Document ID: SEC-2005-0461-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2005-12-29T05:00Z

[Federal Register: December 29, 2005 (Volume 70, Number 249)]
[Notices]               
[Page 77230-77232]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de05-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53018; File No. SR-NYSE-2005-78]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to Amendments to New 
York Stock Exchange Rules 35 (``Floor Employees to be Registered'') and 
301 (``Proposed Transfer or Lease of Membership'')

December 23, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on December 13, 2005, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed change consists of amendments to NYSE Rules 35 
(``Floor Employees to be Registered'') and 301 (``Proposed Transfer or 
Lease of Membership'') which would limit access to the Exchange Floor 
until fingerprint reports have been properly processed and approved and 
would require an alternative background check for persons whose 
fingerprints are deemed illegible. The text of the proposed rule change 
is available on NYSE's Web site (http://www.nyse.com), at NYSE's Office 

of the Secretary, and at the Commission's public reference room.

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

    In its filing with the Commission, NYSE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NYSE 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
    NYSE Rule 35 governs the issuance of Floor tickets (e.g., Regular 
Tickets and Special Tickets) to Floor employees, which enables them to 
enter upon the trading Floor. NYSE Rule 35.70 requires the 
fingerprinting of prospective employees of members and member 
organizations. Similarly, NYSE Rule 301.23 requires that prospective 
members be fingerprinted.
    Security concerns have suggested a tightening of these rules in two 
respects: (1) That access to the Floor be denied for persons 
fingerprinted for the first time until the fingerprinting results have 
properly been processed and accepted; and (2) that those persons whose 
fingerprints cannot be read (i.e., are illegible) be subject to an 
alternative background check acceptable to the Exchange to cover the 
same criminal convictions included by fingerprint type. In order for a 
background check to be acceptable to the Exchange, it would, at a 
minimum, have to disclose the same arrest records which the fingerprint 
check would for all fifty states and, where the applicant is foreign, 
through the records of Interpol. Amendments are also proposed to 
reflect the fact that the Exchange no longer accepts fingerprint cards, 
but rather processes them through agents.\3\
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    \3\ See NYSE Information Memo 04-53, dated October 8, 2004 
(announcing that as of October 29, 2004, the Exchange would stop 
accepting new fingerprints from its members and member organizations 
and other persons and entities subject to a fingerprinting 
requirement under Section 17 of the Exchange Act, but noting that 
certain members unable to submit fingerprints through another SRO 
would still be able to receive Exchange fingerprint services). Upon 
the completion of the reorganization of the Exchange proposed for 
January of 2006, NYSE believes that there should no longer be 
members unable to utilize another SRO.

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[[Page 77231]]

