[Federal Register Volume 68, Number 194 (Tuesday, October 7, 2003)]
[Notices]
[Pages 57947-57949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25341]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48579; File No. SR-NYSE-2003-26]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., To Amend an Interpretation 
of NYSE Rule 345 to Provide for the Elimination of ``Registered 
Representative-In-Charge'' as a Category Precluded From Being an 
Independent Contractor

October 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 September 3, 2003, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by NYSE.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Commission staff made non-substantive changes to the 
description of the proposed rule change and the format of this 
Notice with the permission of the Exchange. Telephone conversations 
between Mary Anne Furlong, Director, Rule and Interpretive 
Standards, NYSE, and Andrew Shipe, Special Counsel, Division of 
Market Regulation, Commission, September 12 and 16, 2003.

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[[Page 57948]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE proposes to amend its Interpretation Handbook by eliminating, 
from an existing Interpretation of NYSE Rule 345, a prohibition on 
persons designated as ``Registered-Representative-In-Charge'' from 
associating with members and member organizations as independent 
contractors. Below is the text of the proposed rule change. Proposed 
new language is italicized. Proposed deletions are in [brackets].
* * * * *
Rule 345 Employees--Registration, Approval, Records
(a) Registration
/01 Exceptions
    No change.
/02 ``Independent Contractors''
    The Exchange will not object to the assertion by a natural person 
registered representative of ``independent contractor'' status if such 
status will not preclude his or her characterization and treatment as 
an ``employee'' for purposes of the Constitution and Rules of the 
Exchange. Such salesperson and the member organization must agree that 
the natural person is subject to the organization's direct, detailed 
supervision, control and discipline and is covered by its fidelity 
bond.
    Once a member organization approves a registered representative's 
status of ``independent contractor'' the following conditions must be 
met:
    1. No change.
    2. No change.
    3. No change.
    4. No change.
    Written notification of the cessation of ``independent contractor'' 
status is to be given to the Qualifications and Registrations 
Department of the Exchange.
    This interpretation does not apply to persons delegated supervisory 
functions (e.g., Branch Office Manager[, Registered Representative-In-
Charge]), pursuant to Rule 342(b)(1) nor does it permit the 
incorporation of registered representatives. (See Interpretation Memo 
No. 78-7 dated December 27, 1978.)
    This interpretation does not preclude a registered representative 
who is the sole employee in a small office (e.g., a residence office) 
or a registered representative who is designated as ``in-charge'' 
pursuant to Rule 342.15, provided such person has not been assigned or 
delegated supervisory duties, from asserting and obtaining approval for 
independent contractor status.
    A registered representative who is designated as ``in-charge'' and 
who seeks status as an independent contractor must submit all of the 
documentation required in items 1 through 4, above, as well as a 
written statement by the member or member organization that it has not 
assigned or delegated any supervisory responsibilities to the 
registered representative-in-charge.

(Also see Rule 342.15/02, page 3414.)
* * * * *

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

    In its filing with the Commission, NYSE 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. NYSE 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
    Rule 342 (``Offices `` Approval, Supervision and Control'') 
requires, in part, that each office of a member or member organization 
shall be under the supervision and control of the member or member 
organization establishing it and of the person delegated such authority 
and responsibility. Further, the structure and administration of 
Exchange rules mandate that all employees of members and member 
organizations, including registered representatives, be subject to the 
direct and ongoing supervision and control of their member organization 
employer.
    In addition, Rule 342.15 provides that small offices (those with 
three or fewer registered representatives) may be in the charge of a 
qualified principal or manager who is either resident or non-resident 
in that location. Interpretation /02 to Rule 342.15 provides that where 
a qualified supervisor is not on the premises of a small office, a 
resident registered representative is to be designated as ``in 
charge.'' However, it is still required that all supervisory functions 
(e.g., approval of accounts, review of account activity and 
correspondence, etc.) are to be conducted by qualified supervisors.
    Interpretation /02 to Rule 345(a) permits a registered 
representative to be associated with a member or member organization as 
an ``independent contractor'' provided such status does not preclude 
the independent contractor's characterization and treatment as an 
employee for purposes of the Constitution and Rules of the Exchange 
(e.g., registration, qualification, supervision by the member or member 
organization, and being subject to the Exchange's jurisdiction). 
However, Interpretation /02 to Rule 345(a) prohibits persons delegated 
supervisory responsibilities including persons designated as 
``registered representative-in-charge,'' from claiming the status of 
independent contractor.
    The Exchange believes that persons delegated supervisory 
responsibilities for members and member organizations generally must be 
full-time employees (the Exchange has exemption authority under Rule 
346(e)).
    Member organizations have stated that the prohibition against a 
registered representative-in-charge from being an independent 
contractor is creating unnecessary burdens in small offices with two or 
three registered representatives, all of whom may wish to be 
independent contractors. Typically, the type of office that would have 
independent contractors is one with limited securities sales 
activities, e.g., the registered representatives work part-time for 
their member or member organizations and part-time selling products or 
services for affiliated or non-affiliated companies, such as banking, 
tax preparation, or accounting services. These individuals usually are 
employed by the non-member organization and conduct their limited 
securities activities through an independent contractor relationship 
with the member or member organization.
    The Exchange proposes the elimination of ``registered 
representative-in-charge'' as a category of registered person precluded 
from being an independent contractor under this interpretation. In this 
regard, the Exchange has determined that members and member 
organizations generally assign administrative as opposed to supervisory 
functions to persons they designate as registered representatives-in-
charge. Pursuant to an existing written interpretation (Rule 342.15/
02), primary supervision is carried out by qualified branch managers, 
(persons who have passed the General Securities Sales Supervisor 
Qualification

[[Page 57949]]

Examination, Series 9 and 10) at designated parent branch offices or 
the main office of the member or member organization in accordance with 
its overall written plan of supervision.
    Accordingly, Interpretation /02 to Rule 345(a) will be amended to 
permit registered representatives-in-charge to associate with members 
and member organizations as independent contractors provided that the 
member or member organization neither assigns nor delegates supervisory 
responsibilities to such persons. Further, in addition to the documents 
already required to be submitted under this Interpretation in seeking 
approval of independent contractor status (e.g., Employment Agreement, 
Consent to Jurisdiction Form, written assurances that the member or 
member organization will supervise and control all activities of the 
independent contractor the same as it regulates the activities of all 
other registered representatives), (see NYSE Interpretation 345(a) /
02), the member or member organization would be required to submit a 
written statement confirming that it has not assigned or delegated any 
supervisory responsibilities to such person.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 
6(b)(5)\4\ of the Exchange Act, which requires, among other things, 
that the rules of the Exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade and in general to protect investors and the public 
interest.
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    \4\ 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 will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange 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 self-regulatory organization consents, the Commission will:
    (A) By order approve such 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 proposal 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 NYSE. All submissions 
should refer to File No. SR-NYSE-2003-26 and should be submitted by 
October 28, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25341 Filed 10-6-03; 8:45 am]
BILLING CODE 8010-01-P