[Federal Register Volume 62, Number 130 (Tuesday, July 8, 1997)]
[Notices]
[Pages 36597-36600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17661]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38786; File No. SR-NYSE-97-17]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to the Exchange's 
Wireless Data Communications Initiatives

June 30, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 28, 
1997,\1\ the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ Amendment No. 1 was filed on June 17, 1997, the substance of 
which is incorporated into the notice. See letter from Steven J. 
Abrams, Attorney, Milbank, Tweed, Hadley & McCloy, to Heather 
Seidel, Attorney, Market Regulation, Commission, dated June 17, 1997 
(``Amendment No. 1'').
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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 modify certain aspects of its program 
for the use of wireless data communications technology that allows a 
member in a trading crowd or elsewhere on the trading floor to 
communicate with other locations on the floor by means of a hand-held 
wireless device.

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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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
    In 1995, the Commission approved a proposed rule change of the 
Exchange \2\ that allowed the Exchange to introduce wireless data 
communications technology onto the Exchange trading floor. The Exchange 
believes that such technology expedites, and makes more efficient, the 
process by which members receive and execute orders. The technology 
involves the floor-based use of wireless hand-held data communications 
devices. To effect that initiative, the Exchange undertook to develop 
and install a wireless data communications infrastructure on its floor. 
It determined to allow private vendors, as well as the Exchange itself, 
to offer hand-held device services to Exchange members.
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    \2\ Securities Exchange Act Release No. 35931 (June 30, 1995), 
60 FR 35767 (July 11, 1995) (``1995 Filing'').
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    As described at length in the 1995 Filing, the Exchange's plan has 
been to introduce the new technology in four phases:
    (1) In Phase I, the Exchange supervised and monitored three 
``proof-of-concept'' pilot programs on the floor of the Exchange.
    (2) In Phase II, the Exchange monitored and supervised additional, 
more structured, pilot testing of independent wireless data 
communications services, including that offered by the Exchange.
    (3) In Phase III, the Exchange will conduct on the floor a 
preproduction pilot test of its wireless data communications system 
infrastructure, will supervise the installation and testing of the 
infrastructure and will move its own wireless data communications 
system to the infrastructure. In addition, the Exchange will continue 
to allow pilot testing of private vendors' wireless data communications 
services.
    (4) In Phase IV, the Exchange will direct the production rollout of 
the wireless data communications infrastructure and the migration of 
vendors to the infrastructure.
    The Exchange had completed Phase I prior to the time of its 
submission of the 1995 Filing. Since then, the Exchange

[[Page 36598]]

has completed Phase II and recently entered into Phase III.
    Specifically, the purposes of the proposed rule change are: (1) To 
modify the types of wireless data communications that the Exchange will 
permit over the infrastructure; (2) to clarify that a vendor cannot 
provide wireless data communications services to Exchange members 
unless it is a member organization of the Exchange; and (3) to 
introduce the forms of agreement and provisions pursuant to which the 
Exchange will allow vendors and member organizations to provide 
wireless data communications services to members on the trading floor 
of the Exchange in the production roll-out environment.
    First, the Exchange proposes to modify the types of wireless 
communications permitted over the infrastructure. The 1995 Filing 
specified as follows:

    A vendor's Phase II pilot program must restrict wireless data 
communications to communications between a hand-held device used by 
a member on the floor and a terminal in a floor booth location. The 
Exchange will prohibit all floor-based wireless data communications 
between any other points.

