[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45756-45758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21756]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36156; File No. SR-NYSE-95-22]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to the 
Exchange's Wireless Data Communications Initiatives

August 25, 1995.

I. Introduction

    On June 1, 1995, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') submitted to the Securities Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 

[[Page 45757]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
introduce into its trading floor wireless data communications 
technology that allows a member in a trading crowd or elsewhere on the 
floor to communicate with others by means of a hand-held wireless 
device. The Exchange also proposed an interpretation with respect to 
NYSE Rule 117 which requires members' orders to be in writing.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 35931 (June 30, 1995), 60 FR 35767. No 
comments were received on the proposal.

II. Description of the Proposals

    The Exchange's proposed wireless data communications technology 
involves the floor-based use of wireless hand-held data communication 
devices. The Exchange proposes to implement a four-phase process to 
integrate the new technology into the floor environment (``NYSE 
Plan'').\3\ The Exchange's basic operating premise is to allow private 
vendors to provide wireless data communications services to Exchange 
members on the floor, but only in a manner that treats members 
equitably and does not unfairly discriminate among members. The 
Exchange also proposes to provide its own wireless data communications 
service on a non-discriminatory basis.

    \3\ A detailed description of the wireless communication plan 
and its requirements are set out in Securities Exchange Act Release 
No. 35931 (June 30, 1995), 60 FR 35767 (July 11, 1995).
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    Phase I, which has been completed, allowed the Exchange to 
supervise and monitor three ``proof-of-concept'' pilot programs on the 
floor to the Exchange.\4\ Each of the programs tested the viability of 
the operation and functionality of wireless hand-held data devices on 
the floor. Members participating in the pilot programs were instructed 
to use the devices strictly for the purposes of evaluating the devices 
and to compare results that might have been achieved had the devices 
been used for actual trading purposes with results from actual trades 
using traditional paper tickets, telephones and the like.

    \4\ One pilot program was conducted by the Exchange and the 
other two were conducted by member-sponsored, private wireless data 
communications vendors.
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    Phase II will involve additional, more structured, pilot testing of 
independent wireless data communications services, including that 
offered by the Exchange. A prototype of the infrastructure that will be 
required to be installed in order to support the wide-scale use of the 
wireless hand-held data devices will be used to support the Phase II 
pilot programs.
    In Phase III, the Exchange will conduct on the floor a pre-
production pilot test of its wireless data communications system 
infrastructure. The Exchange will design that infrastructure to use the 
2.4 Ghz radio frequency band and to support all hand-held device 
wireless data communications services of the Exchange and vendors. The 
Exchange will select an integrator to assist in the design, 
installation, testing and maintenance of the infrastructure.\5\ In 
addition, the Exchange plans to allow its wireless data communication 
service to interface with the Exchange's Broker Booth Support System.

    \5\ The Exchange plans to have the integrator define 
requirements, analyze technology and design the infrastructure 
during Phase II.
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    In Phase IV, the Exchange will have installed and tested the 
infrastructure and moved its own wireless data communications system to 
the infrastructure. At that point, the Exchange will have commenced the 
production roll-out of the wireless data communications infrastructure 
and will have directed all vendors to migrate their systems to the 
infrastructure. All authorized vendors will be permitted to offer their 
wireless data communications services (and the Exchange will offer its 
own system) to such number of members as their respective systems can 
accommodate. At that point, the floor-based wireless data 
communications technology should be available to all members.
    Implementation of the NYSE's Plan will affect Exchange Rule 117 
which prohibits members on the floor of the Exchange from making a bid, 
offer or transaction for or on behalf of another member except pursuant 
to a written order.\6\ The Exchange is proposing an interpretation\7\ 
that will deem a transmission of an order that a member located on the 
floor of the Exchange receives by means of an authorized hand-held 
device to constitute a ``written order'' for the purposes of Rule 117 
if the member can show that the transmission of the order:

    \6\ Rule 117 also provides that if a member to whom an order has 
been entrusted leaves the trading crowd without actually 
transferring the written order to another member, the order shall 
not be represented in the market during his absence. The use of 
wireless data communications devices does not affect this portion of 
Rule 117. If a member receives an order by means of a transmission 
to his wireless device and he leaves a trading crowd without 
transferring a written version of the order to another member, the 
order may not be represented in the market in his absence.
    \7\ The Exchange intends to notify its members of this 
interpretation through an information memo.
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    (i) Provides adequate information relating to the price, size and 
time of the order, the cancellation of the order, and the like;\8\

