Document ID: SEC-2008-0930-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-07-09T04:00Z

[Federal Register: July 9, 2008 (Volume 73, Number 132)]
[Notices]               
[Page 39363-39365]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy08-113]                         

[[Page 39363]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58068; File No. SR-NYSE-2008-20]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change and Amendments No. 1 and 2 
Thereto Relating to Exchange Rule 36 (Communications Between Exchange 
and Member's Offices) To Make Permanent an Existing Portable Phone 
Pilot

June 30, 2008.
    On March 17, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') 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\ a 
proposed rule change to make permanent an existing portable phone 
pilot. On March 27, 2008, and April 2, 2008, the Exchange submitted 
Amendments No. 1 and 2, respectively, to the proposed rule change. The 
proposed rule change was published for comment in the Federal Register 
on April 9, 2008.\3\ The Commission received no comments regarding the 
proposal. This order approves the proposed rule change, as modified by 
Amendments No. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57611 (April 3, 
2008), 73 FR 19274.
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I. Description of the Proposal

    The Exchange proposes to make permanent NYSE Rule 36 
(Communications Between Exchange Member's Offices), which permits Floor 
brokers and Registered Competitive Market-Makers (``RCMMs'') \4\ to use 
on a pilot basis an Exchange authorized and issued portable phone 
(``Exchange Phone'') on the Exchange Floor (``Pilot''). The Commission 
originally approved the Pilot to be implemented for a six-month period 
\5\ in 2003.\6\ Since the inception of the Original Pilot, the Exchange 
extended the Pilot ten times, with the current Pilot set to expire on 
June 30, 2008.\7\ In 2006, the Exchange incorporated RCMMs into the 
Pilot \8\ and subsequently amended the Pilot to allow RCMMs to use 
Exchange Phones to call to and receive calls from their booths.\9\
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    \4\ See NYSE Rule 107A, which defines and governs the 
registration and dealings of RCMMs.
    \5\ See Securities Exchange Act Release No. 47671 (April 11, 
2003), 68 FR 19048 (April 17, 2003) (SR-NYSE-2002-11) (``Original 
Pilot''). The Original Pilot permitted Exchange Phones to be used 
only by Floor brokers. See note 8 and 9 infra and accompanying text.
    \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 Exchange 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 six 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); 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); 57249 (January 
31, 2008), 73 FR 7024 (February 6, 2008) (SR-NYSE-2008-10) 
(extending the Pilot for an additional three months ending April 30, 
2008); and 57746 (April 30, 2008), 73 FR 25816 (May 7, 2008) (SR-
NYSE-2008-34) (extending the Pilot to no later than the approval of 
SR-NYSE-2008-20 or June 30, 2008, the earlier thereof).
    \8\ See Securities Exchange Act Release No. 53213 (February 2, 
2006), 71 FR 7103 (February 10, 2006) (SR-NYSE-2005-80).
    \9\ See Securities Exchange Act Release No. 54215 (July 26, 
2006), 71 FR 43551 (August 1, 2006) (SR-NYSE-2006-51).
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    NYSE Rule 36 governs the establishment of telephonic or electronic 
communications between the Exchange Floor and any other location. Prior 
to the Pilot, NYSE Rule 36 prohibited the use of portable phone 
communications between the Exchange Floor and any off-Floor location. 
Floor brokers could communicate from the Exchange Floor to off-Floor 
location only by means of a telephone located at a broker's booth. Such 
communication often involved a customer calling a broker at the booth 
for ``market look'' information. A broker could not use a portable 
phone in a trading crowd at the point of sale to speak with a person 
located off the Exchange Floor.
    Currently, on a pilot basis, NYSE Rule 36 outlines the conditions 
under which Floor brokers and RCMMs may use Exchange Phones.\10\ Only 
Exchange Phones are permitted to be used under the Pilot and any other 
type of portable phones are prohibited pursuant to NYSE Rule 36. A 
Floor broker may, with the Exchange's approval, 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. The Pilot permits both incoming and outgoing calls, provided 
all requirements of NYSE Rule 36 and other Exchange rules have been 
met.
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    \10\ See also Member Education Bulletins 2005-20 (November 28, 
2005) and 2005-23 (December 2, 2005) (``MEBs''). MEBs describe the 
conditions for the use of a portable phone by Floor brokers and 
RCMMs, the acknowledgement procedure, and the rule text. These MEBs 
were previously filed as exhibits with the Commission in connection 
with the operation of the Pilot. See Securities Exchange Act Release 
No. 53213 (February 2, 2006), 71 FR 7103 (February 10, 2006) (SR-
NYSE-2005-80). The Exchange represents that revised MEBs would be 
sent to all Floor brokers and RCMMs utilizing portable phones 
pursuant to NYSE Rule 36. The Commission notes that MEBs and 
acknowledgment forms attached thereto are part of this rule 
proposal.
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    During the permitted communication as provided in NYSE Rule 36, a 
broker may accept orders, provide status and oral execution reports as 
to orders previously received, and provide market look observations as 
historically have been routinely transmitted from a broker's booth 
location. A Floor broker, however, may not represent and execute any 
order received as a result of such communication unless the order is 
first properly recorded by the member and entered into the Exchange's 
Front End Systemic Capture (``FESC'') electronic database.\11\ In 
addition, Exchange rules require that Floor brokers receiving orders 
from the public over Exchange Phones must be properly qualified to 
engage in such direct access business under NYSE Rules 342 and 345, 
among others.
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    \11\ See 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).
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    The Pilot also allows RCMMs to use an Exchange 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 phone line for these discussions. RCMMs and their 
or their member organization's off-Floor offices may not use Exchange 
Phones to transmit to the Exchange Floor orders for the purchase or 
sale of securities by public customers or any other agency business.
    Under the Pilot, Floor brokers may not use call-forwarding or 
conference calling. Likewise, RCMMs, their booth