Exchange members have told the Exchange that adding communications 
between two hand-held devices located on the floor to the permitted 
uses of hand-held devices would make the Exchange's wireless data 
communications initiative far more useful.
    The Exchange limited communications during the Phase II pilot 
programs to communications between a booth terminal and a floor-based 
hand-held device and will continue that limitation during Phase III 
pilot programs. However, the Exchange believes that the success of the 
pilot program experience justifies that ultimate addition of 
communications between two hand-held devices on the floor, both because 
of the efficiencies that such communications will permit and because 
the pilot testing has demonstrated that the Exchange's wireless data 
communications infrastructure has the capacity to accommodate those 
communications.
    By permitting communications between two hand-held devices located 
at two different locations on the Exchange floor, the Exchange feels 
that it will expedite, and make more efficient, the communication of 
information among members on the trading floor. A member may rely on 
the information it receives on the floor through a hand-held wireless 
device to make trading decisions, without having to rely on such 
conventional trading tools as paper tickets and telephones.
    As during the pilot programs, the Exchange will continue to 
prohibit wireless data communications either from a booth terminal or 
from a location on the trading floor to a location off of the floor. 
However, the same as under the pilot programs, a member subscribing to 
a wireless data communications service, whether from the Exchange or 
from a private vendor, may effect communications between a floor booth 
terminal and a member's off-floor system in the same ``wired'' manner 
as it can today, subject to applicable rules and policies. In addition, 
the subscribing member's booth terminal may interface with the 
Exchange's Common Message Switch (``CMS'') in order to allow the member 
to enter orders into the Exchange's SuperDOT System complex. That 
interface would not differ from today's booth/CMS interfaces and would 
be subject to existing CMS interface standards.
    Next, the Exchange proposes to only provide access to its wireless 
communications infrastructure to vendors that are member organizations. 
The only vendors that participate in wireless data communications 
service pilot tests during Phases I and II were a member organization 
of the Exchange and a party affiliated with a member organization of 
the Exchange. The Exchange has determined that, because only member 
organizations are subject to the Exchange Constitution, Exchange Rules, 
and Exchange oversight, it will only provide access to its wireless 
data communications infrastructure to vendors that are member 
organizations.
    The Exchange anticipates that some member organizations that are 
interested in vending those services will enter into contracts with 
non-member organizations (e.g., traditional wireless data device 
vendors that desire to function as agents or contractors of the member 
organization) and that those contracts will delegate many of the 
service functions to those other entities. The Exchange is willing to 
permit that use of agents and contractors, so long as the member 
organization remains responsible for the performance of those functions 
and guarantees the performance of the agents and contractors.
    Additionally, the Exchange included as part of the 1995 Filing, a 
form of agreement (the ``Pilot Program Vendor Form'') pursuant to which 
the Exchange would allow vendors of wireless data communications 
services to provide those services to Exchange members for the purposes 
of the Phase I and Phase II pilot testing. Now that the pilot testing 
period is completed, the Exchange has derived from the Pilot Program 
Vendor Form two forms of agreement that are designed for use by member 
organizations that wish to provide wireless data communications 
services to members in the Exchange's production roll-out wireless data 
communications environment. One of those forms (the ``Associated Member 
Form'') allows a member organization to provide such services to 
members that are officers, partners and employees of the member 
organization. The other form (the ``Revised Vendor Form'') allows a 
member organization to provide such services to other members.
    The primary differences of substance between the Pilot Program 
Vendor Form and the Revised Vendor Form (a copy of which is attached to 
the filing as Exhibit A) are listed below. Because the Exchange will 
use the Revised Vendor Form in an environment in which the Exchange 
will already have completed the development and installation of its 
wireless data communications infrastructure, the Revised Vendor Form 
eliminates: (1) References to the creation and installation of the 
infrastructure; (2) permission to use radio bands other than that which 
the Exchange provides through its infrastructure; (3) a requirement 
that members migrate to the infrastructure once it becomes available; 
and (4) a limited Exchange obligation to support the communications 
equipment of private vendors.
    Also, the Revised Vendor Form clarifies that only member 
organizations may vend wireless data communications services on the 
Exchange's floor, but allows the member organization to delegate 
functions to agents and contractors, so long as the member organization 
guarantees the performance of the agents and contractors. The Revised 
Vendor Form will allow communications between members using hand-held 
devices at two different locations on the trading floor, as well as 
between a member using a hand-held device on the floor and a member at 
a booth terminal, as the Exchange permitted in the pilot program.
    In addition, the Exchange will have insisted that, because the 
Exchange limited the scope of the Phase I and II pilot programs and 
will similarly limit Phase III pilot programs, each participating 
vendor refrain from discriminating among the members to whom it was 
willing to provide its pilot service through the end of Phase III. 
However, the completion of the infrastructure means that the technology

[[Page 36599]]

