[Federal Register Volume 68, Number 221 (Monday, November 17, 2003)]
[Notices]
[Page 64942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28613]



[[Page 64942]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48762; File No. SR-NYSE-2003-26]


Self-Regulatory Organizations; Order Granting Approval 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

November 7, 2003.
    On September 3, 2003, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend an Interpretation of NYSE Rule 345 in 
order to permit independent contractors to serve as ``Registered 
Representatives-In-Charge.'' Notice of the proposed rule change was 
published for comment in the Federal Register on October 7, 2003.\3\ No 
comments were received on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Release No. 34-48579 (October 1, 2003), 68 FR 57947 
(``Notice'').
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    NYSE Rule 342.15 provides that a small office (one with three or 
fewer registered representatives) may be in the charge of a non-
resident qualified principal or manager. However, pursuant to 
Interpretation /02 to the same Rule, in such a case, a resident 
registered representative must be designated as ``in charge.'' 
Currently, Interpretation /02 to Rule 345(a) prohibits a natural person 
registered representative who is an independent contractor from serving 
as a ``registered representative-in-charge.''
    The Exchange has represented that small offices with independent 
contractors typically have a limited securities sales business, and 
that ``members and member organizations generally assign administrative 
as opposed to supervisory functions to persons they designate as 
registered representatives-in-charge.'' \4\ According to the Exchange, 
NYSE member organizations believe that prohibiting registered 
representatives in charge of small offices from being independent 
contractors creates an unnecessary burden. To address this position, 
the Exchange proposes to allow registered representatives-in-charge to 
associate with members and member organizations as independent 
contractors, provided that the member or member organization does not 
assign or delegate supervisory responsibilities to such persons, and 
submits a written statement to that effect.
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    \4\ Notice, 68 FR at 57948.
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    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.\5\ 
Specifically, the Commission finds that the proposal is consistent with 
section 6(b)(5) of the Act,\6\ 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, and, in general, to protect investors and the 
public interest. The Commission believes that the proposed rule change 
should reduce the regulatory burdens of NYSE members and member 
organizations and allow them an appropriate degree of flexibility in 
their management of personnel in small offices.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78(c)(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    At the same time, the Commission notes that the proposed rule 
change does not alter in any way the obligation of NYSE members or 
member organizations to oversee the operation of their businesses and 
supervise the performance of their associated persons in a manner that 
assures compliance with the Act and rules and regulations thereunder, 
as well as applicable rules of the NYSE. The Commission therefore 
believes that the proposal is consistent with its longstanding position 
that regardless of their designation, independent contractor registered 
representatives are considered ``associated persons'' of a broker-
dealer under the Act if their activities are subject to control by the 
broker-dealer, such as when there is a principal and agent 
relationship.\7\
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    \7\ See Letter to Gordon S. Macklin, President, National 
Association of Securities Dealers, Inc. from Douglas Scarff, 
Director, Division of Market Regulation, Commission (June 18, 1982) 
(on file with the Commission). See also Privacy of Consumer 
Financial Information (Regulation S-P), Rel. No. 34-42974 (June 22, 
2000), 65 FR 40334 (June 29, 2000); Matter of Crute, 53 S.E.C. 1112 
(December 21, 1998).
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    To this end, the Commission notes that other NYSE rules governing 
the supervision of personnel that relate to independent contractors and 
small offices will remain unchanged. Thus, NYSE Interpretation /02 to 
Rule 345(a) will continue to provide that status as an ``independent 
contractor'' does not preclude characterization and treatment as an 
employee for purposes of the NYSE Constitution and Rules. Moreover, 
NYSE rules will continue to require that qualified supervisors perform 
all supervisory functions, such as approval of accounts and review of 
account activity.\8\ Indeed, NYSE will require that where a registered 
representative-in-charge is an independent contractor, the employing 
member or member organization submit a written statement confirming 
that it has not assigned or delegated supervisory responsibilities to 
the registered representative-in-charge. This written statement will be 
in addition to documents already required to be submitted by the member 
or member organization in seeking approval of independent contractor 
status, such as 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.\9\
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    \8\ See NYSE Rules 342, 345.
    \9\ See NYSE Rule 345(a), Interpretation /02.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-NYSE-2003-26) be, 
and it hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).
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    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-28613 Filed 11-14-03; 8:45 am]
BILLING CODE 8010-01-P