[Federal Register Volume 68, Number 18 (Tuesday, January 28, 2003)]
[Notices]
[Pages 4261-4263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1879]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47221; File No. SR-NYSE-2002-11]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
To Establish a Six-Month Pilot Program Permitting a Floor Broker To Use 
an Exchange Authorized and Issued Portable Telephone on the Exchange 
Floor

January 21, 2003.
    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 February 28, 2002, 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 Exchange. On 
December 30, 2002, the Exchange filed an amendment to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated December 30, 2002 (``Amendment No. 
1''). Amendment No. 1 replaces the filing in its entirety and 
provides, in the proposed rule text and the purpose section of the 
filing, clarification and further details on the use of Exchange 
authorized and issued portable telephones on the Exchance floor.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE rule 36 (Communication Between 
Exchange and Members' Offices) to allow a Floor broker's use of an 
Exchange authorized and provided portable telephone on the Exchange 
Floor upon approval by the Exchange, by deleting the current 
prohibition against such use. Below is the text of the proposed rule 
change, as amended. Proposed new language is italicized; proposed 
deletions are in brackets.

Rule 36 Communications Between Exchange and Members' Offices

    No member or member organization shall establish or maintain any 
telephonic or electronic communication between the Floor and any other 
location without the approval of the Exchange. The Exchange may to the 
extent not inconsistent with the Securities Exchange Act of 1934, as 
amended, deny, limit or revoke such approval whenever it determines, in 
accordance with the procedures set forth in Rule 475, that such 
communication is inconsistent with the public interest, the protection 
of investors or just and equitable principles of trade.

Supplementary Material

    .10 Installation of telephone lines to Exchange.--The Telephone 
Company will not recognize any order for the installation or 
disconnection of a telephone line between the Floor and any other 
location, except such orders as are issued by the Exchange directly to 
the Telephone Company.
    Requests for telephone lines should be sent to Market Operations 
Division. Members or member organizations who desire such installations 
or disconnections should present their requests sufficiently in advance 
of the desired effective date to avoid any inconvenience resulting from 
insufficient notice to the Telephone Company.
    .20 With the approval of the Exchange, a member or member 
organization other than a specialist or specialist member organization 
may maintain a telephone line or use an Exchange authorized and 
provided portable telephone which permits a non-member off the Floor to 
communicate with a member or member organization on the Floor. However, 
use of an Exchange authorized and provided portable telephone is not 
permitted for orders in Investment Company Units (as defined in Section

[[Page 4262]]

703.16 of the Listed Company Manual). In addition, any Floor broker 
receiving orders from the public over portable phones must be properly 
qualified under Exchange rules to conduct such business (See, for e.g., 
Rules 342 and 345.) The use of a portable telephone on the Floor other 
than one authorized and issued by the Exchange is prohibited.
    In the case of members or member organizations acting solely in 
connection with transactions in ``baskets'' (as Rule 800 (Basket 
Trading: Applicability and Definitions) defines that term), the 
Exchange may approve the maintenance of such telephone lines at the 
basket trading location. In all other instances, the Exchange will 
approve the maintenance of such telephone lines only at the booth 
location of a member or member organization. [The Exchange will not 
approve the use of a portable telephone on the Floor].