Background
    Rule 17f-2 \4\ under the Exchange Act sets out the requirements for 
the fingerprinting of persons employed in the securities industry. The 
Exchange has adopted procedures to comply with the regulations in order 
to assure that appropriate persons are fingerprinted and the results of 
the fingerprinting are reviewed.\5\
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    \4\ 17 CFR 240.17f-2.
    \5\ See NYSE Information Memos 76-30 dated June 25, 1976 and 76-
53, dated December 31, 1976, announcing, respectively, the adoption 
of Exchange Act Rule 17f-2 and SEC approval of the Exchange's plan 
for the processing of fingerprints. See also Securities Exchange Act 
Release No. 13105 (December 23, 1976), 42 FR 753 (January 4, 1977).
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    Prior to providing member firm employees with Floor ticket access 
to the Trading Floor and Exchange facilities, and pursuant to NYSE 
Rules 35 and 345.11 (``Employees--Registration, Approval, 
Records''),\6\ a member firm must electronically submit a Form U4 \7\ 
via the Central Registration Depository system (``CRD'').\8\ The hiring 
member firm and the employee are responsible for confirming the 
accuracy of the information included on the Form U4.\9\
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    \6\ NYSE Rule 345.11 requires, among other things, member firms 
to thoroughly investigate the previous record of persons whom they 
contemplate employing.
    \7\ Form U4 includes information such as an individual's ten-
year employment history, five-year residential history, education, 
disciplinary actions, disclosure information, and the self-
regulatory organization of registration.
    \8\ The CRD is a registration and licensing system for the U.S. 
securities industry, state and Federal regulators, and SROs. The 
NASD operates the CRD pursuant to policies developed jointly with 
the North American Securities Administrators Association, Inc.
    \9\ Through CRD the accuracy of the disclosure portion (e.g., 
criminal disclosures, regulatory action disclosures) of Form U4 
pursuant to prior submitted filings and fingerprinting is confirmed.
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    Members and member organizations currently have up to 30 days from 
the date of the electronic filing of the Form U4 application in Web CRD 
for the fingerprints to be submitted. Applicants and member 
organizations sometimes wait until the end of the 30-day period to 
submit fingerprints, whereas results from the FBI can be reported 
within 24-48 hours. It is proposed that prospective new Floor employees 
not be admitted to the Floor until the results of the fingerprinting 
have been posted to the CRD, reviewed and approved. While the physical 
security of the Floor is the primary factor in the proposed changes, it 
is hoped that with this proposed requirement, member organizations will 
be encouraged to act more promptly.
    An applicant who has been fingerprinted previously with a member or 
registered broker-dealer would be granted a conditional approval, 
pending review of the fingerprint results submitted by the current 
employer, assuming the prior employment was within ninety days of the 
application. Any such applicant would have been under a duty to 
disclose any reportable events during such employment to a supervising 
broker-dealer who was charged with a duty to report statutory 
disqualifications. In addition, the applicant would, of course, have a 
duty to disclose any reportable events during the intervening period in 
his or her application.
    A separate issue is raised where applicants submit fingerprints, 
which cannot be read (i.e., illegible fingerprints). Under Exchange Act 
Rule 17f-2(a)(l)(iv),\10\ when fingerprints are rejected three times as 
``illegible'' by the FBI, the individual is exempt from further 
fingerprinting.\11\ Exchange Act Rule 17f-2 does not require an 
alternate means of conducting a background check. To address this 
background check lapse, the NYSE's proposed amendment goes beyond the 
requirements of the foregoing rule and requires that members and member 
organizations conduct an alternative background check acceptable to the 
Exchange. Any such background check, in order to be acceptable to the 
Exchange, would have to cover the same criminal convictions included by 
fingerprint type on a fifty state basis and, if the applicant is 
foreign, an Interpol or other multi-national database check. These 
checks are generally conducted by non-governmental agencies. Member 
organizations would be expected to use appropriate due diligence in the 
selection of investigative agencies for such background checks, 
assuring their ability to satisfactorily research all pertinent 
databases. As above, conditional approval would be available to persons 
previously the subject of a background check, provided employment with 
a member or registered broker-dealer terminated within ninety days of 
the applications.
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    \10\ 17 CFR 240.17f-2(a)(1)(iv).
    \11\ In this instance, CRD also conducts a ``name check.''
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    The proposed revisions to NYSE Rules 35.70 and 301.23 will also 
reflect the fact that the Exchange no longer receives fingerprint cards 
directly, but does so through agents of the Exchange.\12\ However, the 
Exchange's Membership Services Department will process the fingerprints 
of member applicants not associated with broker-dealers (not required 
to be registered on CRD).
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    \12\ NYSE Rule 345.18 provides that any filing or submission to 
be made with the Exchange under this rule, where appropriate, may be 
made with a properly authorized agent acting on behalf of the 
Exchange and shall be deemed to be a filing with the Exchange.
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2. Statutory Basis
    NYSE believes that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with the requirements of Sections 6(b)(5) \13\ which 
requires, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
national market system, and in general, to protect investors and the 
public interest. NYSE believes that the proposed rule change, by 
strengthening the security of the Exchange Floor, will help assure the 
uninterrupted trading and maintenance of the market.
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    \13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal does not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.

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

    Comments were neither solicited nor received.

III. 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.

[[Page 77232]]

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 Exchange 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-2005-78 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-NYSE-2005-78. 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. Copies of the 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-2005-78 and should be submitted on or before January 19, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 14 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-8067 Filed 12-28-05; 8:45 am]

BILLING CODE 8010-01-P