Document ID: SEC-2009-1631-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, Amending NYSE Rule 36
Posted Date: 2009-11-18T05:00Z

[Federal Register: November 18, 2009 (Volume 74, Number 221)]
[Notices]               
[Page 59596-59599]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18no09-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60983; File No. SR-NYSE-2009-84]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, 
Amending NYSE Rule 36 To Permit the Use of Personal Portable or 
Wireless Communication Devices Off the Exchange Trading Floor and 
Outside Other Restricted Access Areas

November 10, 2009.

I. Introduction

    On August 27, 2009, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change, as modified by Amendment No. 1,\4\ to amend NYSE 
Rule 36 to permit the use of personal portable or wireless 
communication devices off the Exchange Trading Floor and outside other 
restricted access areas, and make corresponding technical changes. The 
proposed rule change was published for comment in the Federal Register 
on September 28, 2009.\5\ The Commission received no comments regarding 
the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1, which the Exchange filed on September 17, 
2009, superseded and replaced the original filing in its entirety.
    \5\ See Securities Exchange Act Release No. 60691 (September 18, 
2009), 74 FR 49431 FR 34609 (``Notice'').
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II. Background

    Currently, NYSE Rule 36 (Communications Between Exchange and 
Members' Offices) prohibits members and member organizations from 
establishing or maintaining any telephonic or electronic communication, 
including the usage of any portable or wireless communication devices 
(i.e. cellular phone, wireless pager, BlackBerry\TM\, etc.), between 
the Floor, as defined in NYSE Rule 6, and any other location without 
prior Exchange approval.
    Notwithstanding the rule's general prohibition on the use of 
portable or wireless communication devices, current Rule 36 permits 
Floor brokers to use Exchange authorized and issued portable phones on 
the Floor to

[[Page 59597]]

communicate with both member firms and non-members off the Floor, 
subject to certain restrictions.\6\ Floor brokers may not, however, use 
Exchange authorized and issued devices on the NYSE Amex Options Trading 
Floor (as defined in NYSE Rule 6A).\7\ In addition, current Rule 36 
permits Designated Market Makers (``DMMs''), subject to restriction, to 
maintain at their posts telephone lines to the off-Floor offices of the 
DMM unit or the unit's clearing firm.\8\ Such telephone lines may only 
be used to enter options or futures hedging orders through the DMM 
unit's off-Floor office or the unit's clearing firm, or through a 
member (on the Floor) of an options or futures exchange. These lines 
may not, however, be used for the purpose of transmitting to the Floor 
orders for the purchase or sale of securities. DMMs are also permitted 
to use at their posts wired or wireless devices, including computer 
terminals or laptops, that are registered with the Exchange to 
communicate with their system algorithms.\9\ Under current Rule 36, the 
use of all other portable or wireless communication devices on the 
Floor is prohibited.
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    \6\ All members and member firm employees who use an Exchange 
authorized and issued portable phone must execute a written 
acknowledgement as to the usage of the phone and authorizing the 
Exchange to receive data and records related to incoming and 
outgoing calls. See NYSE Information Memos 08-40 (August 14, 2008) 
and 08-41 (August 14, 2008) (concerning the use of Exchange 
authorized and issued portable phones on the Floor). See also NYSE/
NYSE Amex Information Memo 08-66 (December 22, 2008).
    \7\ See Rule 36, Supplementary Material .20--.23.
    \8\ The role of DMMs and their obligations on the Exchange are 
described in Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46). Notably, 
pursuant to this Release, the Exchange phased out the specialist 
system and adopted a Designated Market Maker (``DMM'') structure.
    \9\ See NYSE Rule 36.30.
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    As noted in the foregoing paragraph, the restrictions on the use of 
portable or wireless communication devices in current Rule 36 relate to 
what is and is not permissible on the Exchange Floor. Under NYSE Rule 
6, the term Floor is defined as ``the trading Floor of the Exchange and 
the premises immediately adjacent thereto, such as the various 
entrances and lobbies of the 11 Wall Street, 18 New Street, 8 Broad 
Street, 12 Broad Street and 18 Broad Street Buildings, and also means 
the telephone facilities available in these locations.'' \10\
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    \10\ The Exchange also has issued interpretive guidance that the 
``Floor'' also includes the areas outside the ``Blue Line'' (member 
and member organization booths adjacent to the trading Floor) and 
``any area reserved primarily for members, including members' 
lounges and bathrooms.'' See NYSE/NYSE Amex Information Memo 08-66 
(December 22, 2008).
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    Recently, the Exchange adopted Rule 6A, setting forth a definition 
of Trading Floor that is distinct from the definition of Floor. 
Specifically, the Trading Floor is an area within the area of the 
``Floor'' that is defined as ``the restricted-access physical areas 
designated by the Exchange for the trading of securities, commonly 
known as the `Main Room' and the `Garage.' '' \11\ As such, the Trading 
Floor's restricted access physical area also includes the areas outside 
the Blue Line that include the member and member organization booths 
and/or trading desks.
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    \11\ In its filing, the Exchange noted that the NYSE Amex 
Options Trading Floor is within the restricted access perimeter that 
encompasses the NYSE Trading Floor and thus member and member firm 
employees would not be permitted to use such devices in that space 
under the terms of the proposed Rule defining where such devices are 
permissible. In addition, pursuant to the definitions of ``Floor'' 
and ``Trading Floor'' in NYSE Rules 6 and 6A, and corresponding 
Rules 6 and 6A--NYSE Amex Equities, the NYSE and NYSE Amex Equities 
Trading Floors overlap and thus references to Exchange's Trading 
Floor includes the NYSE Amex Equities Trading Floor. See Securities 
Exchange Act Release No. 59479 (March 2, 2009), 74 FR 10325 (March 
10, 2009) (SR-NYSE-2009-23).
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III. Description of the Proposal