[[Page 39364]]

personnel, their member organization's off-Floor office, and their 
clearing member organization's off-Floor office may not use call-
forwarding or conference calling. Accordingly, Exchange Phones used by 
Floor brokers and RCMMs do not have call-forwarding or conference 
calling capabilities. The Exchange also prohibits booth phones used to 
make calls to and receive calls from RCMMs from having call-forwarding 
or conference calling features enabled. Further, Floor brokers and 
their member organizations must have procedures designed to deter 
anyone calling their Exchange Phone from using caller ID block or 
attempting to conceal the phone number from which the call is being 
made. Similarly, RCMMs and their member organizations must implement 
procedures designed to deter their or their member organization's off-
Floor office and the off-Floor office of their clearing member 
organization from doing the same.
    Use of the Exchange Phone by Floor brokers and RCMMs must comply 
with all other rules, policies, and procedures of both the federal 
securities laws and the Exchange, including the record retention 
requirements, as set forth in NYSE Rule 440 and Rules 17a-3 and 17a-4 
under the Act. Further, every Floor broker and RCMM must sign a written 
agreement consenting to specified terms of usage in connection with the 
operation of the Pilot and their use of the Exchange authorized and 
provided portable phones.\12\ For surveillance purposes, the Exchange 
receives records of all incoming and outgoing calls on Exchange Phones. 
The Exchange represents that it will continue to receive such records 
on a monthly basis.
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    \12\ Floor brokers and RCMMs agree to comply with NYSE Rule 36, 
all other rules, policies, and procedures of both federal securities 
laws and the Exchange, including the record retention requirements 
of NYSE Rule 440 and Rules 17a-3 and 17a-4 under the Act, and 
acknowledge that the Exchange has the right to request from their 
Exchange Phone service provider any records relating to incoming and 
outgoing calls that NYSE Regulation, Inc. deems necessary. Floor 
brokers additionally agree that, to the extent they are aware that a 
customer or any other incoming caller is using a caller ID block, 
the Floor broker would request in writing that the customer/caller 
disable such block when calling the Floor broker. Such written 
request must be documented and a copy of the same retained. RCMMs 
acknowledge that they may only call and receive calls from the 
locations provided in NYSE Rule 36.22. RCMMs additionally agree to 
disable the functionality that allows call-forwarding, conference 
calling, caller ID block, or any other means to conceal the phone 
number from which the call is being made.
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    Specialists are subject to separate restrictions in NYSE Rule 36 on 
their ability to engage in communications from the specialist post to 
an off-Floor location.\13\ The Exchange's proposal would not apply to 
specialists, who would continue to be prohibited from communicating 
from the post to upstairs trading desks or customers.\14\
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    \13\ 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).
    \14\ 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 may 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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    The Exchange is proposing to adopt the Pilot on a permanent basis 
under the same rules and conditions that currently exist.

