Document ID: SEC-2007-0196-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-02-08T05:00Z

[Federal Register: February 8, 2007 (Volume 72, Number 26)]
[Notices]               
[Page 6025-6028]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08fe07-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55218; File No. SR-NYSE-2007-05]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Rule 36 (Communication Between 
Exchange and Members' Offices)

January 31, 2007.
    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 January 25, 2007, the New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
On January 31, 2007, the Exchange filed Amendment No. 1 to the proposed 
rule change. 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, as amended, 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

    This proposal seeks to extend the portable phone pilot (the 
``Pilot'') for an additional year, until January 31, 2008. The Pilot 
amends NYSE Rule 36 (Communication Between Exchange and Members' 
Offices) to allow a Floor broker and Registered Competitive Market 
Maker (``RCMM'') to use an Exchange authorized and provided portable 
telephone on the Exchange Floor, provided certain conditions are met. 
The current Pilot expires on January 31, 2007.\5\
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    \5\ See Securities Exchange Act Release No. 54276 (August 4, 
2006), 71 FR 45885 (August 10, 2006) (SR-NYSE-2006-55).
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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
Background
    The Commission originally approved the Pilot to be implemented as a 
six-month pilot \6\ beginning no later than June 23, 2003.\7\ Since the 
inception of the Pilot, the Exchange has extended the Pilot seven 
times, with the current Pilot expiring on January 31, 2007.\8\
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    \6\ See Securities Exchange Act Release No. 47671 (April 11, 
2003), 68 FR 19048 (April 17, 2003) (SR-NYSE-2002-11) (``Original 
Order'').
    \7\ 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).
    \8\  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 an 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); and 54276, note 5 supra. Also, since the 
inception, 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 booths on the 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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[[Page 6026]]

    With respect to regulatory actions concerning the Pilot, as 
previously disclosed, there was an investigation into possible insider 
trading in an NYSE listed security involving the trading activity of 
two RCMMs and the use of an Exchange authorized and provided portable 
phone by one of the RCMMs in or about January 2005, which was closed on 
December 21, 2006, with no action by NYSE Regulation, Inc. (``NYSE 
Regulation'').\9\
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    \9\ See Securities Exchange Act Release No. 53277, note 8 supra.
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    No administrative or technical problems, other than routine 
telephone maintenance issues, have resulted from the Pilot over the 
past few months.\10\ The Exchange is now filing to extend the Pilot for 
an additional year, until January 31, 2008.
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    \10\ The Exchange has received records of incoming telephone 
calls from June 30, 2006, through December 31, 2006, for Floor 
brokers and RCMMs and will continue to receive monthly updates.
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NYSE Rule 36
    Rule 36 governs the establishment of telephone or electronic 
communications between the Exchange's Trading Floor and any other 
location. Prior to the Pilot, Rule 36 prohibited the use of portable 
telephone communication between the Trading Floor and any off-Floor 
location.
    The Exchange is proposing to extend the Pilot for an additional 
year, permitting Floor brokers and RCMMs to use Exchange authorized and 
issued portable telephones on the Floor. Thus, with the approval of the 
Exchange, a Floor broker would continue to be 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 would permit the Floor 
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 have historically been routinely 
transmitted from a Floor broker's booth location.\11\
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    \11\ 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 14, infra.
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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 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 are currently not allowed to use a portable phone to conduct any 
agency business until issues involving the use of portable phones by 
RCMMs acting in the capacity of agent have been fully reviewed and 
resolved by NYSE Regulation in consultation with the Commission.\12\ 
For both RCMMs and Floor brokers, use of a portable telephone on the 
Exchange Floor other than one authorized and issued by the Exchange 
will continue to be 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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    Both incoming and outgoing calls would continue to be allowed, 
provided the requirements of all other Exchange rules have been met. A 
Floor broker would not be permitted to represent and execute any order 
received as a result of such voice communication unless the order was 
first properly recorded by the member and entered into the Exchange's 
Front End Systemic Capture (FESC) electronic database (NYSE Rule 123 
(e)).\13\ 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.\14\
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    \13\ 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).
    \14\ 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/ regulation.html), and 91-25 (July 8, 

1991). See also note 12 supra.
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    Specialists are subject to separate restrictions in Rule 36 on 
their ability to engage in voice communications from the specialist 
post to an off-Floor location.\15\ The Pilot would not apply to 
specialists, who would continue to be prohibited from speaking from the 
post to upstairs trading desks or customers.\16\
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    \15\ 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).
    \16\ NYSE 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 
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 
Floor) of an options or futures exchange.
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    The Exchange believes that the approval of the Pilot's continuation 
for an additional year 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\ The Exchange further believes 
that by enabling customers to speak directly to a Floor broker in a 
trading crowd on an Exchange authorized and issued portable telephone 
and by allowing RCMMs to communicate with their upstairs office's land 
line, the land line of their clearing member organization's upstairs 
office, and their booth personnel at the booth, the proposed rule 
change will expedite and make more direct the free flow of information.
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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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Pilot Program Results
    Since the Pilot's inception, there have been approximately 681 
portable phone subscribers.\18\ In addition, with regard to portable 
phone usage, for a sample week of 12/11/2006-12/15/2006, an average of 
7,040 calls/day originated from portable phones issued to Floor brokers 
and RCMMs. An average of 2,109 calls/day were received on portable 
phones.

[[Page 6027]]

Of the calls originated from portable phones, an average of 3,958 
calls/day were internal calls to the booth and 3,081 calls/day were 
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 56% of the calls originating from 
portable phones were internal calls to the booth by Floor brokers and 
RCMMs.
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    \18\ This data includes both Floor brokers and RCMMs.
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    With regard to received calls, of the 2,109 average calls/days 
received, an average of 127 calls/day were external calls by RCMMs to 
the upstairs offices of their member organization and their clearing 
member organization and external calls of Floor brokers and an average 
of 1,982 calls/day were internal calls received from the booth. Thus, 
approximately 94% of all received calls were internally generated and 
6% were external calls by RCMMs to the upstairs offices of their member 
organization and their clearing member organization and external calls 
of Floor brokers.
    The Exchange believes that the Pilot appears to be successful in 
that there is a reasonable degree of usage of portable phones. During 
the period of June 30, 2006, through January 31, 2007, there have been 
no other regulatory, administrative or other technical problems 
identified with their usage. The Exchange further believes that the 
Pilot appears to facilitate communication on the Floor for both Floor 
brokers and RCMMs without any corresponding drawbacks. Therefore, the 
Exchange believes it is appropriate to extend the Pilot for an 
additional year, expiring on January 31, 2008.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \19\ 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 Rule 36 supports 
the mechanism of free and open markets by providing for increased means 
by which communications to and from the Floor of the Exchange may take 
place.
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    \19\ 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 \20\ and Rule 19b-
4(f)(6) thereunder.\21\ 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.\22\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on January 31, 2007, the date NYSE filed Amendment No. 1 
to the proposed rule change. See 15 U.S.C. 78s(b)(3)(C).
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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.\23\ 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.\24\ 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 January 31, 2008.
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    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ 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).
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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 NYSE Rule 36 and that orders 
are being handled in compliance with NYSE rules.\25\ 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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    \25\ See note 14 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, the 
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 the 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.\26\
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    \26\ 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 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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2007-05 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-2007-05. This file 
number should be included on the subject line if e-mail is used. To 
help the

[[Page 6028]]

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 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-2007-05 and 
should be submitted on or before March 1, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-2085 Filed 2-7-07; 8:45 am]

BILLING CODE 8010-01-P