    The Exchange proposes to amend NYSE Rule 36 to permit the use of 
personal portable or wireless communication devices outside of the 
Exchange's Trading Floor and other restricted access areas, provided 
such usage is consistent with all other Exchange Rules and federal 
securities laws and rules thereunder. Floor brokers would still be 
limited to using only Exchange authorized and issued portable phones on 
the Exchange Trading Floor and DMMs would still only be permitted to 
use registered telephone lines and/or wired or wireless devices at 
their posts, and all such devices and communications would continue to 
be regulated by the Exchange.
    The proposal would permit Exchange members and member firm 
employees to use personal portable or wireless communications devices 
in designated areas of the Exchange's buildings and facilities that 
fall within the technical definition of the Floor under Rule 6, but 
that are outside the Trading Floor, and other restricted access points 
(i.e. where there are turnstiles or card swipe pads that electronically 
release locked doors to permit authorized entry).\12\ Because the lobby 
and other corridor areas where usage of personal portable or wireless 
communications will now be permitted still fall within the broader 
definition of ``Floor'' under Exchange rules, the Exchange will retain 
jurisdiction over its members in these areas. As such, in its filing, 
the Exchange noted that it would retain jurisdiction over its members 
and member firm employees to regulate conduct that is inconsistent with 
Exchange Rules and the federal securities laws and rules thereunder 
(e.g., trading ahead, insider trading, market manipulation).\13\
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    \12\ In the filing, the Exchange represented that the majority 
of the doors that require card swipe for entry are opaque. See also 
note 19 infra.
    \13\ See Notice, supra note 5.
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    The proposal would thus permit members and member firm employees to 
use their personal communications devices in the hallways, stairwells, 
lobbies or members-only areas of the Exchange premises that are 
adjacent to the Trading Floors of the Exchange, NYSE Amex Options and/
or NYSE Amex Equities.\14\ The Exchange stated specifically that such 
usage would be permitted in the lobby areas of the Exchange's 
facilities at 11 Wall Street, 6 and 18 New Street, and 2, 12, 18 and 20 
Broad Street, as well as in the corridor in front of the interior 
elevator bank inside of 18 Broad Street.\15\
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    \14\ See supra note 11. In addition, while the NYSE Amex Options 
Rules permit NYSE Amex Options members to use personal 
communications devices on the NYSE Amex Options Trading Floor, those 
rules prohibit NYSE Amex Options members from using those devices on 
the Trading Floor of the Exchange. See NYSE Amex Options Rule 902NY.
    \15\ See Notice, supra note 5.
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    In its filing, the Exchange stated that the purpose of the proposal 
is to provide Exchange members and member firm employees with a 
reasonable and comfortable space inside the physical confines of the 
Exchange's buildings and facilities within which they may use their 
personal portable or wireless communication devices, without 
diminishing the ability to monitor and regulate their conduct.\16\ 
According to the Exchange, the current prohibitions of Rule 36 and the 
broad definition of ``Floor'' under Rule 6 together effectively require 
members and member firm employees to exit the Exchange premises in 
order to use their personal portable or wireless communications 
devices.\17\ In the Exchange's view, the distance afforded by allowing 
a DMM, for example, to use a personal portable or wireless 
communication device outside the turnstiles is, in essence, equivalent 
to requiring a DMM to leave the

