[Federal Register Volume 68, Number 131 (Wednesday, July 9, 2003)]
[Notices]
[Pages 41033-41035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17356]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48118; File No. SR-NYSE-2003-18]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Inc. Relating to Fingerprint-Based Background Checks of 
Exchange Employees and Others

July 1, 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 May 15, 2003, 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 and 
II below, which Items have been prepared by the Exchange. On May 30, 
2003, the NYSE filed an amendment to the proposed rule change.\3\ On 
June 27, 2003, the NYSE filed a second amendment to the proposed rule 
change.\4\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons and to 
grant accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter to Katherine A. England, Assistant Director, 
Division of Market Regulation (``Division''), Commission, from Darla 
C. Stuckey, Corporate Secretary, NYSE (May 28, 2003) (``Amendment 
No. 1''). In Amendment No. 1, the NYSE eliminated all references 
related to the possible application of the proposed rule to members 
of the media.
    \4\ See letter to Katherine A. England, Assistant Director, 
Division of Market Regulation, Commission, from Mary Yeager, 
Assistant Secretary, NYSE (June 27, 2003) (``Amendment No. 2''). In 
Amendment No. 2, the NYSE eliminated the following proposed rule 
text ``; or other circumstances in which the Exchange concludes that 
the person's access to facilities and records does not place the 
security thereof at risk.'' The Exchange opted to delete the rule 
text due to the Commission's concern that such language was 
overbroad.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE proposes to adopt a new rule pursuant to which the 
Exchange would obtain fingerprints from prospective and current 
employees, temporary personnel, independent contractors, and service 
providers of each of the Exchange and its principal subsidiaries; 
submit those fingerprints to the Attorney General of the United States 
or his or her designee for identification and processing; and receive 
criminal history record information from the Attorney General of the 
United States or his or her designee for evaluation and use, in 
accordance with applicable law, in enhancing the security of the 
facilities, systems, data, and/or records of the Exchange or its 
principal subsidiaries (collectively, ``facilities and records''). The 
text of the proposed rule change is below. Proposed new language is in 
italics.
* * * * *

NYSE Rule 28--Fingerprint-Based Background Checks of Exchange Employees 
and Others

    (a) In order to enhance the security of the respective facilities, 
systems, data, and/or records of the New York Stock Exchange, Inc. 
(``the Exchange'') and its principal subsidiaries (collectively, 
``facilities and records''), the Exchange shall obtain fingerprints 
from, and conduct a fingerprint-based background check of, all 
prospective and current employees, temporary personnel, independent 
contractors, and service providers of each of the Exchange and its 
principal subsidiaries. However, the Exchange may determine not to 
obtain fingerprints from, or to seek fingerprint-based background 
information with respect to, a person due to that person's limited, 
supervised, or restricted access to facilities and records, or the 
nature or location of his or her work or services. The Exchange shall 
apply this rule in all circumstances where permitted by applicable law.
    (b) The Exchange shall submit fingerprints obtained pursuant to 
this rule to the Attorney General of the United States or his or her 
designee for identification and processing. The Exchange shall at all 
times maintain the security of all fingerprints provided to, and all 
criminal history record information received from, the Attorney General 
or his or her designee. The Exchange, however, may provide a subsidiary 
with access to information from background checks based on fingerprints 
obtained from that

[[Page 41034]]

subsidiary. The Exchange shall not redisseminate fingerprints or 
information to the extent prohibited by applicable law.
    (c) The Exchange shall evaluate information received from the 
Attorney General or his or her designee and otherwise administer this 
rule in accordance with Exchange fingerprint procedures as in effect 
from time to time and the provisions of applicable law. Fingerprint-
based background information, such as a felony or serious misdemeanor 
conviction, will be a factor in making employment decisions; engaging 
or retaining any temporary personnel, independent contractors, or 
service providers; or permitting any fingerprinted person access to 
facilities and records.