necessary to allow every member to enjoy wireless data communications 
services will be available, whether from a vending member organization 
or from the Exchange. In Phase IV, the production roll-out phase, the 
Exchange will therefore allow vending member organizations to enter 
into such wireless data communications arrangements with members as 
they may see fit. For instance, a member organization may vend a 
wireless data communication service to Exchange members, but may offer 
preferential terms and conditions to members with which it is 
affiliated. As a result, the Revised Vendor Form will eliminate: (1) 
The several provisions found in the Pilot Program Vendor Form that 
require the vendor to provide wireless data communications services 
only on unbiased, non-discriminatory grounds; and (2) the provision 
that limits the scope of any pilot program to 25 members.
    The Revised Vendor Form will eliminate the provision that prohibits 
a vendor from representing that it is the sole vendor of wireless data 
communications services on the Exchange floor, because the Exchange 
feels certain that all members will be aware that the Exchange and 
certain member organizations will provide service alternatives. 
Finally, because the Exchange will allow vendors to have access to the 
Exchange's infrastructure during Phase IV (unlike Phases I and II) and 
because the Exchange may not have the same degree of communication with 
vending member organizations throughout Phase IV as it has had during 
the earlier phases, it proposes to strengthen its contractual 
safeguards by adding to the Revised Vendor Form a provision that 
prohibits a vending member organization from introducing its service, 
or from modifying its equipment or transmission methodology, until the 
Exchange has seen the service or the modification operate 
satisfactorily. For similar reasons, the Revised Vendor Form grants the 
Exchange the right to test a service and related equipment.
    The form of vendor agreement requires the vendor to prepare a 
description of its service for attachment to the form. Attachment A to 
the form sets forth the information that the Exchange requires the 
vendor to include in the service description. The Exchange proposes to 
eliminate, from that required information, information that completion 
of the infrastructure makes irrelevant. In addition, the Exchange 
proposes to add to those required items of information the vendor's 
method and location for storing devices when not in use. Furthermore, 
the Exchange proposes to clarify that among the rules and regulations 
with which the vendor is required to comply are all health and safety 
standards.\3\
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    \13\ The service description as so amended (the ``Revised Vendor 
Service Description'') is set forth in Attachment A to Exhibit A.
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    As an important element of the Pilot Program Vendor Form, the 
Exchange required a vendor of a Phase I or II pilot program to provide 
its service to a member only pursuant to a written contract with the 
member. The Exchange required that contract to govern six elements of 
the vendor-member relationship \4\ and to include certain provisions 
designed to protect the interests of the Exchange and its members. The 
Exchange set forth those requirements in an Attachment B to the Pilot 
Program Vendor Form. For the purposes of the Revised Vendor Form, the 
Exchange is proposing to amend those contract requirements in the 
manner set forth in Attachment B to Exhibit A (the ``Revised Vendor-
Member Agreement Terms''). The amendments: reflect the fact that the 
Exchange will now permit communications between members using hand-held 
devices at two different locations on the floor; remove the requirement 
that the vendor-member agreement must govern the six prescribed 
elements of the relationship; and remove the Exchange-imposed 
termination requirements for terminations by the vendor or the 
subscribing member.
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    \4\ Responsibility for losses; training; system maintenance and 
support; technological limitations; the availability of equipment 
and spare parts; and service charges.
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    For the production roll-out phase, the Exchange has prepared the 
Associated Member Form for use by a member organization that wishes to 
provide wireless data communications services on the Exchange's trading 
floor solely to officers, partners and employees of the member 
organization that are Exchange members.\5\
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    \5\ A copy of the Associated Member Form is attached to the 
filing as Exhibit B. Attached as Attachment A to that form is a 
service description (the ``Associated Member Service Description''), 
modified from the Revised Vendor Service Description as necessary to 
reflect the associated member context.
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    The Associated Member Form contains provisions that are almost 
identical in substance to those found in the Revised Vendor Form, 
except that the Associated Member Form requires the member organization 
to take responsibility for the actions of its members and to assure 
that its members will comply with all provisions of the Form as well as 
with relevant laws, rules and regulations. For that reason, the 
Exchange does not propose to require the member organization to enter 
into an agreement with a subscriber to its wireless data communications 
service if the subscriber is an Exchange member that is an officer, 
partner or employees of the member organization. As a result, the 
Exchange does not propose to impose on the member organization a set of 
terms and conditions--for application between the member organization 
and its members--that parallel those set forth in Exhibit B to the 
Revised Vendor Form.
    As in respect of Phase II, the Exchange reserves the right to limit 
the number of vendors that may provide wireless data communications 
systems on the floor during Phase IV, based on the ability of the 
Exchange to maintain its regulatory oversight responsibilities in a 
satisfactory manner. In addition, as the Exchange gains experience with 
the use of wireless data communications technology on its floor, it may 
determine that additional restrictions, such as in respect of 
permissible transmissions or hardware, are warranted.
    The Exchange does not currently plan to charge vendors or Exchange 
members or member organizations for the privilege of providing wireless 
data communications services during Phase IV, although it reserves its 
right to do so. If the Exchange does determine to impose Phase IV 
charges or any other charges, it would first seek Commission approval 
of any such charge.
2. Statutory Basis
    The Exchange believes that the bases under the Act for the proposed 
rule change are: (i) The requirement under Section 6(b)(5) that an 
exchange have rules that are 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, and, in general, to protect investors and the public 
interest, and that are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers; and (ii) the 
requirement under Section 6(b)(4) that an exchange have rules that 
provide for the equitable allocation of reasonable dues, fees and other 
charges among its members and other persons using its facilities.

[[Page 36600]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or.
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-NYSE-97-17 and 
should be submitted by July 29, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17661 Filed 7-7-97; 8:45 am]
BILLING CODE 8010-01-M