[[Page 59598]]

Exchange's premises to do the same.\18\ Further, the Exchange 
represented that any time or place advantage to using such devices 
outside restricted access areas is significantly reduced by the fact 
that a DMM has no line of sight \19\ and no ability to hear trading 
activity on the Floor and the speed of electronic trading would likely 
render stale any information a DMM had prior to leaving his or her post 
on the Trading Floor.\20\
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    \16\ See Notice, supra note 5.
    \17\ See Notice, supra note 5. In the filing, the Exchange 
acknowledged that there are other areas on the Exchange's premises 
where personal communications devices may be used by members and 
member firm employees (e.g., the cafeteria in 11 Wall Street), but 
represented that these areas are either too far from the Trading 
Floor to be practical or do not have adequate reception for such 
devices.
    \18\ See Notice, supra note 5.
    \19\ The Commission notes that in at least one lobby area there 
is a line of sight to the Trading Floor and a trading post, unlike 
other lobby areas where the doors to the Trading Floor are opaque. 
See supra note 12. The Commission acknowledges, however, that it 
would be difficult to see any specific information on the post 
screens from this lobby area. The Commission expects the Exchange to 
monitor this to ensure that this remains the case and that such line 
of sight to the Trading Floor is not misused.
    \20\ See Notice, supra note 5.
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    In addition, noting that the proposed rule amendments specifically 
provide that the use of personal portable or wireless communication 
devices by Exchange members and member firm employees is subject to 
compliance with all other Exchange Rules and federal securities laws 
and rules thereunder, the Exchange represented that it will issue a 
Notice to Members that will, among other things, remind Exchange 
members and member firm employees of their obligations under the 
requirements of Securities Exchange Act Release Nos. 33-7288 and 34-
37182, concerning the ``Use of Electronic Media by Broker-Dealers, 
Transfer Agents, and Investment Advisers for Delivery of Information.'' 
\21\
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    \21\ See Securities Exchange Act Release Nos. 33-7288 and 34-
37182 (May 9, 1996), 61 FR 24643 (May 15, 1996) (S7-13-96). See also 
FINRA Regulatory Notice 2007-59 (December 7, 2007), concerning the 
supervision of electronic communications.
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    The Exchange also proposed corresponding technical amendments to 
Rule 36.20.