Supplementary Material

    .10 Fingerprints and the Issuance of Identification Badges. The 
Exchange intends, with limited exceptions, to obtain fingerprints from, 
and fingerprint-based background information with respect to, all 
employees, temporary personnel, independent contractors, and service 
providers who receive Exchange-issued photo badges or other 
identification permitting them access to facilities and records for 
more than one day (``Long-Term Badges''). The Exchange has the capacity 
electronically to immediately limit or terminate the access to 
facilities and records that Long-Term Badges permit, and reserves the 
right to do so. On a case-by-case basis, the Exchange may determine not 
to obtain fingerprints from a person to whom a Long-Term Badge is 
issued, based on the decision of a committee of Exchange officers who 
oversee application of the rule that there exists an exception to 
obtaining the fingerprints, as contemplated by the rule.
* * * * *

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 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 III below. The Exchange 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
    The events of September 11, 2001, including the resulting temporary 
disruption in the securities markets, have led national securities 
exchanges and other industry participants to carefully re-evaluate 
their security measures, with the objectives of enhancing investor 
protection, business continuity, and workplace safety.
    The Exchange believes that fingerprint-based background checks of 
prospective and current employees, temporary personnel, independent 
contractors, and service providers of the Exchange and each of its 
principal subsidiaries, will assist the Exchange in satisfying those 
objectives and its other responsibilities under the Act by better 
preventing certain persons with criminal backgrounds from gaining 
access to facilities and records. As a condition of employment, new 
employees already undergo rigorous pre-hire review and screening, 
including education and employment verification and individual 
reference checks, under the direction of human resources professionals. 
Criminal records in local court files also may be reviewed based on 
locations of residence and employment provided by the candidate. This 
process, however, is dependent upon the candidate providing complete 
and accurate information.
    Fingerprint-based background checks would enhance the ability to 
screen adequately employees and non-employees to determine better, in 
accordance with applicable law, whether there are unacceptable risks 
associated with granting such persons access to facilities and records. 
Through access to state-of-the-art information systems administered and 
maintained by the Federal Bureau of Investigation (``FBI'') and its 
Criminal Justice Information Services Division, the Exchange would 
receive centrally-maintained ``criminal history record information,'' 
which is arrest-based data and derivative information, and may include 
personal descriptive data; FBI number; conviction status; sentencing, 
probation and parole information; and such other information as the FBI 
may now or hereafter make available to the Exchange. This information 
is supplied to the FBI by various local, state, federal and/or 
international criminal justice agencies. Thus, the information obtained 
through fingerprint-based background checks would provide a more 
exhaustive and reliable profile of a candidate's criminal record, and 
thereby better facilitate risk assessment, than a physical review of 
court records based on information provided by the candidate.
    Access to the FBI's nationwide database is particularly crucial 
with respect to the screening of temporary personnel, independent 
contractors, and service providers who are not employees of the 
Exchange or its principal subsidiaries and who therefore are not 
subject to the pre-hire review described above, but whose work 
frequently requires the same or similar access to facilities and 
records as that provided to employees of the Exchange or its principal 
subsidiaries. In furtherance of its commitment to utilize and improve 
technology and systems applications to better serve investors, 
disseminate market information, and ensure reliable order handling and 
execution for all market participants, the Exchange regularly retains 
outside vendors whose specialized expertise is required for the 
development, installation and servicing of this technology. Such 
vendors complement the work of Exchange technology staff in providing 
the investment community with an efficient and technologically advanced 
marketplace. Examples of persons from whom fingerprints may be obtained 
under the proposed rule change include the following,\5\ all of whom 
are anticipated to need Exchange-issued photo badges or other 
identification permitting them access to facilities and records for 
more than one day: personnel providing temporary services to the 
Exchange but who are employed and provided by a staffing service and 
non-employee technicians whose work with Exchange software and 
equipment, although temporary, necessitates broad access to Exchange 
facilities.
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    \5\ The proposed rule change would not be applicable to 
personnel of the Securities and Exchange Commission.
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    The proposed access to criminal history information is consistent 
with federal law. Section 17(f)(2) of the Act \6\ and Rule 17f-2 
thereunder \7\ require, subject to certain exemptions, a variety of 
securities industry personnel to be fingerprinted, including every 
member of a national securities exchange; brokers, dealers, transfer 
agents, and clearing agencies; and employees of such entities. Although 
section 17(f)(2) does not require the Exchange or other self-regulatory 
organizations to fingerprint their own employees,

