Document ID: SEC-2006-1040-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-08-10T04:00Z

[Federal Register: August 10, 2006 (Volume 71, Number 154)]
[Notices]               
[Page 45885-45888]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10au06-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54276; File No. SR-NYSE-2006-55]

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

August 4, 2006.
    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 July 27, 2006, 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 and 
II below, which Items have been 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) \4\ thereunder, 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 is proposing to extend the portable phone pilot 
(``Pilot'') for an additional six months, until January 31, 2007. 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 July 31, 2006.\5\
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    \5\ See Securities Exchange Act Release No. 53277 (February 13, 
2006), 71 FR 8877 (February 21, 2006) (SR-NYSE-2006-03).
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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
    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 six times 
with the current Pilot

[[Page 45886]]

expiring on July 31, 2006.\8\ The Exchange has also filed for permanent 
approval of NYSE Rule 36, as amended.\9\
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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); and 
53277, 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).
    \9\ See SR-NYSE-2004-52 (September 7, 2004).
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    With respect to regulatory actions concerning the Pilot, as 
previously disclosed, there is an open investigation into possible 
insider trading in an NYSE listed security in which the trading 
activity of two RCMMs has been identified and is under review.\10\ The 
use of an Exchange authorized and provided portable phone by one of the 
RCMMs in or about January 2005 is under review as part of the 
investigation. No administrative or technical problems, other than 
routine telephone maintenance issues, have resulted from the Pilot over 
the past few months.\11\ The Exchange now proposes to extend the Pilot 
for an additional six months, until January 31, 2007.
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    \10\ See note 5 supra.
    \11\ The Exchange represents that it has received records of 
incoming telephone calls from January 31, 2006 to May 31, 2006 for 
Floor brokers and RCMMs and will continue to receive updates. 
Telephone conversation between David Matta, Principal Rule Counsel, 
NYSE, and Molly M. Kim, Special Counsel, Division of Market 
Regulation, Commission, on August 3, 2006.
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NYSE Rule 36

    NYSE Rule 36 governs the establishment of telephone or electronic 
communications between the Exchange's Trading Floor and any other 
location. Prior to the Pilot, NYSE Rule 36 prohibited the use of 
portable telephone communication between the Floor and any off-Floor 
location.
    The Exchange proposes to extend the Pilot for an additional six 
months, 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 NYSE 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.\12\
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    \12\ See note 15 infra and accompanying text.
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    The Pilot also allows RCMMs to use an Exchange authorized and 
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.\13\ 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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    \13\ 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 NYSE 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.\14\ In addition, 
NYSE 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 NYSE Rules 342 and 345, among 
others.\15\
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    \14\ NYSE 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).
    \15\ 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 13 supra.
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    Specialists are subject to separate restrictions in NYSE Rule 36 on 
their ability to engage in voice communications from the specialist 
post to an off-Floor location.\16\ The Pilot would not apply to 
specialists, who would continue to be prohibited from speaking from the 
post to upstairs trading desks or customers.\17\
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    \16\ 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).
    \17\ NYSE Rule 36.30.
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    The Exchange believes that the approval of the Pilot's continuation 
for an additional six 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.\18\ 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, the Pilot will 
expedite and make more direct the free flow of information.
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    \18\ 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 734 
portable phone subscribers.\19\ In addition, with regard to portable 
phone usage, for a sample week of 5/1/06-5/5/06, an average of 10,542 
calls/day were originated from portable phones issued to Floor brokers 
and RCMMs. An average of 4,672 calls/day were received on portable 
phones.\20\ Of the calls originated from portable phones, an average of 
6,724 calls/day

[[Page 45887]]

were internal calls to the booth and 3,200 calls/day were external 
calls.\21\ Thus, approximately 68% of the calls originated from 
portable phones were internal calls to the booth by Floor brokers.
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    \19\ This data includes both Floor brokers and RCMMs.
    \20\ Only Floor Brokers received incoming calls. RCMMs only made 
outgoing calls and these were to their upstairs offices.
    \21\ During this period RCMMs were not authorized to communicate 
with their booths.
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    With regard to received calls, of the 4,672 average calls/days 
received, an average of 2,441 calls/day were external calls and an 
average of 2,231 calls/day were internal calls received from the booth. 
Thus, approximately 48% of all received calls were internally generated 
and 52% were calls from the outside.
    RCMMs made 384 outgoing calls and received no incoming calls on 
their portable phones for the above referenced week.
    The Exchange believes that the Pilot appears to be successful in 
that there is a reasonable degree of usage of portable phones. Except 
as noted above, 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 six months, expiring on January 31, 2007.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement under Section 6(b)(5) of the Act \22\ 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 Exchange believes the 
amendment to NYSE 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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    \22\ 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 \23\ and Rule 19b-
4(f)(6) thereunder.\24\ 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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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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).\25\ 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 upon filing on July 27, 
2006.\26\ 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, 
2007.
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    \25\ 17 CFR 240.19b-4(f)(6)(iii)
    \26\ For purposes only of waiving the 30-day operating 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.\27\ 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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    \27\ See note 15 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.\28\
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    \28\ The Commission expects 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-2006-55 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-2006-55. 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

[[Page 45888]]

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-2006-55 and 
should be submitted on or before August 31, 2006.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).

Nancy M. Morris,
Secretary.
 [FR Doc. E6-13025 Filed 8-9-06; 8:45 am]

BILLING CODE 8010-01-P