IV. Discussion

    After careful review, 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. 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\22\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, 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.\23\
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    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 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).
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    The Exchange has proposed that members and member firm employees be 
permitted to use personal portable or wireless communication devices 
off the Exchange Trading Floor and outside of restricted access areas 
(i.e. restricted access areas are areas where there are turnstiles or 
card swipe pads that electronically release locked doors to permit 
authorized entry),\24\ subject to compliance with all other Exchange 
Rules and the federal securities laws and rules thereunder. The 
proposal marks a departure from the Exchange's current prohibition on 
the use of such devices in areas that are in close proximity to the 
Trading Floor of the Exchange, and its stated policy that ``best 
practice'' is for ``personal contacts made using portable communication 
devices, whether Exchange issued or not, [to] be made outside the 
building.'' \25\
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    \24\ As noted above, restricted access areas include the areas 
outside the Blue Line that include member and member organization 
booths and/or trading desks.
    \25\ See NYSE/NYSE Amex Information Memo 08-66 (December 22, 
2008).
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    The Commission finds, however, that the proposal strikes a 
reasonable balance between the Exchange's interest in providing a 
convenient and comfortable space for Exchange members and member firm 
employees to use their personal portable communications devices inside 
Exchange buildings and its interest in minimizing the risk of misuse of 
such devices, which are not subject to the same surveillance as 
Exchange authorized and issued devices. In particular, the Commission 
notes the Exchange's representation that any time or place advantage to 
using personal portable communication devices outside restricted points 
of access to the Trading Floor is ``significantly reduced by the fact 
that a Floor Broker or DMM has no line of sight and no ability to hear 
trading activity on the [Trading] Floor and the speed of electronic 
trading would likely render stale any information a DMM had prior to 
leaving his or her post on the Trading Floor.'' \26\
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    \26\ See Notice, supra note 5.
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    As noted above, the Commission expects that the Exchange will, in 
the exercise of its regulatory responsibilities, work to ensure that 
any line of sight to the Trading Floor that may exist does not allow 
access to Trading Floor information that may raise concerns.\27\
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    \27\ See supra note 19.
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    The Commission notes that the Exchange retains jurisdiction over 
its members for their conduct in the new areas where the use of 
personal communication devices will now be permitted because these 
areas are still within the broader definition of Floor under NYSE Rule 
6.\28\ The Commission further notes the Exchange's representation that 
it will issue a Notice to Members reminding members of their 
obligations under Securities Exchange Act Release Nos. 33-7288 and 34-
37182, concerning the ``Use of Electronic Media by Broker-Dealers, 
Transfer Agents, and Investment Advisers for Delivery of Information.'' 
\29\ In these releases, among other things, the Commission noted that 
the substantive and liability provisions of the federal securities 
laws, as well as the recordkeeping requirements of the Act apply 
equally to electronic and paper based media.\30\
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    \28\ See note 13 and accompanying text supra.
    \29\ See Securities Act Release No 7288 and Securities Exchange 
Act Release No. 37182 (May 9, 1996), 61 FR 24643 (May 15, 1996) (S7-
13-96).
    \30\ Id. See also FINRA Regulatory Notice 2007-59 (December 7, 
2007), concerning the supervision of electronic communications, 
which among other things, reminds member firms of their obligation 
to (1) have supervisory policies and procedures to monitor all 
electronic communications technology used by the firm and its 
associated persons to conduct the firm's business; and (2) ensure 
that their use of electronic communications media enables them to 
make and keep records, as required by Commission and Exchange rules 
(e.g., Rules 17a-3 and 17a-4 under the Act and NYSE Rule 440).
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    Based on the foregoing, the Commission therefore finds the proposal 
to be consistent with the Act. The Commission believes that the 
proposal to permit the use of personal communication devices in certain 
specified areas adjacent to the Trading Floor, while not without any 
risk, is tempered by the speed of electronic trading, the existence of 
access barriers between the Trading Floor and the areas where use of 
personal communication devices will now be permitted, and the fact that 
the Exchange retains jurisdiction over its members while they are in 
these areas. The Commission expects, however, that the Exchange will 
monitor compliance with the new rule and inform the Commission if it 
encounters difficulties in implementing and enforcing it or otherwise 
finds that the new rule raises regulatory concerns.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the

[[Page 59599]]

proposed rule change (SR-NYSE-2009-84), as amended, be, and hereby is, 
approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-27608 Filed 11-17-09; 8:45 am]

BILLING CODE 8011-01-P