing calls from portable 
phones issued to Floor brokers and RCMMs. An average of 960 calls/day 
was incoming calls to the portable phones. Of the outgoing calls from 
portable phones, an average of 1,026 calls/day was internal calls to 
the booth by Floor brokers and RCMMs, and 1,492 calls/day was external 
calls by RCMMs to the upstairs offices of their member organization and 
their clearing member organization and external calls of Floor brokers. 
Thus, approximately 47% of the outgoing calls from portable phones were 
internal calls to the booth by Floor brokers and RCMMs.
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    \14\ 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 was external calls to RCMMs from the upstairs offices of 
their member organization and their clearing member organization and 
external calls to Floor brokers. An average of 623 calls/day was 
internal calls received from the booth. Thus, approximately 65% of all 
incoming calls received were from the booth and the remaining 35% of 
incoming calls received were external calls to RCMMs from the upstairs 
offices of their member organization and their clearing member 
organization and external calls to Floor brokers.\15\
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    \15\ The Exchange has received records of incoming and outgoing 
telephone calls from January 31, 2007 through December 31, 2007 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. During 
the period of January 31, 2007 through January 31, 2008, there have 
been no significant regulatory concerns identified with their 
usage.\16\ 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.
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    \16\ With respect to regulatory actions concerning the Pilot, in 
October 2007, there were two matters concerning the receipt of a 
phone call from an unauthorized number by RCMMs that were each 
investigated and closed with no action by NYSE Regulation, Inc.
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Conclusion

    The Exchange proposes to extend the operation of the current Pilot 
for an additional three months to April 30, 2008. The Exchange believes 
that the approval of the Pilot's continuation for an additional three 
months will enable the Exchange to continue to provide more direct, 
efficient access to its trading crowds and customers, increase the 
speed of transmittal of orders and the execution of trades, and provide 
an enhanced level of service to customers in an increasingly 
competitive environment.\17\ Therefore the Exchange believes it is 
appropriate to extend the Pilot for an additional three months, 
expiring on April 30, 2008.
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    \17\ See Securities Exchange Act Release No. 43493 (October 30, 
2000), 65 FR 67022 (November 8, 2000) (SR-CBOE-00-04), cited by 
Securities Exchange Act Release No. 43836 (January 11, 2001), 66 FR 
6727 (January 22, 2001) (discussing and approving the Chicago Board 
Options Exchange's and the Pacific Exchange's proposals to remove 
current prohibitions against Floor brokers' use of cellular or 
cordless phones to make calls to persons located off the trading 
floor).

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[[Page 7026]]

2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5) \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 for 
increased means by which communications to and from the Exchange Floor 
may take place.
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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.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    The Exchange requests that the Commission waive the 30-day 
operative period under Rule 19b-4(f)(6)(iii) of the Act.\21\ The 
Exchange believes that the continuation of the Pilot is in the public 
interest as it will avoid inconvenience and interruption to the public. 
The Commission believes that it is consistent with the protection of 
investors and the public interest to waive the 30-day operative delay 
and make this proposed rule change immediately effective.\22\ The 
Commission believes that the waiver of the 30-day operative delay will 
allow the Exchange to continue, without interruption, the existing 
operation of its Pilot until April 30, 2008.
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    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f). The Exchange provided the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to filing.
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    The Commission notes that proper surveillance is an essential 
component of any telephone access policy to an exchange trading floor. 
Surveillance procedures should help to ensure that Floor brokers and 
RCMMs use portable phones as authorized by Exchange Rule 36 and that 
orders are being handled in compliance with Exchange rules.\23\ The 
Commission expects the Exchange to actively review these procedures and 
address any potential concerns that have arisen during the Pilot. In 
this regard, the Commission notes that the Exchange should address 
whether telephone records are adequate for surveillance purposes.
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    \23\ See note 10 supra and accompanying text for other NYSE 
requirements that Floor brokers be properly qualified before doing 
public customer business.
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    The Commission also requests that the Exchange report any problems, 
surveillance, or enforcement matters associated with the Floor brokers' 
and RCMMs' use of an Exchange authorized and provided portable 
telephone on the Exchange Floor. As stated in the Original Order, NYSE 
should also address whether additional surveillance would be needed 
because of the derivative nature of the ETFs. Furthermore, in any 
future additional filings on the Pilot, the Commission would expect 
that NYSE submit information documenting the usage of the phones, any 
problems that have occurred, including, among other things, any 
regulatory actions or concerns, and any advantages or disadvantages 
that have resulted.\24\
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    \24\ In any request for a permanent approval of the Pilot, the 
Commission would expect the information to distinguish between Floor 
brokers' and RCMMs' usage of the phones.
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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-2008-10 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-2008-10. 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 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-2008-10 and should be 
submitted on or before February 27, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2140 Filed 2-5-08; 8:45 am]

BILLING CODE 8011-01-P