    \8\ All orders entered from off the floor must be transmitted to 
a booth terminal before they are retransmitted to a hand-held 
device.
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    (ii) Satisfies the Exchange's audit trail requirements; and
    (iii) Satisfies all other Exchange reporting and recordkeeping 
requirements.\9\

    \9\ In the case where an order is transmitted electronically 
from a member's off-floor location to a booth terminal and then the 
order is retransmitted from the booth terminal to a member's hand-
held device, a record must be established and maintained which 
reflects the time the order was received by the booth terminal and 
the time the order was received by the hand-held device. The record 
of time of receipt by the booth terminal may be established and 
maintained by such terminal or by a server which records the time 
such terminal acknowledges receipt of the order. The booth terminal 
must display the order (and the time of receipt, on inquiry) and the 
automated record of the order (including time of receipt) must be 
supplemented by a paper record of the order at the booth. If the 
paper record cannot be produced at the booth terminal, it must then 
be produced by hand. The record of time of receipt by a hand-held 
device may be established and maintained by such device or by the 
server or the booth terminal which receives a message 
acknowledgement from the hand-held device. Regardless of whether the 
hand-held device records are maintained in such device or in the 
booth terminal or a server, such records must be capable of being 
printed at the booth location.
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III. 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, and, in 
particular, with the requirements of Section 6(b) of the Act.\10\ 
Specifically, the Commission believes the proposal is consistent with 
the Section 6(b)(5) requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, to protect investors 
and the public interest, and are not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.

    \10\ 15 U.S.C. 78f(b).
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    The Commission believes that the NYSE Plan should foster 
coordination with persons engaged in facilitating transactions in 
securities, remove impediments to and perfect the mechanism of a free 
and open market, and protect investors and the public 

[[Page 45758]]
interest by expediting and making more efficient the process by which 
members receive and execute orders on the floor of the Exchange.
    The Commission also believes that the NYSE's Plan to phase in the 
wireless technology is not designed to permit unfair discrimination 
between customers, issuers, brokers, and dealers. Before implementing 
Phase II of the NYSE Plan, each of the vendors of the pilot programs 
must describe its procedures for selecting the 25 participants that 
will participate in its program. These procedures must provide a fair 
and non-discriminatory environment and must comply with the Exchange's 
selection requirements. For example, each vendor must demonstrate to 
the Exchange that it is willing and able to offer any member who wishes 
to use that vendor's system the opportunity to participate in the 
vendor's pilot program, subject to (i) The capacity constraints of the 
vendor's system, (ii) reasonable lead-time that the vendor may need to 
bring new users on-line and (iii) the NYSE Plan limit of 25 
participants per pilot program. Each vendor is required, among other 
things, to offer its service in a reasonable manner that does not give 
the vendor (if it is also a member), or a member that is a sponsor or 
affiliate of the vendor, an unfair advantage over other Exchange 
members. In addition, the Exchange will prohibit a vendor from 
providing its pilot program to any member that primarily trades \11\ in 
one stock unless and until (i) The vendor is prepared to provide its 
service to all members who primarily trade in the same stock and who 
desire to participate in the pilot program or (ii) the Exchange 
otherwise permits. Moreover, the Exchange will develop procedures for 
selecting its own pilot program participants on the same basis. The 
Commission believes that these procedures and limitations will result 
in a fair implementation of the NYSE Plan.

    \11\ The Exchange deems a member to ``primarily trade in one 
stock'' if more than 50 percent of either his trades or share volume 
occur in that stock. The Exchange will base determinations of 
percentages of trades and share volumes on, among other things, the 
Exchange's audit trail data.
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    Finally, the Commission believes that the proposed interpretation 
to Rule 117, under which the transmission of an order that is received 
by means of an authorized hand-held device will be deemed to constitute 
a ``written order'' for purposes of Rule 117, in general, protects 
investors and the public interest. The proposed interpretation provides 
that an order recieved through a hand-held device will be considered a 
``written order'' only if it meets the specified requirements, 
concerning the information to be maintained about the order. The 
Commission believes the proposed interpretation to Rule 117 will 
provide a more efficient means of communicating orders on the floor at 
the same time it requires the same information that is currently 
available for orders processed manually.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSE-95-22) is approved.

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\

    \13\ 17 U.S.C. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21756 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M