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, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in item IV below and is set forth in sections A, B, 
and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE rule 36 governs the establishment of telephone or electronic 
communications between the Exchange's Trading Floor and any other 
location. Rule 36.20 prohibits the use of portable telephone 
communications between the Trading Floor and any off-Floor location. 
The only way that voice communication can be conducted today by Floor 
brokers between the Trading Floor and an off-Floor location is by means 
of a telephone located at a broker's booth. Communications often 
involve a customer calling a broker at the booth for ``market look'' 
information. A broker may not use a portable phone currently in a 
trading Crowd at the point of sale to speak with a person located off 
the Floor.
    The Exchange is proposing to amend NYSE rule 36 to permit a Floor 
broker to use an Exchange authorized and issued portable telephone on 
the Floor. Currently, the Exchange does not permit the use of portable 
telephones on its Floor. Thus, with the approval of the Exchange, a 
Floor broker would 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 broker to accept orders consistent 
with Exchange rules, provide status and oral execution reports as to 
orders previously received, as well as ``market look'' observations as 
are routinely transmitted from a broker's booth location today. Use of 
a portable telephone on the Exchange Floor other than one authorized 
and issued by the Exchange would continue to be prohibited.
    Both incoming and outgoing calls would be allowed, provided the 
requirements of all other Exchange rules have been met. A 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.\4\ In addition, Exchange 
rules require that any Floor broker receiving orders from the public 
over portable phones must be properly qualified to do direct access 
business under Exchange rules 342 and 345, among others.\5\
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    \4\ See Securities Exchange Act Release No. 43689 (December 7, 
2000), 65 FR 79145 (December 18, 2000) (SR-NYSE-98-25). See also 
Securities Exchange Act Release No. 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).
    \5\ For more information regarding Exchange requirements for 
conducting a public business on the Exchange Floor, see Information 
Memo 01-41 (November 21, 2001), Information Memo 01-18 (July 11, 
2001) (available on www.nyse.com/regulation/regulation.html), and 
Information Memo 91-25 (July 8, 1991).
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    The Exchange would not permit portable communications at the point 
of sale for orders in Investment Company Units (as defined in Section 
703.16 of the Listed Company Manual), also known as Exchange-Traded 
Funds (ETFs), since orders in ETFs can first be executed and then 
entered into FESC.\6\ Technical restraints would be developed to 
implement this policy, thus preventing the use of portable phones where 
ETFs currently trade.
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    \6\ See Securities Exchange Act Release No. 45246 (January 7, 
2002), 67 FR 1527 (January 11, 2002) (SR-NYSE-2001-52) (discussing 
an exception to FESC that allows ETFs to be entered within 90 
seconds of execution). See also Securities Exchange Act Release No. 
46713 (October 23, 2002), 67 FR 66033 (October 29, 2002) (SR-NYSE-
2002-48) (extending the exception until January 5, 2004).
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    This proposal would be implemented as a six-month pilot from the 
date of Commission approval with a commitment by the Exchange to 
complete within three months of Commission approval a study of 
communications on the Exchange Floor, pursuant to a recommendation of 
an Independent Consultant retained by the Exchange.\7\
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    \7\ See In the Matter of New York Stock Exchange, 70 S.E.C. 
Docket 106, Release No. 41574, 1999 WL 430863 (June 29, 1999).
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    Under the current policy, an off-Floor customer can communicate 
with a broker in a trading crowd only in an indirect, second-hand 
fashion by calling a broker's booth and using the booth clerk as an 
intermediary. The Exchange believes that eliminating the current 
restriction against the use of portable telephones would enable the 
Exchange 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.\8\ By enabling 
customers to speak directly to a Floor broker in a trading crowd on an 
Exchange authorized and issued portable telephone, the proposed rule 
change would, in the Exchange's view, expedite and make more direct the 
free flow of information which today has to be transmitted somewhat 
more circuitously via the broker's booth.
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    \8\ See Securities Exchange Act Release No. 43836 (January 11, 
2001), 66 FR 6727 (January 22, 2001) (SR-PCX-00-33) (discussing and 
approving the Pacific Exchange, Inc.'s proposal to remove the 
current prohibition against Floor brokers' use of cellular or 
cordless phones to make calls to persons located off the trading 
floor).
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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.\9\ The Exchange's proposed amendment to 
NYSE rule 36 would not apply to specialists, who would continue to be 
prohibited from speaking from the post to upstairs trading desks or 
customers.
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    \9\ 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).
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2. Statutory Basis
    The Exchange represents that the statutory basis for this proposed 
rule change is the requirement under section 6(b)(5) of the Act \10\ 
that an exchange have rules that are designed to promote just and 
equitable principles of trade, to

[[Page 4263]]

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 that the 
amended proposed change 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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    \10\ 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, as 
amended, 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

    Within 35 days of the date of 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 Exchange 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, including whether the proposed rule 
change, as amended, is consistent with the Act. 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 in 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 should refer to File No. SR-NYSE-
2002-11 and should be submitted by February 18, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1879 Filed 1-27-03; 8:45 am]
BILLING CODE 8010-01-P