[[Page 41035]]

temporary personnel, independent contractors, or service providers, the 
statute specifically permits self-regulatory organizations designated 
by the SEC to have access to ``all criminal history record 
information.''\8\
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    \6\ 15 U.S.C. 78q(f)(2).
    \7\ 17 CFR 240.17f-2.
    \8\ 15 U.S.C. 78q(f)(2).
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    The proposed access to criminal history information is also 
consistent with a recently enacted amendment to New York's General 
Business Law (``GBL''), which, among other things, requires self-
regulatory organizations in New York to fingerprint their employees and 
those non-employee service providers whose access to facilities or 
records places the self-regulatory organization at risk.\9\
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    \9\ N.Y. Gen. Bus. Law 359-e (12-a) (McKinney 2003). New York's 
Labor Law prohibits fingerprinting for employment purposes unless 
otherwise permitted by law. N.Y. Labor Law 201-a (McKinney 2003). 
The GBL amendment ensures that such fingerprinting would not violate 
New York's Labor Law.
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    As stated in the proposed rule change, the Exchange will comply 
with all applicable laws relating to the use and dissemination of 
criminal history record information obtained from the FBI.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with the provisions of section 6(b) of the Act,\10\ in 
general, and section 6(b)(5) of the Act,\11\ in particular, which 
requires, among other things, that the rules of an 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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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. 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 20549-0609. 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 submissions should refer to File 
No. SR-NYSE-2003-18 and should be submitted by [insert date 21 days 
from the date of publication].

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act and the rules and regulations thereunder 
applicable to a national securities exchange,\12\ and, in particular 
section 6(b)(5) of the Act.\13\ The Commission believes that the 
proposed rule change should promote the objectives of the Act. The 
Commission notes that the Exchange is an important component of the 
National Market System and that a serious disruption in the operation 
of the Exchange could have a significant deleterious impact on the U.S. 
financial markets. The proposed rule change should promote the 
objectives of the Act by establishing procedures that help prevent a 
serious disruption in the operation of the Exchange. Specifically, the 
proposal should provide the Exchange with an effective tool for 
identifying individuals whose prior criminal activities may indicate 
that the individuals pose a heightened threat to the security of the 
Exchange's operations. Moreover, the Commission notes that, 
notwithstanding any other provisions of law, it has been granted the 
authority to designate self-regulatory organizations to receive all 
criminal history record information held by the Attorney General.\14\ 
In approving this proposed rule filing, the Commission so designates 
the Exchange as being authorized to receive such criminal history 
record information held by the Attorney General.
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    \12\ In granting approval of the proposal, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See Section 17(f)(2) of the Act, 15 U.S.C. 78q(f)(2).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that granting accelerated approval to the proposed rule change 
will allow the Exchange to implement expeditiously its fingerprinting 
program and increase the security of the Exchange, generally. In 
addition, the Commission believes that accelerated approval is 
appropriate in this case because the instant NYSE rule proposal is 
substantially similar to a recently approved Nasdaq Stock Market, Inc. 
(``Nasdaq'') rule.\15\
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    \15\ See Nasdaq Rule 140, Fingerprint-Based Background Checks of 
Nasdaq Employees and Independent Contractors . See also Securities 
Exchange Act Release No. 47240 (January 23, 2003), 68 FR 4810 
(January 30, 2003) (approving Nasdaq Rule 140).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NYSE-2003-18), as amended, 
is hereby approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17356 Filed 7-8-03; 8:45 am]
BILLING CODE 8010-01-P