II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\15\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\16\ which requires that the 
rules of the 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 a national securities system, and, in 
general, to protect investors and the public interest.
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    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange adopted the prohibition on the use of portable 
telephones on the Exchange Floor in 1988.\17\ In approving the 
prohibition, the Commission noted that, by being able to communicate 
directly with a broker in the trading crowd, a customer (invariably, a 
large or institutional one) could have a significant time and place 
advantage. The Commission further noted that certain concerns could 
result from such advantage. The Commission, however, also observed that 
the approval of the prohibition did not foreclose an exchange from 
devising a program to permit the use of portable phones on the floor 
and that such prohibition was not the only approach consistent with the 
Act.
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    \17\ See Securities Exchange Act Release No. 25842 (June 23, 
1998), 53 FR 24539 (June 29, 2008) (SR-NYSE-87-18). The proposal 
resulting in the adoption of the prohibition was in response to a 
Commission order setting aside actions by the Exchange denying two 
of its members permission to install telephone connections to 
communicate from the Exchange Floor with non-member customers 
located off-Floor. See Securities Exchange Act Release No. 24429 
(May 6, 1987). The Exchange's proposal ultimately approved by the 
Commission permitted access to non-member customers at the Floor 
booth but prohibited such access through portable phones in the 
trading crowd.
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    The Exchange subsequently proposed to permit on a pilot basis the 
use of Exchange Phones on the Exchange Floor. In approving the Original 
Pilot,\18\ the Commission noted that Exchange Phones could provide more 
direct access to the Exchange's trading crowds and increase speed in 
the transmittal and execution of orders. The Commission, however, 
continued to express an ongoing concern and requested that, if the 
Exchange decides to request permanent approval, it submit information 
documenting the usage of the Exchange Phones, any problems that has 
occurred, and any advantages or disadvantages of such usage. The 
Commission noted that such information would help ensure that the 
Exchange Phones provide for fair access, with adequate monitoring of 
orders being taken and information being disseminated.
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    \18\ See note 5 supra.
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    The Exchange has duly provided such information with each extension 
of the Pilot and in its proposal to permanently adopt the Pilot. Since 
the inception of the Original Pilot, the Commission also notes that the 
Exchange did not identify significant regulatory issues and also 
represented that that no administrative or technical problems, other 
than routine telephone maintenance issues, have occurred. Further, in 
its proposal to permanently adopt the Pilot, the Exchange states that 
there has been a reasonable degree of usage of the Exchange Phones. In 
addition, the Commission notes that there does not appear to be any 
complaints concerning fair access to the NYSE's trading floor as a 
result of the Pilot.\19\ Rather, the Exchange states in its proposal 
that the Pilot demonstrates that the Exchange Phones facilitate 
communication without any corresponding drawbacks.
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    \19\ The Commission notes that since the inception of the 
Original Pilot, the Commission received only one comment letter. The 
comment letter pertains to the Original Pilot and was supportive of 
it. See note 5 supra.
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    The Commission also notes that, as proposed to be permanently 
adopted, NYSE Rule 36 requires Floor brokers and RCMMs to comply with 
all rules, policies, and procedures of the Exchange and the federal 
securities law, including the record retention requirements. 
Additionally, a Floor broker would not be permitted to

[[Page 39365]]

represent and execute an order unless first inputted in FESC. Floor 
brokers and RCMMs, moreover, are not permitted to use call-forwarding 
or conference calling and must implement procedures designed to deter 
anyone calling the Exchange Phones from concealing the phone number 
from which a call is being made. Further, the Exchange has the right to 
request from the Exchange Phone service provider any records relating 
to incoming and outgoing calls.\20\ The Exchange represents that it has 
received, and will continue to receive, records of such calls on a 
monthly basis. With respect to Exchange Phones, these requirements and 
records should help the Exchange detect and deter any violations of the 
Exchange rules and the Act.
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    \20\ See note 10 supra.
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    The Commission, therefore, finds that the proposal is consistent 
with the Act.\21\ The conditions stated above should continue to aid 
the Exchange in surveilling for compliance with Exchange rules and the 
Act and address concerns identified in the adoption of the original 
prohibition.\22\ The Commission also believes that the operation of the 
Pilot without incident since its inception helps to address the 
Commission's initial concerns. Accordingly, as noted by the Commission 
when it approved the Original Pilot, the Commission continues to 
believe that the Pilot helps to expedite orders and make the flow of 
information more direct.
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    \21\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \22\ In this regard, the Commission notes that proper 
surveillance is an essential component of any telephone access 
policy to an Exchange Floor.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSE-2008-20), as modified 
by Amendments No. 1 and 2 be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-15485 Filed 7-8-08; 8:45 am]

BILLING CODE 8010-01-P